One year of full enforcement of the EU Foreign Subsidies Regulation

For over a year now, the notification requirements for M&A transactions, public tenders and the option of ex officio initiation of investigations under the EU Foreign Subsidies Regulation (“FSR”) have been in force. You can check whether an M&A transaction triggers the notification requirement by using the FSR Checker, one of Noerr’s legal tech tools. The aim of the FSR is to create a level playing field to prevent foreign subsidies from distorting the internal market.

The European Commission set up the Directorate K within the Directorate-General for Competition to handle FSR matters. At the end of September 2024, there were more than 100 M&A transaction notifications and over 1,300 submissions in over 230 public tenders. These figures greatly exceed initial expectations as it is not subsidies that are relevant for the notification thresholds but financial contributions (including transactions at market terms). The European Commission has already initiated six in-depth investigations, two of them ex officio, including a dawn raid.

Although the FSR is applied regardless of third countries and sectors concerned, there was a focus on Chinese companies and on sectors of strategic importance to the EU’s policy objectives, like infrastructure and energy. The European Commission is likely to continue to focus on Chinese companies. However, companies can influence this by proactively approaching the European Commission, as companies in the wind turbine sector and recently the French energy group EDF have done.

The first in-depth investigation into an M&A transaction has provided initial insight into the substantive test for M&A transactions, which, as expected, differs significantly from the test for merger control against the background of EU State aid law. This concerned the acquisition of the Portuguese telecommunications company PPF Telecom Group B.V. by the Emirates Telecommunications Group (a state-controlled telecommunications provider from the UAE), which was approved subject to conditions. The European Commission examined whether third-country subsidies would (potentially) negatively affect competition in the market in which the combined entity operates post-transaction. It also became clear that the European Commission is particularly critical of unlimited third-country guarantees since these guarantees artificially improve the combined entity’s ability to finance its activities in the internal market and may lead to a distortion of competition post-transaction. The guarantee therefore had to be dropped as part of the conditions.

However, given the lack of published decision-making practice so far, the European Commission’s interpretation of the substantive test criteria is still vague. The guidelines are therefore eagerly awaited.

In 2025, it is likely that the European Commission will again make extensive use of its FSR instruments. Both the Draghi report by Mario Draghi and the mission letter to the new Competition Commissioner Teresa Ribera envisage the FSR being proactively enforced to support the future of European competitiveness. It remains crucial for companies to have the information required for FSR proceedings ready to ensure M&A readiness and to be prepared for possible dawn raids.

This article is part of the Competition Outlook 2025. You can find all Competition Outlook articles here.