The adopted FSR which should be applied as of July 12 2023 contains important changes in the legislation and gives the Commission authority to address distortions caused by the foreign subsidies on the EU`s internal market.
The focus of the FSR is on M&A deals and public tenders in the EU and the affected entities will be companies receiving foreign financial contributions from non-EU countries (or related entities) that are above €1 million and fall within the “likely distortive” category. The Article 5 of the FSR the “likely distortive” category is: (i) support a failing business; (ii) give unlimited guarantees; (iii) directly facilitate a concentration; (iv) are an export financing measure that is not in line with the OECD Arrangement on officially supported export credits; and (v) enable a company to submit an unduly advantageous tender.
The FSR requires onlya high-level overview disclosure of the other FFCs, which are above €1 million individually and are more than €45 million (for M&A deals) or €4 million (for public tenders in the EU) in total per non-EU country over three years.
Additionally, the following do not count towards the €45/€4 million total:
- Contracts for supply/purchase of goods/services (except financial services);
- Deferrals of payment of taxes and/or social security contributions, tax holidays and tax amnesties, as well as normal depreciation and loss-carry forward rules that are of general application. However, if these measures are limited, for example, to certain sectors, regions or (types of) undertakings, they will need to be disclosed;
- Application of tax relief for the avoidance of double taxation in line with the provisions of bilateral or multilateral agreements for the avoidance of double taxation, excluding, however, unilateral tax reliefs applied under national tax legislation, which will need to be disclosed; and
- Special exemption for investment funds to provide an overview disclosure on a fund-by-fund basis. In order to benefit from the exemption, the investment fund should fulfill two cumulative criteria:
- The fund controlling the acquiring entity is subject to Directive on Alternative Investment Fund Managers/an equivalent legislation;
- The economic and commercial transactions between the fund controlling the acquiring entity and other investment funds, and the companies controlled by these funds, managed by the investment company are either not present or limited.
In order to be compliant with the FSR, the сcompanies now need to collect the relevant data on an ongoing basis (and for the past three years) to determine their FSR exposure and to have the data readily available in case of a notifiable M&A deal or public tender in the EU.