Malta M&A Watch: Regulation of Foreign Subsidies

Earlier this year, the Foreign Subsidies Regulation (Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market) (the “FSR”) entered into force. The FSR was introduced to address disparities which exist between rules which regulate and/ or supervise aid granted by EU Member State governments and those granted by non-EU governments to private and public companies as well as sovereign funds.

The definition as to what constitutes a “foreign subsidy” is wide and indeed catches both direct and indirect financial contributions made by non- EU governments. Tax credits, government grants as well as interest free loans could all potentially be caught by the rules.

Foreign subsidies fell outside of EU State aid, merger control and antitrust rules however were partially caught by Foreign Direct Investment rules. In so doing, the FSR has equipped the European Commission (the “Commission”) with more tools so as to monitor and address non- EU government funding.

In particular and subject to the fulfilment of certain thresholds, the FSR will target entities that engage in M&A transactions, are creating and/or involved in joint ventures and/or are participating in EU public tenders including:

  • concentrations where the acquired company, one of the merging parties, or the joint venture is established in the Union and generates an EU turnover of at least €500 million and where the parties to the transaction were granted combined aggregate foreign financial contributions of at least €50 million over the past 3 years; and
  • foreign financial contributions in public procurements procedures, where the estimated contract value is at least €250 million, and the bid involves combined aggregate foreign financial contribution of at least €4 million per third country over the past 3 years.

On the 10 July 2023, the European Commission adopted rules for the implementation of the FSR, Commission Implementing Regulation (EU) 2023/1441 (the “Implementing Rules”).

The Implementing Rules, which themselves apply from 12 July 2023 contain the procedural aspects for the implementation of the FSR as well as the form of notification which will be required to be completed by entities or groups which may be caught by the provisions of the FSR.

The notification forms set out certain reporting obligations on notifying parties, specifying the information that needs to be included in the notification forms for concentrations and public procurement procedures. The Implementing Rules also set out the Commission’s investigation process, certain procedural rights of parties involved, time limitations as well as certain rules relating to the execution of documentation.

It is crucial that entities involved in M&A transactions, public procurement transactions, joint venture set-ups etc maintain accurate and up to date records of the information as required therein, in the case where such a notification and or ex officio investigation is commenced by the Commission.

Ganado will, in the coming weeks, publish a series of releases which will touch upon various aspects of the FSR and the Implementing Regulations including potential impacts on M&A transactions, public procurement considerations and also possible competition law and foreign direct investment considerations to be considered in light of these new rules.