Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (FSR) entered into force on 12 January 2023 and will start to apply as of 12 July 2023.
The FSR creates a brand new instrument to fill a regulatory gap, by preventing foreign subsidies from distorting the European Union (EU) internal market. Whereas companies receiving public support in the EU are subject to strict State aid rules, companies obtaining public support outside the EU are generally not. This was perceived as putting companies in the EU at a disadvantage compared to companies that obtained subsidies outside the EU, but that also engaged in economic activity in the Union.
The FSR’s scope extends far beyond the obvious State support, to cover common types of benefits that are granted all over the world, including in countries driven by a market economy. Its obligations will inevitably place an additional administrative burden on companies engaging in an economic activity in the EU. Acceptance of a foreign subsidy distorting the EU internal market may have far-reaching consequences for the company. The FSR places additional compliance obligations on companies, and for many will entail a thorough assessment to identify and justify foreign subsidies received. For companies considering transactions in the EU, the FSR effectively creates a third layer of deal conditionality, besides merger control and Foreign Direct Investment laws. This is adding a further unique set of thresholds, timings and factual considerations, to be included in companies’ strategies to invest in the EU. This will require expertise in EU antitrust and State aid law, and a good understanding of the details of the FSR.
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