EU Foreign Subsidies legislation passes final hurdle

On 30 June 2022 the Council of the EU announced that agreement has been reached between Member States and the European Parliament on a text of the foreign subsidies regulation.

The final text does not appear yet to be publicly available, but the regulation will require, in the case of large mergers (€500m+ turnover) and large public procurement tenders (€250m+), prior authorisation from the Commission of transactions involving entities that have received significant subsidies from third countries. The Commission will also be given market investigation powers where distortion of the EU internal market may be occurring as the result of players in that market benefitting from foreign subsidies.

Failure to notify will carry significant fines (up to 10% of global turnover) and the Commission will also have powers to impose remedial measures, such as repayments, behavioural remedies, divestments, or requirements for firms to adapt their governance structure. It will also be able to order unwinding of a completed transaction, to prohibit a pending transaction, to reject public procurement bids if it finds a foreign subsidy to be distortive, or to impose a temporary obligation to inform the EC of all concentrations and tenders in which the company takes part.

Since very many UK businesses have received substantial subsidies over the pandemic years, the regulation is likely to catch a high proportion of UK acquisition and tendering activity in the EU once it comes into force some time in 2023.

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