The European Commission has published a Draft Implementing Regulation for the Foreign Subsidies Regulation (FSR) – make your voice heard – public consultation open until 6 March 2023

On 6 February 2023, the European Commission (the Commission) published a Draft Implementing Regulation for the application of the Regulation on Foreign Subsidies (FSR). The FSR, which entered into force on 12 January 2023, allows the Commission to screen non-EU government subsidies. The FSR requires companies, as from 12 October 2023, to notify the Commission of certain large M&A transactions and public procurement bids which involve parties that have received financial contributions from non-EU governments. See Delphi’s article on the FSR here.

The Draft Implementing Regulation sets out the applicable rules and procedures for the FSR, including the notification forms for M&A transactions and public procurement procedures, the calculation of time limits, access to file procedures and confidentiality of information.

The Commission has launched a public consultation on the Draft Implementing Regulation, inviting interested parties to submit their comments by 6 March 2023. The Commission will then analyse the comments received and prepare the final version for adoption early summer 2023.

Financial contributions to be included in notifications and exemptions
The Draft Implementing Regulation contains two annexes with the proposed notification forms for M&A transactions (Annex 1) and public procurement bids (Annex 2). The annexes set out what type of financial contributions the notifying parties must include in notifications.

Notifying parties must disclose all financial contributions from countries outside the EU over the last three years. The forms contain tables requiring the notifying parties to provide information about the i) receiving entity, ii) granting entity, iii) third country granting the financial contribution, iv) type of financial contribution, v) amount of the financial contribution and vi) date of granting. It is stated that a financial contribution is considered granted as of the moment of the legal entitlement to receive the contribution.

Some financial contributions are exempted from the notification requirements. For M&A transactions, parties will only have to notify financial contributions if:

• the individual amount of the contribution exceeds EUR 200 000; and
• the total amount of contributions per third country and per year equals or exceeds MEUR 4.

For public procurement bids, parties will only have to notify financial contributions:

• listed as ‘most likely to distort the internal market’ in Article 5(1), points (a) to (c) and (e) of the FSR or which relate to operating costs; and provided that
• the aggregate amount equals or exceeds MEUR 4 per third country in the three preceding years.

Extensive requirements to provide transaction documents and information
The Draft Implementing Regulation introduces extensive requirements concerning M&A related documents. For example, if the transaction occurs in the context of a bidding process, details must be provided on how many other candidates that were contacted, which candidates submitted letters of intent, the profile of each candidate, which bidders withdrew from the bidding process and at what stage, and whether an advisor assisted the notifying party. Even more surprisingly – and what can be highly questioned from a legal privilege perspective – copies of all due diligence reports should be submitted.

The draft does not only require extensive document production, parties are also required to provide information on the business lines or activities pursued in the internal market and how any financial contribution is likely to improve their competitive position in the EU. In addition, they are encouraged to list any positive effects on the relevant subsidised economic activity in the EU or any ‘other positive effects in relation to the relevant policy objectives, in particular those of the Union’, and specify when and where such effects are expected to take place.

Parties are encouraged to engage in pre-notification contacts with the Commission and waivers for the provision of certain information may be possible. As with merger filings under the EU Merger Regulation parties must take the pre-notification phase, for which there is no deadline, into consideration in their planning.

While it is not clear from the above exactly what information or documentation the parties are expected to submit, they are no doubt handed an extremely heavy burden by the Commission. Hopefully the Commission will end up taking a more balanced approach based on input from stakeholders.