The EU Foreign Subsidies Regulation (FSR) applies as of July 2023, and may have a dramatic impact on businesses operating in the EU, including non-EU based multinationals. Starting from October 2023, companies must notify and seek approval from the European Commission (EC) if a non-EU government provides broadly defined ‘financial contributions’ to a business, such as a grant, export subsidy, or tax credit that could provide an unfair advantage against EU companies.
The FSR was enacted to expand the scope of existing EU State aid rules, which govern the fairness of trade among EU States and prohibit distortive ‘financial contributions’ granted by EU public authorities to companies. The FSR effectively extends these rules to address all aid (i.e., all ‘financial contributions’) granted by non-EU countries.
Notification obligations began in October 2023. Companies must report detailed data generally looking back three years, and may be surprised to find that they have a large number of ‘financial contributions.’ Compiling this amount of data may be difficult in a short time frame, e.g., in the middle of a time-sensitive bid.
The FSR gives the EC far-reaching powers to potentially block M&A transactions or public procurement bids notified to them. They can also start their own investigations if they believe a business or sector receives non-EU government support that disadvantages EU competitors. Other potentially harsh results: the EC can require, e.g., repayment of a subsidy, a change in a company’s governance structure, and penalties of up to 10% of an entity’s worldwide group turnover.
The FSR contemplates expansive reporting for M&A and public procurement deals, in addition to other concurrent EU requirements. Data not previously collected that relate to ‘financial contributions’ must now be compiled. Analysis will be critical to sort out data that demonstrates a distortive effect in the EU marketplace.
Impacted companies must start now to collect, report and maintain key data at all national and local levels, potentially in advance of or without reference to deals or public procurement bids. We can use our Sightline platform to help gather the data, whether it relates to tax or other contributions, while FSR could also form a key part of a Connected Tax Compliance initiative.
A large range of multinational businesses may fall under the FSR rules since the term ‘financial contributions’ from non-EU governments is very broadly defined. The powers of the Commission allow it to review certain deals, certain public procurement, individual foreign subsidies or groups of subsidies to industries. Until there is more guidance, some examples that may be helpful to think about include:
We recommend that multinational organisations engage in specific discussions about their situation with a view to then performing an in-depth strategic review and developing a compliance roadmap promptly. There is no one size fits all approach ꟷ the FSR will affect companies differently. Consider the following actions to enable your organisation to take steps to prepare:
Develop new processes and resource plans quickly to gather data from systems such as ERPs.
Co-ordinate Tax, Legal, Business Development, Finance, Supply Chain, and M&A teams. Keep in mind any synergies with other requirements, such as Pillar Two or Sustainability reporting.
Evaluate types, thresholds and exclusions and pinpoint evidence that the EU market was not distorted and business structures impacted. PwC’s EU legal, tax and other specialists are ready to support and discuss regulatory requirements.
Identify what M&A-type transactions and public tenders may require approvals. Deal timelines, operational expectations, etc. may be impacted by three to five months.
Track the status of new guidelines and rules released to clarify FSR implementation.
European Competition Law & Antitrust Leader, Global Legal Network, PricewaterhouseCoopers Legal AG Rechtsanwaltsgesellschaft, Germany
Tel: +49 175 592 4587