• On 12 October 2023, EU Foreign Subsidies Regulation (“FSR”) filings to the European Commission (“EC”) became mandatory. 
• In addition to merger control and foreign direct investments regimes, large transactions and bids for public tenders meeting the relevant thresholds must be notified to the EC to assess whether non-EU foreign subsidies distort competition. 
• Transactions cannot be implemented and tenders not awarded until EC approval has been obtained.
• Failure to comply will be subject to high fines. 
• Life sciences companies regularly benefit from non-EU state support, and their transactions and public tender bids are likely to be subject to FSR review.

As of 12 October 2023, transactions and public tenders meeting the relevant thresholds must be notified under the FSR and can only be implemented after approval from the EC. Subsidies granted by EU Member States are regulated by EU State Aid legislation, those provided by non-EU countries now fall under the scope of the FSR.

Companies will have to notify to the EC foreign financial contributions received – directly or indirectly – by a non-EU country, if the relevant thresholds are met when engaging in a corporate transaction (merger, acquisition, JV) or participating in a public tender in the EU.

Companies that fail to notify to the EC in the context of a transaction or public tender and/or that close a transaction without the required EC clearance may be fined up to 10% of their worldwide turnover.

The FSR provides a very broad definition of foreign financial contributions, including capital injections, grants, loans, financial incentives, tax exemptions, purchases from or sales to public bodies, etc. It equally applies a broad definition of what qualifies as a third country (including central government, local government, public entities, private entities managed by a public body).

The FSR filing thresholds are:

• Concentrations: where (i) the acquired undertaking, one of the merging undertakings or the joint venture is established in the EU and has an EU turnover of at least EUR 500 million turnover in the last financial year and (ii) the parties received more than EUR 50 million of foreign financial contributions in the three years preceding the transaction.
   
• Public procurement: where (i) the overall contract value of the tender is at least EUR 250 million (or the aggregate value of the various lots of a tender is at least EUR 125 million), and (ii) the bidding party and any main subcontractors and suppliers involved in the same tender received at least EUR 4 million in financial contributions from a single non-EU country in the last three years prior to notification.

If an FSR notification is required, a standstill obligation applies meaning that the transaction cannot be implemented or the tender awarded until the EC’s approval has been obtained.

Even when the filing thresholds are not met, under the FSR the EC can investigate ex officio any transaction or public tender if it suspects the existence of distortive foreign subsidies. The EC can investigate foreign subsidies up to 10 years after the date they were given.

If, either after an ex-officio investigation or following the review of a notification, the EC determines that a foreign subsidy distorts the EU internal market, it has wide powers in relation to potential redressive measures and can even prohibit the transaction or the award of the public contract.

In addition to merger control and foreign direct investment assessments, companies that engage in large corporate transactions or public tenders in the EU should start assessing whether the FSR applies and a filing obligation may exist. Gathering all relevant information is complex and time consuming. The parties should be ready to provide information on the amounts of financial contributions that they have received from non-EU governments in the three years preceding the transaction or the public tender.

Companies that are likely to fall under the FSR may consider setting up a centralized reporting system and create at a group level an updated database to collect and track all the foreign financial contribution received from non-EU countries.

The possibility of an ex-officio investigation or notification in the context of public procurement should also be considered if significant foreign financial subsidies have been received. Companies should be prepared to potentially receive a request for information concerning FSR proceedings and investigations, or to even face unannounced (“dawn raid”) inspections that the EC can conduct.