On 14th December 2022 Regulation 2022/2560 of the European Parliament and of the Council regarding foreign subsidies which may distort the internal market of the EU (hereinafter, the “Regulation”) was passed. The main cause for the Regulation is the existing inequality between the exhaustive regulation to which subsidies stemming from the Member States are currently subjected, and the scarce legislation applicable up until now to subsidies proceeding from third countries. Accordingly, the European institutions have deemed that the aforesaid inequality may have negative effects on competition in the European market.
The Regulation, with effects from 12th July 2023 (hereinafter, the “Date of Application”), will allow the European Commission to examine the origin of the subsidies granted since 12th July 2018 if it is considered, that such subsidies, to date, have been distorting the internal market of the EU (hereinafter, the “Market”).
On the other hand, it is important to understand that the Regulation will have a greater impact on foreign companies at present active in the Market; for example, the investment funds backed by foreign capital which acquire new European companies will have to submit themselves to detailed examinations with regard to their financing.
However, the Regulation will also be applicable to those companies which intervene in public bidding procedures, since the regulations not only allow for the examination of the origin of the company’s own subsidies, but also to the origin of the subsidies of their subcontractors, suppliers and third parties in the three years prior to the bidding.
Finally, before proceeding with the examination of the principal control mechanisms, it is appropriate to refer to the definition of subsidy that is provided to us in order to understand that this does not only imply a direct access to financing, but also an indirect access through lower interest rates than the market interest rates, writing off of debts, tax incentives etc.
1) General control instrument.
The Commission reserves the right to examine any subsidy for the amount of Euro 200,000, albeit the Regulation recognises the improbability that a subsidy for an amount of less than Euro 4 million would cause a distortion in the Market; to such effects, we must understand that companies will not be obliged to notify subsidies of an amount lower than the latter sum.
In any case, when the Commission undertakes the analysis of a subsidy originating in a third state, its analysis shall be structured in two phases: a preliminary examination and an exhaustive investigation, which must be carried out within a certain deadline.
2) Control instrument for market concentration.
This tool has the objective of identifying subsidies which may have as a main consequence a market concentration operation. The control mechanism shall be carried out via an obligatory notification system which carries with it the suspension of the execution of the operation until it has been authorised by the Commission.
To such effects, the Regulation foresees quantitative thresholds based upon the turnover of the acquired company, as well as the amount of the subsidy. Particularly, notification is required for operations in which (i) the acquired company, one of the merging companies, or the participated company which is established in the UE and generates a turnover in this geographical area of at least Euro 500 million (ii) the acquiring company, the acquired company, the merging companies, the participated company or its parent companies have received a foreign contribution of at least Euro 50 million in the previous three years.
In any case, the Commission reserves the right to examine market concentrations when it deems that they may have been the beneficiaries of foreign subsidies within the same term of 3 years, although they do not comply with the thresholds regarding amount.
In these cases, the preliminary examination and the exhaustive investigation will have to be carried out within the term of 25 and 90 working days, respectively.
3) Control of subsidies for the purposes of participation in public tenders
The second control mechanism is aimed at controlling subsidies which may have been received by companies bidding for public tenders, when these subsidies originate in third countries, and may have caused the companies to bid for said tenders under advantageous conditions.
There are two cumulative thresholds:
i. That the total value of the contract is equal or greater than Euro 250 million and the company submits a bid for lots, for a value of at least Euro 125 million;
ii. That the company participating in the bidding (including any subsidiaries without commercial autonomy and its holding companies) or its main suppliers or subcontractors (those whose contribution exceeds 20% of the value of the bid submitted) may have received a foreign financial contribution of at least Euro 4 million in the previous three years.
In any case, in order to enable the Commission to easily identify and analyse the subsidies which do not require the notification on the part of the companies, the Regulation requires that the companies which do not have the obligation to notify may in any case file a declaration, when submitting for the tender, in which they detail the foreign financial contributions which have been received.
Analysis of Market distortion.
The analysis for determining whether Market distortion has come about by way of an advantage to the subsidised company shall be carried out pursuant to elements such as amount, type and purpose of the subsidy, situation and size of the company, and characteristics of the market where the subsidised company operates. Likewise, the impact of this subsidy on such Market shall be taken into account.
The Commission contemplates mechanisms which it uses itself in the area of competition law, such as sending formal requests for information and carrying out inspections, restrictive penalties for the non-compliance with the provisions of the inspections or for non-cooperation in facilitating the inspections, all with the purpose of gathering information on the subsidies received.
Finally, we may arrive at the following conclusions:
- The EU has increased its control over financing from third countries for companies operating in the Market.
- Companies will have until 12th July 2023 to adapt to the Regulation; as of 12th July 2023, the Commission may review subsidies received since 12th July 2018; obligations for notifications of subsidies received for concentration operations or bidding operations do not accrue until 12th October 2023.
Diego Martínez-Costa
Vilá Abogados
For more information, please contact:
24th March 2023
