On 5 May 2021, the European Commission (Commission) published a proposed Regulation, along with an impact assessment report, aiming to address potential distortions caused by foreign subsidies in the Single Market (the Proposed Regulation). The Proposed Regulation as drafted introduces an additional regulatory requirement for companies doing business in Europe. Inevitably, it will increase the regulatory risk and burden for companies that are active in the EU and have received foreign (i.e. non-EU) subsides.
Under the Proposed Regulation, companies may have to notify any transaction financed by foreign subsidies to the Commission and any company wanting to participate in any public procurement in the EU with a value greater than EUR 250 million will have to notify the Commission prior to submitting their tender offer and to provide a substantial amount of information. This means for M&A transactions involving EU targets and non-EU companies that have benefited from foreign subsides, pre-closing (i.e. suspensory) hurdles may now include: (i) the new mandatory filing obligation, (ii) the “existing” merger control filing obligation at the EU or the Member State national level, and (iii) foreign investment filing obligations at the EU Member State level. In addition, under the Proposed Regulation the Commission will have the ability to initiate ex officio reviews of foreign subsidies in the preceding 10 years, meaning companies may have to comply with requests for information and be subject to inspections. The Commission may conduct these inspections both in the EU and outside of the EU (subject to certain conditions).
At this stage, the Proposed Regulation is still a proposal and is subject to review and subsequent amendments from the European Parliament and Council of the European Union. The ordinary legislative process to adopt the Regulation is unlikely to be concluded before the end of 2022. In the meantime, it is important for companies to engage with the Commission and make their views known. The Commission is seeking feedback until 30 June 2021, which you can submit here.
For more information on the Proposed Regulation and its potential impact, please see our client alert here or reach out to your Baker McKenzie lawyers for more information and for assistance to submit feedback.