Obligation to declare receipt of foreign subsidies in certain mergers and acquisitions and public procurement procedures

The EU’s well-established system of state aid control prevents Member States from granting state aid that would unduly distort competition in the internal market. However, such a system did not cover cases where companies received any aid from third countries. This shortcoming has been remedied by the Regulation on foreign subsidies, which aims to lay down rules and procedures for investigating foreign subsidies that actually distort or potentially distort the internal market and to eliminate these distortions.

The Foreign Subsidies Regulation applies to all companies operating in the EU market that have received any form of direct or indirect financial contribution from a country outside the EU (“foreign financial contributions”). Please note that foreign financial contributions do not only include classical state aid instruments (such as capital injections, grants, loans, tax incentives, debt cancellation, etc.), but also the purchase of goods or services. For these reasons, any revenue received by companies from third countries, including public or private entities whose actions are attributable to a third country, is therefore relevant.

Unlike the rules on FDI, which remain the responsibility of EU Member States, the Commission will be the sole supervisory authority for the specific rules on foreign subsidies.

Similar to traditional merger notification procedures, it is the undertaking that is obliged to make a prior notification to the Commission and is also bound by a standstill obligation pending a positive decision. The notification thresholds are set as follows:

• • a turnover threshold: at least one of the merging (in the case of a merger), acquired (in the case of an acquisition) or joint venture undertakings is established in the EU and has generated a total turnover in the EU of at least EUR 500 million in the preceding business year; and
  • Foreign financial contributions: the parties to the transaction have received in total foreign financial contributions from third countries in excess of EUR 50 million in the three years preceding the conclusion of the contract, the launch of the public offer or the acquisition of a controlling stake.

The Foreign Subsidies Regulation also provides for a mandatory pre-registration for companies participating in public tenders in the EU, with the thresholds set as follows:

• • the estimated value of the contract: the estimated value shall be equal to or greater than EUR 250 million; in cases where the invitation to tender is divided into lots, the total value of the lots notified shall be equal to or greater than EUR 125 million; and
  • foreign financial contributions: the tenderer (including group companies) and its main subcontractors have received foreign financial contributions totalling EUR 4 million or more in the last three years preceding the application. Tenderers below €4 million still have to submit a declaration confirming that they do not meet the threshold for registration.

Under the Foreign Subsidies Regulation, the Commission may require parties to merger and acquisition transactions or public procurement procedures which do not meet the notification thresholds to notify it of their intended transactions before they are carried out, if the Commission considers that these transactions are supported by foreign subsidies which distort competition.

When the Commission opens an investigation, it will make a preliminary assessment of the level of the financial contributions and their impact on competition in the internal market. If the Commission finds in its in-depth investigation that the parties have received foreign subsidies which distort the internal market and which are not offset even by the positive effects under the countervailing effects test, it will have two options. The Commission may accept commitments to effectively eliminate the distortion (countervailing measures) or prohibit the transaction.

The immediate impact of the Foreign Subsidies Regulation will be felt in particular by companies that will have to obtain Commission clearance in major merger and acquisition transactions and in large tenders, due to the level of the thresholds. However, Slovenian companies must also check whether they have met the above-mentioned foreign financial contribution threshold in their dealings with third countries or entities from those countries whose actions are attributable to that country. On this basis, they will have to verify whether a specific notification for the authorisation of the concentration before the Commission is necessary or to inform the Contracting Authority of the foreign financial contributions received.