Since subsidies from third countries, unlike those provided by EU Member States, have not yet been regulated, which could lead to an uneven playing field and a negative impact on the EU internal market, Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market was adopted on the 14th of December 2022, entered into force on the 12th of January 2023 and most of its provisions will be effective from the 12th of July 2023. The notification obligations for individual companies introduced by this Regulation will then not take effect until the 12th of October 2023.
The Regulation aims to ensure a level playing field for all operators in the EU internal market and to prevent foreign companies from being favoured in the acquisition of EU companies and in the award of public contracts by introducing a new merger control regime, an obligation to notify subsidies when participating in tenders and the possibility for the European Commission to review foreign subsidies ex officio.
Notification of mergers
The Regulation introduces an additional procedure for merger control by the European Commission, which may run parallel to the traditional “merger control” procedure either before the European Commission or before the competent competition authorities (in the Czech Republic before the Office for the Protection of Competition), or also with the new procedure for control of foreign investments before the competent authorities of EU Member States (in the Czech Republic before the Ministry of Industry and Trade or the Government of the Czech Republic, on the basis of Act No. 34/2021 Coll., on the examination of foreign investments).
The Regulation thus imposes an obligation on the undertakings concerned to notify the European Commission of a merger, the definition of which is essentially identical to the definitions set out in the Merger Control Regulation and the Competition Act, if at least one of them (i.e. the merging party, the target undertaking or a joint venture established in the Union) has a turnover of at least EUR 500 million in the EU and, at the same time, aggregate financial contributions of more than EUR 50 million have been made by third countries to the acquiring undertaking, the target undertaking, the merging parties, the undertakings forming the joint venture or the joint venture in the 3 years preceding the conclusion of the agreement by way of announcement of a public tender offer or the acquisition of a controlling interest.
A financial contribution means any advantage granted by a third country to an undertaking carrying out an economic activity in the internal market and which is limited by law or in fact to one or more undertakings or sectors. The concept of third country is then understood very broadly and includes central government and public authorities at all other levels and any foreign public or private entity whose activities are attributable to a third country.
In relation to a proposed merger, the European Commission examines whether a financial contribution from a third country distorts the internal market (e.g. if it may improve the competitive position of an undertaking in the internal market and if it thereby has an actual or potential negative effect on competition in the internal market), assessing in particular the amount and nature of the foreign subsidy, its purpose, the conditions attached to it and its use in the internal market, the situation of the undertaking, including its size, the markets and sectors concerned and the level and development of the undertaking’s economic activity in the internal market.
The Regulation also sets out the categories of foreign subsidies most likely to distort the internal market, namely subsidies to firms in difficulty without which they would be likely to close in the short or medium term, subsidies in the form of unlimited debt guarantees in terms of amount or duration, export financing measures that are not in line with the OECD Arrangement on Officially Supported Export Credits, subsidies that directly facilitate mergers of undertakings and subsidies that allow an undertaking to submit an unreasonably advantageous bid that could lead to the award of a relevant contract.
On the other hand, the Regulation provides that foreign subsidies of less than EUR 4 million over three consecutive years are not likely to distort the internal market and foreign subsidies which do not exceed the de minimis aid limit within the meaning of the first subparagraph of Article 3(2) of Regulation (EU) No 1407/2013, i.e. EUR 200 000 per undertaking over a three-year period, or which are intended to remedy damage caused by natural disasters or exceptional occurrences, do not distort the internal market.
A notifiable merger cannot then be implemented before the European Commission has assessed the case or decided on non-objections or commitments adequate and sufficient to remedy the distortion of the internal market fully and effectively within the time limits set. Breach of this obligation carries substantial penalties, including a fine of up to 10 % of the undertaking’s total turnover for the preceding financial year and an obligation to abolish the concentration already implemented.
Notification in case of participation in tendering procedures
The Regulation also introduces an obligation for undertakings, including main subcontractors through the main contractor, to notify the European Commission through the contracting authority of subsidies received when participating in a tendering procedure and when bidding for a public contract awarded under a dynamic purchasing system, if the estimated value of the public contract, framework agreement or individual contract under the dynamic purchasing system is at least EUR 250 million excluding VAT and, at the same time, the aggregate funds granted for a third country in the three years preceding the notification amounted to at least EUR 4 million. If the contracting authority decides to divide the contract into lots, the notification obligation shall apply if all the above conditions are met and, at the same time, the value of the lot concerned or the aggregate value of all the lots for which the tenderer applies is equal to or greater than EUR 125 million.
Where the undertaking concerned is not obliged to notify the European Commission of subsidies received, it shall submit a declaration listing all foreign funds received and confirming that they are not subject to notification.
The Regulation also provides that the contracting authority shall state in the notice of initiation of the procurement procedure or, where the procedure is conducted without prior publication of a notice, in the contract documents, that the undertakings concerned are subject to the notification obligation under this Regulation, but that the absence of such a statement shall not prejudice the application of this Regulation to contracts falling within its scope.
The European Commission examines, in relation to a procurement procedure, whether a financial contribution from a third country distorts the internal market in a similar way to a merger. While individual procedural steps in a procurement procedure may take place in the course of the European Commission’s investigation, the contract cannot be awarded until the European Commission has assessed the case or decided within the time limits set for it not to raise objections or to give undertakings which are appropriate and sufficient to remedy the distortion of the internal market fully and effectively. Breaches of the obligation to notify foreign funds or circumvention or attempted circumvention of the notification requirements are subject to substantial penalties, including fines of up to 10% of the total turnover of the undertaking in the preceding financial year.
Ex officio review of foreign subsidies
In addition to the powers that the European Commission has as a result of the notifications described above, the European Commission may itself initiate investigations ex officio without prior notification, or may request notification for mergers and tenders below the thresholds set (i.e. EUR 500 million in turnover in the case of a merger and EUR 250 million in contract value in the case of a tender).
