The Foreign Subsidies Regulation: Where Do We Stand 18 Months Into Implementation of the Notification Obligations

The Foreign Subsidies Regulation (FSR) is a landmark piece of European Union (EU) legislation that empowers the European Commission (Commission) to investigate and address distortive subsidies granted by non-EU countries to companies active in the EU. It enables the Commission to review large transactions and public procurement procedures for which it receives notification, as well as to launch investigations on its own initiative. The notification obligations that started to apply in October 2023 represent a significant compliance burden for companies. With the first wave of notifications now processed, this Advisory takes stock of the current learnings and emerging enforcement trends. A more detailed overview of the FSR is provided in our August 2023 Advisory.

1. New DG COMP Directorate To Review Transactions, and New DG GROW Unit To Scrutinize Foreign Subsidies in Public Procurement

The Commission’s Directorate-General for Competition (DG COMP), now headed by Teresa Ribera, the Commission’s Executive Vice-President for a Clean, Just and Competitive Transition, is responsible for handling the FSR’s concentration procedure, thus to review transactions caught by the FSR. The Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (DG GROW), headed by the Commission’s Executive Vice-President for Prosperity and Industrial Strategy, Stéphane Séjourné, is responsible for handling submissions made under the FSR regarding public procurement procedures. Both DG COMP and DG GROW are also competent for ex officio cases.¹

In March 2024, the Commission established a new, dedicated directorate within DG COMP — Directorate K — to manage the implementation of the FSR in relation to concentrations. This move marked a significant commitment to the effective enforcement of the FSR. Directorate K, which is led by Karl Soukup, a senior DG COMP official who is also the acting Deputy Director General for State aid, currently has three operational units and around 40 officials. It replaces the previous smaller FSR Task Force and includes officials with significant experience, particularly in State aid cases. While DG COMP had initially estimated it would require 100 staff members to apply its powers under the FSR, it remains uncertain if and when that number will be reached.

As of May 1, 2025, the team scrutinizing foreign subsidies in public procurement became part of a dedicated unit under a new Directorate for Compliance and Responsible Business Practices within DG GROW. The move is part of a broader reshuffle of DG GROW which aims to focus the DG’s work on the new priorities of the Commission, such as economic competitiveness and the simplification of EU law.

2. Significantly Higher Number of Notifications Than Expected, but No “Below-Threshold” Call-Ins So Far

The Commission has received considerably more notifications than it had anticipated in its 2021 Impact Assessment Report. By early April 2025, the Commission had received approximately 140 notifications related to M&A transactions, and by the end of April 2025, over 2,000 submissions² related to public procurement procedures (the vast majority of which — precisely 1,734 — were declarations, with only 322 being notifications, which are required when foreign subsidies exceed a EUR 4 million threshold). For public procurement procedures, most submissions came from France, followed by Germany and Italy. These figures stand in stark contrast to the Commission’s initial estimates, which forecasted only around 30 notifications per year for each of M&A transactions and procurement procedures.

Perhaps as a reaction to the high number of notifications, the Commission has not yet made use of its powers to “call-in” and review transactions that fall below the notification thresholds. It is reported that the Commission has considered calling in one transaction so far, but has ultimately refrained from doing so.³ The call-in possibility has been criticized by companies as it leads to legal uncertainty for transactions. Interestingly, as a condition for clearing the e&/PPF transaction⁴ that is covered in more detail below, the Commission required e& to bring all future transactions to the Commission’s attention for potential review under the FSR.

Private equity has played a significant role in FSR M&A activity. Data compiled by PaRR suggests that from all transactions notified under the FSR until early April 2025, approximately one in three involved a private equity buyer.⁵

The same data suggests that in terms of the geographic origin of the acquirer, 39 notified deals (across all types of acquirers) involved U.S.-based acquirers, 23 acquirers from France, and 16 from the UK. Among transactions involving acquirers from other jurisdictions, four originated from Japan, three from the United Arab Emirates (UAE), two from Singapore, and one from each of Australia, Canada, China,⁶ South Korea, and Taiwan.

In an effort to enhance transparency, the Commission recently began publishing information about notified M&A transactions in its case register. However, the published information is in most cases limited to the names of the companies involved, the industry NACE code that is relevant for the transaction, the notification date, and the provisional decision deadline. The FSR enables the Commission to close investigations of transactions in Phase 1 by a simple administrative letter without a reasoned opinion. More detailed information is only provided if a case enters the in-depth Phase 2 stage of an investigation. In these cases, the Commission also publishes a non-confidential version of its reasoned decisions. Unlike in the area of merger control, there is therefore very little decisional practice that companies can draw on for guidance on how the Commission enforces the FSR.

It is also noteworthy that in more complex cases, companies typically spend several months in so-called pre-notification discussions with the Commission before formally submitting a notification for an M&A transaction.⁷ This practice has enabled the Commission in several cases to sufficiently investigate issues in pre-notification, thus avoiding a Phase 2 investigation that otherwise would have been required. While this approach allows for some flexibility, the draw-back for the transaction parties is that pre-notification discussions are not subject to any specific review timelines and therefore may extend for a long time — similar to the practice that has evolved under the EU Merger Regulation. Also, there is hardly any public transparency regarding cases that are in pre-notification, and if they lead to a close of the formal investigation after Phase 1, there is also no public transparency about the issues that the Commission investigated in more detail during pre-notification.

3. Few In-Depth Investigations

Despite the high number of notifications, only a handful have triggered in-depth (Phase 2) investigations. To date, the Commission has launched three in-depth probes into public procurement bids and one in-depth probe into an M&A transaction.⁸ Of these, only the M&A-related investigation (FS.100011 — e&/PPF) has resulted in a formal decision, which therefore is the first and, so far, only published Commission decision under the FSR. Again, the practice of spending several months in pre-notification discussions with the parties probably has enabled the Commission to limit the number of Phase 2 cases to a minimum. In the three procurement cases, the Commission’s investigation led to the bidders voluntarily withdrawing their bids, and the Commission terminated its investigations without adopting a final decision. The tables below provide a summary of these four in-depth investigations.

4. Only Two Ex Officio Investigations

The Commission has initiated only two ex officio investigations to date, a significantly lower number than the anticipated 30-45 investigations per year.⁹ The Commission has complete discretion to select its ex officio cases and has, to date, focused on strategic sectors (clean energy and security equipment). Both investigations involve Chinese companies, and both remain ongoing.¹⁰ The table below provides a brief overview of these cases.

In her Mission Letter to Executive Vice-President for a Clean, Just and Competitive Transition, Teresa Ribera, President von der Leyen asked Ribera to “vigorously enforce the Foreign Subsidies Regulation, including by proactively mapping the most problematic practices that could lead to competition distortions.” The reference to proactive mapping suggests that the Commission may increase its use of the ex officio tool during its 2025-2029 mandate.

5. Heightened Interest in Chinese Subsidies and Focus on Strategic Sectors

While the FSR is not aimed at specific countries, the Commission’s initial enforcement actions appear to have targeted Chinese subsidies: since the entry into force of the FSR, almost all in-depth reviews (three out of four) and all ex officio investigations initiated by the Commission have involved Chinese companies. The perceived focus on China has led to political tension. On January 9, 2025, the Chinese Ministry of Commerce (MOFCOM), concluding its six-month investigation into the practices of the Commission in relation to the FSR, found that the FSR and the Commission investigations opened in 2024 against Chinese companies constitute “trade and investment barriers,” as defined in Article 3 of China’s Investigation Rules of Foreign Trade Barriers. In light of these findings, MOFCOM has stated its intention to pursue bilateral negotiations and other appropriate measures to urge the EU to modify its FSR practices, ensuring that Chinese companies can invest and operate in the EU fairly and without discrimination.¹³

Regarding sectors, the Commission’s initial enforcement actions have to date focused on strategic sectors such as telecommunications, clean energy (solar power, wind), infrastructure including transportation (electric trains), and security equipment. At least three informal complaints have been raised by European professional football clubs, expressing their struggle to compete with rival clubs that have access to substantial funding from financial backers from Qatar and the UAE. However, as far as is publicly known, these complaints have not led to formal investigations to date. This suggests that the Commission carefully chooses its ex officio cases in line with its political and economic priorities.

6. First Use of the Dawn Raid Investigation Tool

The FSR grants the Commission surprise on-site inspection powers which are closely modelled after similar “dawn raid” powers that the Commission can use in its competition law enforcement. On April 23-26, 2024, the Commission, in tandem with the Dutch and Polish competition authorities, carried out its first dawn raids under the FSR at the Dutch and Polish subsidiaries of Chinese security scanner company Nuctech. During the inspection, the Commission requested access to the mailboxes of several employees based at Nuctech’s Dutch and Polish premises, all of whom were Chinese citizens. Nuctech refused on the grounds that this correspondence was stored on their parent company’s servers, located in China. The Commission requested Nuctech to place a legal hold on the mailboxes in question and, following the inspections, reiterated its request for Nuctech to make the data available as soon as possible.

Nuctech subsequently brought an action for the annulment of the inspection decision and of any subsequent requests for data, as well as the legal hold requests. At the same time, Nuctech also brought an application for interim measures seeking the immediate suspension of the Commission decision and related requests, pending the outcome of its main application.

On August 12, 2024, the President of the General Court (GC) issued an order in Case T-284/24 R denying Nuctech interim relief. The GC held that “the Commission must be entitled to carry out its investigations effectively and to request information from all undertakings which carry out commercial activities in the EU, whether they are controlled by entities in the Member States or in third States, in order to assess whether their conduct in that market infringes EU law. If that were not the case, undertakings controlled by third States would benefit from a competitive and procedural advantage compared with those which are controlled by entities located inside the EU.” Additionally, the proper conduct of Commission investigations could be compromised if those companies could evade requests for information by deciding to store their data outside the EU. The GC further held that the companies had not proven that the data requested by the Commission was not accessible to them or that Chinese law prohibited access. The GC found that the companies had “neither explained nor substantiated their claim that they have no access to information stored on servers located in China.”

Nuctech appealed the GC’s order to the Court of Justice of the EU (CJEU). On March 21, 2025, the Vice-President of the CJEU dismissed the appeal in Case C-720/24 P(R). As a result, while Nuctech’s main appeal seeking the annulment of the Commission’s decision and related requests is ongoing at the GC, the Commission can continue its investigation and review the evidence it collected in April 2024 at the company’s premises in Poland and the Netherlands.

7. Additional Commission Guidance on FSR Enforcement

a. The Commission’s List of Questions and Answers

Over the last 18 months, the Commission has updated its list of Q&As with additional answers to some of the most frequently asked questions on the FSR. The Commission’s Q&As provide information that relate to procedural and jurisdictional issues, as well as implementation and practical issues. The Q&A list does not address the substantive analysis under the FSR.

b. The Commission’s Staff Working Document

On July 26, 2024, the Commission adopted a Staff Working Document (SWD) which provides initial clarifications on the Commission’s substantive test under the FSR. The SWD consists of questions and answers on, in particular, (1) the application of Article 4(1) FSR concerning the existence of a distortion in the internal market caused by a foreign subsidy, (2) the application of the balancing test set out in Article 6 FSR, and (3) the assessment of a distortion in a public procurement procedure as set out in Article 27 FSR.

Concept of distortion under Article 4(1) FSR. Article 4(1) FSR sets out two conditions to determine whether a foreign subsidy distorts the internal market: (1) the foreign subsidy is liable to improve the competitive position of an undertaking in the internal market, and (2) by improving the competitive position of an undertaking in the internal market, the foreign subsidy actually or potentially negatively affects competition in the internal market.

(1) The SWD clarifies that the Commission must establish a relationship between the foreign subsidy and the activities in the internal market. In cases where there is no apparent relationship between the foreign subsidy and the activity in the internal market (e.g., in the case of a foreign subsidy that has been granted to a subsidiary not active in the EU, where that subsidy has been granted and effectively been used to develop the local activity of the subsidiary in a third country), the Commission could examine for example whether the foreign subsidy is used to cross-subsidize activities in the internal market.

(2) The SWD clarifies that to determine whether a foreign subsidy adversely distorts competition in the internal market (either actually or potentially), the Commission may examine its effects on any activities the beneficiary is currently engaged in or is likely to engage in within the internal market, be it investments or the provision or purchase of any goods or services. A foreign subsidy is considered to negatively affect competition when it creates an unlevel playing field by distorting market dynamics. The “most likely to distort” foreign subsidies falling under Article 5 FSR will generally be presumed to distort the market, whereas the Commission will conduct a detailed assessment of the distortive effects of non-Article 5 foreign subsidies based on the non-exhaustive indicators set out in Article 4(1) FSR.

Distortion test under Article 27 FSR. The SWD clarifies that for a foreign subsidy to be considered distortive in a public procurement procedure, two conditions must be met cumulatively: (1) the tender submitted by the subsidized economic operator must be unduly advantageous in relation to the works, supplies, or services concerned; and (2) there must be a link between the grant of the non-EU subsidy and the tender itself, demonstrating a distortion or a risk of distortion by enabling the bidding entity to submit an unduly advantageous tender.

(1) The SWD indicates that this will be determined by benchmarking the suspected tender to the other bids submitted in the tender procedure, and the contracting authority’s own estimate as shown in its documents. The Commission will then examine the undue nature of the advantage, taking into account whether the advantage can be justified by factors other than a subsidy. It may also rely on other facts, e.g., general market information, information provided by competitors, or on the results of its own investigations.

(2) The SWD clarifies that the Commission must establish, on the basis of available information, that the foreign subsidy enabled or likely enabled the economic operator to submit the unduly advantageous bid.

Balancing test. The SWD states that the Commission has not yet gathered enough experience in the application of the balancing test, so its guidance is relatively opaque. It mentions a non-exhaustive list of possible positive effects, such as considerations relating to a high level of environmental protection, social standards, or the promotion of research and development. The SWD also notes that the most likely distortive Article 5 subsidies are “less likely” to see their negative effects outweighed by positive effects.

c. The Commission’s Future FSR Guidelines

On March 5, 2025, the Commission launched consultations on the FSR Guidelines, which under Article 46(1) FSR are due to be formally adopted by January 12, 2026.

The Guidelines will provide additional guidance on the determination of a distortion caused by a foreign subsidy and the criteria applied, the application of the balancing test, and the assessment of distortion in a public procurement procedure and, specifically, the meaning of an “unduly advantageous” tender and the need for a link between the foreign subsidy and the tender. The Guidelines will also cover the Commission’s power to call in “below threshold” mergers, and public tenders and the criteria considered.

Consultation activities include:

• A call for evidence which was available for public feedback on the Commission’s “Have your say” portal until April 2, 2025. The Commission received 45 submissions from a range of stakeholders, including businesses, law firms, and industry associations from both the EU and third countries. Chinese respondents raised concerns about the vague definitions of “market distortion” and “foreign subsidies,” while Goldwind Science, a Chinese wind turbine company, criticized the prolonged duration of the Commission’s preliminary investigation into its case.¹⁴
• Targeted consultations with Member States and selected stakeholders, based on a dedicated questionnaire. The Commission selected the stakeholders on the basis of their involvement in FSR enforcement to date.
• An online consultation on a draft version of the Guidelines is expected in the third quarter of 2025.

8. Possible Changes to the Regulation?

The Commission is set to publish its first periodic report on the implementation of the FSR in July 2026. This report will assess whether adjustments are needed and may lead the Commission to propose new notification thresholds or other legislative changes. In preparation, the Commission may consult the public.

Commission officials have already suggested that a simplified procedure similar to that applied under the EU Merger Regulation may be introduced under the FSR for M&A transactions that do not raise concerns (as contemplated under Article 47(1)(a) FSR). This may in particular simplify and facilitate the review of private equity transactions captured by the FSR regime. It is currently uncertain which criteria would determine whether the simplified procedure can be used.

In the meantime, Commission officials have on a number of occasions indicated that the growing experience with enforcing the FSR enables the Commission to be more flexible and targeted in its interaction with companies. In particular, senior Commission official Eddy de Smijter, who heads one of the FSR units at DG COMP, recently stated at a conference that the Commission is “learning from doing more and more cases on FSR enforcement” and is as a result “not asking the same level of detail as [it] may have been asking in the beginning of [its] enforcement experience,” leading to “a de facto simplification” of the FSR regime.¹⁵ In particular, the Commission has waived information more readily if it considers it unimportant for its assessment.

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The first two years of practical experience gained under the FSR show that it places a significant compliance burden on companies. The broad range of information that companies must collect internally and the need for this information to be “current” as of the submission of notifications require significant effort and resources. The number of notifications, both under the transaction regime and the public procurement regime, by far exceeds the numbers initially expected by the Commission. Up to now, the Commission has objected to only a low percentage of notified transactions and public procurement events, while it has used the ex officio tool in a very targeted manner. This could be seen as evidence that the Commission applies the FSR in a measured way and tries to focus on clearly problematic scenarios. However, many companies are calling for further simplification to reduce their compliance burden and for clearer substantive guidance to increase the predictability of Commission interventions. As the FSR enters a more mature phase, it is to be hoped that the Commission will appropriately address these concerns.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.