Contribution by Niccolò Medica and Andrea Denaro published in N&T Plus Diritto – Il Sole 24ORE.

The EU Regulation 2022/2560 of the European Parliament and the European Council, in force since 12 January 2023, regulates foreign subsidies granted to enterprises (including public enterprises controlled directly or indirectly by the State) that carry out economic activity in the internal market of the European Union.
The regulation, in particular, considers as distortive of the internal market any subsidy that may improve the competitive position of an enterprise.
By the middle of 2023, the EU Commission shall adopt, following the public consultation that ended on 6 March 2023, a specific implementing regulation that shall clarify, in addition to purely procedural aspects (such as, for example, notification forms and calculation of time limits), also certain substantive profiles, in order to ensure greater legal certainty.
Pursuant to Article 4 of the Regulation, it is presumed that it is unlikely that a foreign subsidy to an enterprise, if below 4 million euros over three consecutive years, may cause distortions on the internal market.
Article 4, paragraph 3, also provides that a subsidy below 200,000 euros over three financial years shall not be distortive of the internal market.
Finally, Article 4, paragraph 4, excludes that foreign subsidies granted to address natural disasters or exceptional events may be considered as potentially distortive of the internal market.
In the context of the Regulation, foreign subsidy is defined as a financial contribution that is granted directly or indirectly by a third country, which confers an advantage and is limited to one or more enterprises or one or more sectors.
This category includes, for example, support measures that do not consist of monetary transfers (such as the granting of special or exclusive rights to an enterprise without adequate remuneration in line with normal market conditions) or subsidies in the form of unlimited guarantee for debts or liabilities of the enterprise (that is, without any limitation of the amount or duration of the guarantee).
To determine whether the subsidy has an actual or potential negative impact on competition in the internal market, the Regulation refers to a non-exhaustive series of indicators:

• – the amount and nature of the foreign subsidy;
• – the situation of the enterprise;
• – the level and evolution of the economic activity of the enterprise in the internal market;
• – the purpose of the foreign subsidy and the conditions to which it is subject, as well as its use in the internal market.

The EU Commission, to which – as mentioned – the task of applying the Regulation is entrusted, is called upon to carry out a comparative assessment (Article 6) that considers, alongside the negative effects, also the positive effects generated by the foreign subsidy, in terms of development of the subsidized economic activity and contribution to the pursuit of the European Union’s policy objectives.
As regards the scope of application of the Regulation, the EU Commission shall have the power to examine any foreign subsidy, in any sector of the economy, using information from all available sources.
The Regulation identifies three areas of intervention:

• 1. ex officio examination of distortive foreign subsidies;
• 2. control of concentrations;
• 3. public procurement procedures (not subject to this note).

1. Ex officio examination of distortive foreign subsidies
The EU Commission may initiate on its own initiative the examination of potentially distortive foreign subsidies on the basis of information from any source.
The procedure includes a preliminary examination and a possible subsequent in-depth investigation, lasting a maximum of 18 months.
In the course of the procedure, the EU Commission has investigative powers (request for information, inspections at enterprises) and may adopt provisional measures.
At the conclusion of the in-depth investigation, the EU Commission may impose proportionate remedial measures (including structural and non-structural remedies and possibly reimbursement of the subsidy), as well as adopt decisions making binding the commitments proposed by enterprises to remedy the distortions.
Possible sanctions are also provided for; in particular:

• – sanctions up to 1% of turnover in case of procedural violations (failure to provide information; inaccurate, misleading or incomplete information; refusal to submit to inspections);

• – sanctions up to 10% of turnover for non-compliance with decisions containing commitments or decisions imposing provisional or remedial measures.

2. Concentrations
The Regulation establishes the applicability of the EU Commission’s preventive control over concentrations (which have been affected by foreign subsidies granted in the three years preceding the concentrations themselves) based on certain value thresholds.
Concentrations are understood to mean, in particular:

• – the merger of two or more previously independent enterprises or parts of such enterprises;

• – the acquisition, by one or more persons already holding control of at least one other enterprise, or by one or more enterprises, either through the purchase of shareholdings or assets, or through contract or any other means, of direct or indirect control of the whole or parts of one or more other enterprises.
  
• In particular, for concentrations, there is a notification obligation to the EU Commission:
• – if the acquired company, one of the parties to the concentration or the joint venture generates a turnover in the EU of at least 500 million euros;
• – if the foreign financial contribution in question is equal to at least 50 million euros in the three years preceding the agreement.
• Furthermore, the EU Commission may require prior notification of any concentration not subject to a notification obligation, at any time before its implementation, if it suspects that the enterprises concerned may have been granted foreign subsidies in the three years preceding the concentration.
• The control procedure is divided into two phases:
• – a preliminary examination to be concluded within 25 days;
• – a possible subsequent in-depth investigation lasting a maximum of 90 days, during which the concentration is suspended (unless the EU Commission has the power to grant a waiver upon request).
  
• With the final decision, the EU Commission may:
• – raise no objections to the concentration;
• – prohibit the concentration as the foreign subsidies are deemed potentially distortive of the internal market;
• – accept the commitments offered by the enterprises to remedy the distortion.
  
• In this case too, various types of sanctions are provided for:
• – sanctions up to 1% of turnover in case of inaccurate or misleading information provided in the notification or in a subsequent supplement;
• – sanctions up to 10% of turnover for cases of failure to notify the concentration, implementation of the concentration before the EU Commission’s decision, violation of the prohibition on concentration possibly imposed by the decision, or implementation of financial operations to circumvent the notification obligation.

Transitional Provisions and Entry into Force of the Regulation
The Regulation applies to foreign subsidies granted in the 5 years preceding 12 July 2023, provided that such foreign subsidies are distortive of the internal market after 12 July 2023.
The Regulation does not apply to concentrations for which the agreement has been concluded, the public offer has been announced, or control has been acquired before 12 July 2023.