Newsletter Verordnung über Subventionen aus Drittstaaten

Notification‑​based tool to investigate M&A transactions

Companies involved in certain M&A transactions should be particularly aware of the new obligations. As of 12 October 2023, they have to comply with notification obligations if:

• at least one of the merging undertakings, the acquired undertaking or the joint venture is established in the Union and generates there an aggregate turnover of at least EUR 500 million, and
  
• the undertakings being subject to an M&A transaction were granted combined aggregate financial contributions of more than EUR 50 million from third countries in the three years preceding the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.

A concentration under the FSR is defined similar to EU merger control, including mergers, acquisitions of control and the creation of a full function joint venture.

However, the notification obligations are partially mitigated by the IR adopted by the Commission on 10 July 2023. As regards M&A, the full notification obligation generally applies only to financial contributions exceeding EUR 1 million individually and only, with exceptions, in relation to countries that have provided financial contributions totalling at least EUR 45 million in the past three years. Additionally, certain types of financial contributions are excluded from the full notification obligation (e. g., deferrals of payment of taxes or of social security contributions).

The IR includes in its annex a notification form (Form FS‑​CO). To facilitate the submission of notifications, companies are encouraged to engage in pre‑​notification contacts with the Commission based on the principle of good faith. In merger control proceedings pre‑​notification contacts are usual and established practice. It remains to be seen how efficient and pragmatic pre‑​filing contacts will be in FSR matters.

In merger control proceedings, the notifying parties are required to indicate whether they have already filed or intend to file a notification under the FSR both in the Form CO and the Short Form CO as well as in the case team allocation request.

The financial contribution does not have to relate to a specific transaction. Any financial contribution granted to any of the undertakings that are the subject of an M&A transaction in the past three years counts towards the threshold. Those granted to date also count: up to three years before 12 July 2023.

If the threshold is exceeded, the undertakings subject to the M&A transaction (or the undertaking acquiring control in cases other than a merger or acquisition of joint control), must notify the M&A transaction to the Commission. This must be done prior to the implementation of the transaction and following the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.

Once the filing is made, the Commission reviews the notification, and the M&A transaction may not be implemented. The Commission has 25 working days to conduct a preliminary review, and then 90 working days more to conduct an in‑​depth investigation. The aforementioned deadlines may be extended under certain circumstances, but they are also binding on the Commission: if it does not complete the proceedings within the original or extended deadlines, the undertakings concerned may implement the M&A transaction.

As a result of the proceedings, the Commission may adopt:

• a no objection decision (Article 25(3)(b) in conjunction with Article 11(4) FSR)
  
• a commitments decision (Article 25(3)(a) in conjunction with Article 11(3) FSR)
  
• a decision prohibiting a concentration (Article 25(3)(c) FSR).

Notification‑​based tool to investigate bids in public procurements

A similar notification obligation applies to public procurements organized in the Member States. Here, thresholds are even lower that in the case of M&A transaction:

• the estimated net value of a public procurement must be equal to or greater than EUR 250 million;
  
• the economic operator, including its subsidiary companies without commercial autonomy, its holding companies, and, where applicable, its main subcontractors and suppliers involved in the same tender in the public procurement procedure must be granted aggregate financial contributions in the three years prior to notification equal to or greater than EUR 4 million per third country.

Again, the notification obligations are partially mitigated by the IR. The full notification obligation generally applies only to contributions exceeding EUR 1 million and in relation to countries where the total amount of financial contributions in the three years preceding the notification is at least EUR 4 million. Contributions not subject to the full notification obligation are included only in a simplified table. Additionally, certain types of financial contributions are excluded from the full notification obligation (e. g., deferrals of payment of taxes or of social security contributions).

Moreover, the FSR introduces a supplementing obligation: a declaration obligation which applies irrespective of meeting the thresholds. Such a declaration should list all foreign financial contributions received and confirm that they are not notifiable because of not meeting thresholds.

Under the discussed tool, obligations are imposed both on economic operators and on contracting authorities or entities organizing public procurements.

The economic operator (or the main contractor in case of cooperation with a main subcontractor and/​or a main supplier) submits the notification or declaration to the contracting authority which then, without delay, transfers it to the Commission. The contracting authority is obliged to make sure that the economic operators submit the required documents. It must also ensure that corresponding information is included in the contract notice or in the procurement documents.

The Commission is only required to examine the notifications (and not the declarations which, however, may be used, for example, as a source of information for using its ex officio powers, see below). It shall carry out a preliminary review no later than 20 working days after it receives a complete notification (extendable once by 10 working days in duly justified cases). If the Commission decides to initiate an in‑​depth investigation within this time limit, it must close that in‑​depth investigation no later than 110 working days after it has received the complete notification with one of the following decisions:

• a no objection decision (Article 31(3) in conjunction with Article 11(4) FSR)
  
• a commitments decision (Article 31(1) in conjunction with Article 11(3) FSR)
  
• a decision prohibiting the award of a public contract (Article 31(2) FSR).

General tool to investigate all other market situations

The Commission also has new powers outside M&A transactions and public procurement procedures. It is entitled to conduct ex‑​officio investigations on any foreign subsidies. All companies that receive foreign subsidies or do business with companies receiving such subsidies should be familiar with the new regulations.

The Commission may, on its own initiative, examine information from any source regarding alleged foreign subsidies distorting the internal market. If the Commission considers that the information indicates the possibility that a foreign subsidy distorts the internal market, it shall request such further information as it deems necessary to make a preliminary assessment. For this purpose, the Commission may request information from EU Member States, the undertaking concerned and other undertakings, as well as conduct inspections inside and outside the Union (where the third country does not raise objection). Depending on the outcome of the preliminary review, the Commission may adopt a decision to initiate an in‑​depth investigation or close the preliminary review.

As a result of an in‑​depth investigation, the following types of decisions can be adopted:

• a no objection decision (Article 11(4) FSR)
  
• a commitments decision (Article 11(3) FSR)
  
• a redressive measures decision (Article 11(2) FSR).

The investigation may also cover foreign subsidies granted in the past: up to five years before 12 July 2023. It is therefore crucial to correctly identify foreign subsidies granted to date. Otherwise, companies run the risk of fines or penalties for failing to comply with their obligations during investigation (of 1% of annual aggregate turnover or 5% of daily aggregate turnover per day).

The Commission may even request notification of any M&A transaction, or any public procurement bid below the relevant thresholds (see above specific M&A and public procurement tools).