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The Foreign Subsidies Regulation: practical implications for public procurement procedures 9 January 2026

Draft guidelines and EU consultations

The “REGULATION (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market” (“Foreign Subsidies Regulation” or “FSR”) came into force on 12 January 2023 and has now been in effect for more than two years, starting on 12 July 2023. The implementation of the regulation is likely to be considerably affected by two significant regulatory procedures presently on-going:
  • in July 2025, the European Commission (“EC”) published its draft Foreign Subsidies Regulation Guidelines for consultation (“Draft Guidelines”), inviting stakeholders to submit comments on the draft by 12 September. Forty-five entities and associations submitted comments. The EC will review the feedback from the consultation and publish the final guidelines by 12 January 2026; and
  • by July 2026, the EC will review how it implements and enforces the FSR. This will be submitted to the Parliament and Council along with any proposals to revise or simply the legislation. This consultation ran until 18 November 2025.

"The FSR introduced a series of rules and procedures enabling the EC to investigate any foreign subsidies granted by non-EU countries to those operating in the EU and address any of their negative effects on the EU single market."

Ensuring fair competition: key provisions of the Foreign Subsidies Regulation

The FSR introduced a series of rules and procedures enabling the EC to investigate any foreign subsidies granted by non-EU countries to those operating in the EU and address any of their negative effects on the EU single market. The aim of the FSR is to ensure a level playing field and fair competition between all companies operating in the EU.

The FSR has also filled an important regulatory gap: even before it came into force, state aids granted by Member States were subject to careful scrutiny under EU law, but for a long time EU law failed to properly address the issue of foreign subsidies. This is confirmed by the wording of Art. 107 TFEU, which prohibits “aid granted by Member States,” without establishing anything regarding aid granted by third countries. Finally, with the introduction of FSR, said control has been extended to subsidies granted by non-EU countries.

The FSR defines a ‘foreign subsidy’ as a financial contribution provided directly or indirectly by a third country, granted through public or private entities. It may come from the central government of a third country, public authorities at all levels or public and private entities whose actions can be attributed to the third country. Furthermore, such a subsidy must provide one or more companies or sectors with an advantage that could not have been obtained under normal market conditions.

The financial contribution may consist of:

  • transfers of funds or liabilities, tax incentives and debt arrangements;
  • foregoing of revenue, such as tax exemptions; and
  • supply or purchase of goods or services.

Once the existence of a foreign subsidy has been identified, the EC assesses whether it is likely to cause a distortion in the internal market. As specified in the preamble to the regulation, foreign subsidies may distort the internal market and undermine the level playing field for different economic activities in the EU. This could occur in the context of concentrations entailing a change of control over EU companies – where such concentrations are fully or partially financed through foreign subsidies – or when companies benefiting from foreign subsidies participate in public procurement procedures and are awarded contracts.

Public procurement under the FSR: thresholds, role of contracting authorities and commission powers

Within the broad scope of the FSR, its application to public procurement stands out as particularly impactful.

It has preliminarily clarified that, in the context of public procurement, “foreign subsidies that cause or risk causing a distortion in a public procurement procedure” shall be understood as economic contributions that enable a company to submit an offer that is unduly advantageous in relation to the works, supplies, or services concerned (Art. 27).

The company participating in the tender must notify the contracting authority of all foreign financial contributions received in the previous three years, in all cases where:

  • the estimated value of that public procurement or framework agreement is at least €250m (net of VAT); and
  • the company, 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, was granted aggregate financial contributions in the three years prior to notification of at least €4m per third country.

This generates direct effects and obligations for both participating companies and contracting authorities.

Contracting authorities will be required to navigate new layers of procedural complexity and legal scrutiny, potentially reshaping how tenders are evaluated and awarded, and increase the administrative burden associated with compliance and verification.

A distinctive feature of the public procurement procedure under the FSR is that the notification from the participating companies is not submitted directly to the EC, but rather to the contracting authority, which is then responsible for informing the EC. This differs from the regime applicable to concentrations, where the notifying party communicates directly with the EC. As a result, contracting authorities play a central role in the initial implementation of the FSR, effectively representing the EC at the first stage of the notification process.

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"Within the broad scope of the FSR, its application to public procurement stands out as particularly impactful."

In addition, contracting authorities are required – based on the indications provided by the National Anti-Corruption Authority (“ANAC”) President in a Communication of 22 January 2025 – to implement a series of procedural safeguards under the FSR. In particular:

  • tender documents must include ad hoc clauses requiring companies to submit either a notification or a declaration on foreign financial contributions, depending on whether the thresholds under Art. 28 of the FSR are met. These obligations apply to all the companies participating in the tender, including main subcontractors and suppliers whose contribution exceeds 20% of the offer value;
  • if a participating company fails to submit the required documentation, the contracting authority must request it within ten working days. If the company does not comply, the company’s offer must be rejected and the EC informed (rejection will be also mandatory if the EC deems a notification incomplete and it is not rectified within the same timeframe);
  • all received notifications and declarations must be promptly transmitted to the EC via the designated platform and if the authority suspects the presence of foreign subsidies despite a declaration, it must report this to the EC without delay.

Upon receiving a notification, the EC may exert extensive powers ex officio, specifically it can:

  • conduct both preliminary and ‘in-depth’ investigations to gather the information necessary to assess whether the notified financial contribution constitutes a foreign subsidy and causes market distortion; and
  • impose fines and penalties on companies up to 1% of annual turnover for incorrect or misleading information or, in more serious cases – such as attempts to circumvent the rules – up to 10% of annual turnover.

During the preliminary examination and in-depth investigation, all procedural stages of the public procurement procedure may continue, except for the award of the contract.

"Contracting authorities will be required to navigate new layers of procedural complexity and legal scrutiny, potentially reshaping how tenders are evaluated and awarded, and increase the administrative burden associated with compliance and verification."

At the end of the ‘in-depth investigation’, if the EC finds that the company benefits from a foreign subsidy that distorts the internal market, the company may propose to enter into commitments that eliminate the distortion. If the company does not offer commitments, or if the EC considers that such commitments are not appropriate or sufficient to remove the distortion completely and effectively, the EC will prohibit the award of the contract to the company.

Key issues awaiting clarification in the FSR guidelines

The FSR leaves open some questions and concerns regarding its most appropriate application – especially in the area of public procurement procedures – many of which were raised by more than one company during the consultation process on the Draft Guidelines.[1] These refer, in particular, to the following topics:

  • concerns have been raised on the EC investigation timelines (particularly the 180-day period set for ‘in-depth inquiries’), which risk undermining the efficiency of public procurement processes;
  • according to some of the main entities involved in the public consultation, the definition of ‘foreign subsidy’ in the context of public procurement procedures seems to be based on tautological reasoning. According to the FSR, a foreign subsidy that allows an unduly advantageous bid to be submitted is a subsidy that is more likely to distort the internal market, without specifying in detail when a bid is unduly advantageous. In this regard, although the Draft Guidelines refer to various ways in which a tender may be advantageous (e.g. due to lower prices, greater quality, etc.), the fundamental standard by which the EC should determine if a tender is ‘advantageous’ remains unclear. In particular, the Draft Guidelines stipulate that the EC must carry out its assessment using a series of parameters, but do not specify whether the company’s offer should be assessed in its entirety or solely based on the aforementioned parameters. Moreover, it is unclear what weight the EC should assign to each individual parameter compared to others;
  • it has been required to give clarifications on how the ‘balancing test’ (the test by which the EC weighs positive effects of the foreign subsidy against its distortive effects in the internal market) is to be conducted. It has been noted the test should be carried out on the basis of ‘tailored standards’ which need to be adopted for the different operators of varying economic scales and industries, in order to avoid a ‘one-size-fits-all’ approach. Moreover, the EC, when assessing the positive effects of the subsidy, should incorporate objective metrics, such as the relevant operator’s investment scale and revenue in the EU market to measure quantifiable indicators, which should include job creation, tax contributions and localisation rates.
    The guidelines should also clarify that the stakeholders associated with the relevant operator could submit written opinions, demonstrating the positive effects of the subsidy. Finally, it has been observed that the guidelines should provide more clarity on what weight will be given to EU State aid frameworks in the balancing test and how the EC will assess subsidies from countries with established systems of subsidies control, creating risk of contradictory outcomes from overlapping regimes; and
  • finally, according to some of the main stakeholders involved in the public consultation, there is a lack of certainty regarding penalties, which should be better defined based on factors such as the nature, severity, and duration of the violation, as well as the subjective fault of the company. The guidelines should also clearly stipulate that, prior to any penalty decision, the company has the right to be heard by the EC.

Ultimately, it is expected that the guidelines will play a crucial role in interpreting and applying the FSR, settling several issues that have remained unresolved since its entry into force. In doing so, they will provide a more reliable and predictable framework for all parties involved, thereby strengthening the integrity of public procurement procedures.

[1] Among the many companies and entities, the following also took part in the consultation: Enel S.p.A.; EDF (Electricité de France); FNTP (Fédération nationale des Travaux Publics); Asociación Española para la Defensa de la Competencia; HP Inc; China Chamber of Commerce for Import and Export; InvestEurope.

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