Notification obligations for parties to mergers and procurement procedures
Until recently, EU state aid rules regulated only subsidies granted by EU member states. Subsidies from third countries were not regulated, which gave their recipients an advantage over other operators on the EU market. This is now to be prevented by an EU regulation which as of 12 October 2023 requires companies that are involved in business concentrations or public procurement procedures in the EU to report foreign subsidies received in excess of set limits.
The new obligation is introduced by Regulation (EU) 2022/2560 of the European Parliament and of the Council on foreign subsidies distorting the internal market; procedural issues such as notifications, calculation of time limits or investigations are further regulated by Commission Implementing Regulation 2023/1441 on detailed rules for the conduct of proceedings by the Commission. The regulation already entered into force on 12 July 2023, as we reported earlier this year, but the obligation to notify on a proposed concentration or the receipt of foreign financial contributions in the context of a public procurement procedure only started to apply on 12 October 2023.
A foreign subsidy is a situation where an undertaking operating in the EU market receives directly or indirectly (e.g., through a parent company) a financial contribution from a third country, conferring a certain advantage. This may include, e.g., interest-free loans, unlimited guarantees for the undertaking’s debts and liabilities, tax breaks, grants, debt forgiveness, etc.
Under the regulation, a notification obligation arises in two situations:
- Concentrations - where one of the merging parties/the undertaking being acquired/joint venture is established in the EU and has a turnover of at least EUR 500 million and the parties to the concentration have received an aggregate foreign subsidy of more than EUR 50 million over the last three years. In such cases, the Commission must be notified of the concentration prior to its implementation.
- Participation in public procurement procedures - where the estimated value of the public contract or framework agreement is at least EUR 250 million excluding VAT and the aggregate foreign subsidy of the participant (including its subsidiaries and holding companies, main subcontractors and suppliers participating in the same bid) amounts to at least EUR 4 million over the last three years. In such cases, the notification shall be addressed to the contracting authority, which shall then forward it to the Commission for approval.
The Commission may also initiate an investigation ex officio without prior notification if it suspects that foreign subsidies have been granted to undertakings in the last three years. It may also request to be notified of concentrations or procurement procedures below the above thresholds.
Importantly, the Commission’s positive decision is a prerequisite for the implementation of a concentration or the award of a contract. Therefore, when participating in major concentrations or public tenders, individual companies must carefully assess whether they are not subject to this new notification obligation. If they fail to comply, not only can the concentration or the award of a public contract not take place, but the companies also face fines of up to 10% of their total turnover.