EU Commission Releases Guidelines for Foreign Subsidies Regulation

European Commission has recently released a new set of Guidelines regarding the Foreign Subsidies Regulation (FSR) on January 9, 2026. These guidelines are aimed at providing clarity and transparency on how the FSR will impact M&A deals involving companies that have received support from non-EU governments. The main goal is to ensure fair competition within the EU market while also emphasizing that each case will be evaluated on a case-by-case basis rather than a one-size-fits-all approach.

The Guidelines are centered around three key topics: determining the distortion caused by foreign subsidies in the EU market, conducting a balancing test to weigh the negative effects against the positive effects of foreign subsidies, and the Commission’s power to intervene in mergers that are not mandatorily required to notify the Commission.

When assessing if a foreign subsidy distorts the internal market, the Commission will consider various indicators outlined in the FSR regulation. These indicators help identify if the subsidy could improve a company’s competitive position within the EU market or if it could have negative effects on competition. For subsidies that are deemed to be most likely to distort the market, there is a presumption of distortion unless proven otherwise.

Foreign subsidies fall into two main categories: Targeted Foreign Subsidies (TFS) and Non-Targeted Foreign Subsidies (NTFS). TFS are subsidies that directly or indirectly support the company’s activities within the EU market and are presumed to improve the company’s competitive position. On the other hand, NTFS are subsidies that do not directly benefit the company in the EU market but could still be distortive if there is a credible risk of cross-subsidization into the EU activities. Factors such as the company’s structure, links, subsidy conditions, and overall economic situation are taken into account.

Negative effects on competition are assessed based on how the foreign subsidy influences the company’s behavior in the market, such as pricing, output, investment, or acquisition strategies. It is not necessary to prove actual harm, but a credible risk of harm is sufficient. The distortion could impact both upstream and downstream markets, and the foreign subsidy only needs to contribute to the negative effect, even if it is not the sole cause.

The balancing test involves weighing the competitive harm caused by the foreign subsidy against any demonstrated benefits. This is typically done through a counterfactual analysis to determine the likely scenario in the absence of the subsidy. Factors such as the nature, purpose, and amount of the subsidy are compared to the scale and relevance of the claimed benefits to make an informed decision.

Overall, these Guidelines aim to provide a structured framework for evaluating M&A deals involving foreign subsidies, ensuring fair competition within the EU market. Each case will be analyzed based on its individual merits, emphasizing the importance of transparency and legal certainty in enforcing the FSR regulation.