European Commission Releases Guidelines for Regulating Foreign Subsidies

The European Commission released guidelines on the Foreign Subsidies Regulation (FSR) on January 9, 2026. This regulation empowers the Commission to address foreign subsidies that could disrupt competition within the European Union. The newly published Guidelines outline how the Commission will interpret and implement key provisions in its evaluation of foreign subsidies. These guidelines encompass the criteria for identifying distortions, the balance between positive and negative impacts, and the Commission’s authority to request prior notification in M&A and public procurement situations.

One key point highlighted in the guidelines is the low threshold for establishing negative effects on competition. A foreign subsidy only needs to contribute to the distortion, not be the sole cause. Additionally, potential negative impacts are sufficient, even without evidence of actual harm or significant distortion. When it comes to the balancing test, the party invoking positive effects holds the burden of proof. They must provide compelling and verifiable evidence demonstrating that these effects are specific to the subsidy and would not occur without it.

For many businesses, the FSR presents a substantial administrative burden, leading to increased red tape in M&A transactions and public procurement processes. Although the new Guidelines address the Commission’s substantive assessment and call-in powers, companies and legal advisors seeking clarity on practical matters related to submissions in non-issue cases may find the guidelines lacking in that respect.

The Guidelines shed light on the Commission’s approach to evaluating distortive effects under the FSR. The first condition requires a foreign subsidy to potentially enhance a company’s competitive position within the internal market and subsequently have a negative impact on competition. The Commission will use various indicators, such as the amount and nature of the subsidy, the company’s situation, economic activity levels, and subsidy purpose, to make this determination.

The distinction between targeted and non-targeted subsidies is crucial. While targeted subsidies directly or indirectly boost a company’s EU operations and are presumed to provide a competitive advantage, non-targeted subsidies necessitate further assessment to address the potential for cross-subsidization. The concept of cross-subsidization involves an undertaking transferring resources to activities in the internal market. Factors like shareholding structures, agreements with third parties, and applicable laws help the Commission gauge the likelihood of cross-subsidization.

The Guidelines also outline foreign subsidies that are not likely to improve a company’s competitive position, such as those addressing market failures outside the EU or pursuing non-economic objectives. Furthermore, de minimis subsidies and those insignificant in relation to an undertaking’s activities within the internal market are not deemed distortive. De minimis subsidies constitute foreign subsidies up to EUR 4 million over three years, while those below EUR 200,000 per third country over a three-year period are considered non-distortive.

In assessing whether a foreign subsidy negatively impacts competition, the Commission follows a two-step analysis. Initially, it evaluates the beneficiary’s behavior in the EU, followed by an assessment of the subsidy’s effect on competition. By providing clarity on such matters, the Guidelines aim to assist businesses and legal professionals in navigating the FSR’s regulatory framework.