M&A and the Foreign Subsidies Regulation: New Challenges for Cross-Border Transactions

​Regulation (EU) 2022/2560 on Foreign Subsidies (FSR) has reshaped cross-border M&A operations. Effective with notification obligations from October 12, 2023, the FSR introduces additional scrutiny of financial contributions from third countries to preserve a level playing field in the EU market. For companies engaged in cross-border M&A, understanding and managing the FSR is essential for strategic planning.

FSR Notification Mechanism in M&A

At the core of the FSR’s impact on M&A is the mandatory prior notification to the European Commission for transactions exceeding two cumulative thresholds:

• EU Turnover: At least €500 million for the target (or JV, or one of the merging parties) established in the EU.
• Foreign Financial Contributions (FFC): More than €50 million received in total by the involved companies in the three years preceding the signing.

The definition of "financial contribution" is broad, encompassing various forms of value transfer from non-EU public entities, extending well beyond traditional subsidies. The notification triggers a standstill obligation, meaning the transaction is suspended until the Commission grants approval.

Operational and Strategic Challenges

The implementation of the FSR introduces significant complexities:

• Identifying and Quantifying FFCs: The global and retrospective (3-year) mapping of FFCs to verify the €50 million threshold is burdensome and complex.
• Intensified Due Diligence: Requires an FSR-specific analysis, making the process longer, more detailed, and potentially more expensive.
• Impact on Deal Timelines: The standstill obligation introduces uncertainty. The Commission has 25 working days for a preliminary review (Phase 1). If an in-depth investigation (Phase 2) is initiated, it can take up to 90 additional working days, with possible extensions.
• Substantive Risks and Penalties: The Commission may impose remedies (including structural ones) or prohibit a transaction if it identifies distortions. Non-compliance penalties (failure to notify, standstill violations) can reach up to 10% of the global annual turnover.

Strategic Considerations for Companies

A reactive approach to the FSR is not sufficient. Companies must:

• Integrate FSR risk assessment from the earliest stages of M&A planning.
• Develop internal systems to track foreign financial contributions.
• Structure contractual clauses (suspensive conditions, warranties, FSR risk allocation).
• Coordinate FSR analysis with Merger Control and FDI screening regulations.

Towards Greater Clarity: The Upcoming FSR Guidelines

The interpretative complexity of the FSR, particularly regarding the market distortion assessment, has highlighted the need for further clarification. To address this, and as required by Article 46 of the Regulation, the European Commission must publish specific Guidelines by January 13, 2026.

An initial step was taken with the Commission Staff Working Document of July 26, 2024, providing preliminary guidance but explicitly labeled as non-binding. The public consultation, concluded in April 2025, gathered input for the final Guidelines, which will carry greater legal weight. These will focus on key areas of uncertainty:

• Defining “Distortion” (Art. 4 FSR): Clarifying how the Commission will assess the link between foreign subsidy, competitive advantage, and its actual or potential negative impact on EU competition.
• Applying the "Balancing Test" (Art. 6 FSR): Establishing criteria to weigh the negative market distortion effects of a foreign subsidy against its potential positive effects on the development of an economic activity in the EU (e.g., linked to EU policy objectives such as environment, social standards, innovation).
• "Call-in" Powers for Below-Threshold Transactions: Defining the circumstances and criteria under which the Commission may exercise its discretion to examine M&A transactions or public procurement bids, even when they do not reach the mandatory notification thresholds.

The Role of van Berings: A Strategic Partner for FSR Compliance

Managing the legal and strategic implications of the Foreign Subsidies Regulation in cross-border M&A requires in-depth expertise. van Berings provides specialized legal support, assisting clients in assessing FSR obligations, handling notifications to the European Commission, and structuring transactions effectively. Our guidance ensures full regulatory compliance while helping clients achieve their international growth objectives in an evolving regulatory environment.