Regulation on Foreign Subsidies Distorting the Internal Market Published in the European Union

Öykü Su Sabancı co-authored this article.

In recent months, an important regulation has been implemented in the European Union (“EU”) which will have a direct impact on mergers and acquisitions transactions. This regulation was published in the Official Gazette of the European Union dated 23.12.2022 and numbered L/330 under the name of the Regulation on Foreign Subsidies Distorting the Internal Market (“Regulation”) and gradually entered into force on 12.01.2023.

In the Regulation, it is primarily stated that there is a notification obligation to the European Commission (“EC”),

— When enterprise, either directly or indirectly, receive financial contributions from third country that is not a member of the EU and engage in merger and acquisition transactions,

— Public procurement procedures intended to take place within the EU and meeting certain criteria.

1- The Notification Obligation in Merger and Acquisition Transactions:

It is stated in the Regulation that when enterprises that directly or indirectly receive financial contribution from a third non-EU member state engage in merger and acquisition transactions, these transactions must be notified to the EC. According to the Regulation, the notification obligation is deemed to arise where;

— The total financial contribution received from non-EU countries in the three years preceding the notification must be at least EUR 50 million,

— One of the merging parties or the enterprise to be acquired must be established in the EU and the annual turnover of these enterprises within the EU must be at least EUR 500 million. 

2- Notification Obligation in Public Procurement:

The Regulation also introduced some measures for the notification obligation for public procurement procedures that will take place within the EU and meet certain conditions. According to the Regulation, the notification obligation is deemed to arise where;

— The approximate value of the public procurement or framework agreement is at least EUR 250 million,

— The financial contributions of enterprises within the economic integrity from non-EU countries in the last three years are at least EUR 4 million.

Please note that the term of “enterprises within the economic integrity” also includes affiliated companies, group companies, main subcontractors and suppliers involved in public procurement.

3- Violation of the Notification Obligation:

In cases where the notification obligation is not fulfilled, the EC is authorized to impose administrative fines up to 10% of the turnover of the parties to the transaction.

4- Enforcement and Implementation:

The Regulation entered into force on 12.01.2023 and started to be implemented gradually as of 12.07.2023. In this regard, the notification obligation to the EC as set out in the Regulation started to be implemented as of 12.10.2023.

Finally, we would like to emphasize that mergers and acquisitions signed after 12.07.2023 but not closed by 12.10.2023 will be subject to the notification obligation under the Regulation.

You can find the Regulation here.