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DZP alerts.
22.03.2023
Authors:
Katarzyna Kuźma
Dr Marek Świątkowski
Practice:
Infrastructure and Energy
Corporate and M&A Practice
Specialisations:
The new Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market ("Regulation 2022/2560") will have a significant impact on the activities of entrepreneurs who receive non-EU subsidies. Special emphasis is placed on M&A transactions and public procurement of certain values. Its aim is to prevent undertakings benefiting from foreign subsidies from gaining an undue advantage on the EU market.
Regulation 2022/2560/EU will apply from 12 July 2023. It came into force on 12 January 2023 and is directly applicable in all Member State of the European Union and covers all companies operating in the EU internal market.
Regulation 2022/2560 applies to all economic activities in the internal market that are undertaken by undertakings benefiting from foreign subsidies. Whether or not the subsidies are provided to undertakings based outside the EU or established in one of the Member States is irrelevant.
The concept of foreign subsidies is broadly defined as financial contributions made by a third (non-EU) country that may benefit a particular undertaking or industry while distorting competition in the internal market. It is indicated only by way of example that such contributions may be capital injections, grants, loans, loan guarantees, debt forgiveness, tax exemptions, and the provision or purchase of goods and services.
In Regulation 2022/2560, a third country is understood to mean central government and public authorities at all other levels, and public and private entities whose actions can be attributed to a non-EU State.
Regulation 2022/2560 places particular emphasis on concentration and public procurement procedures:
The Commission should have the power to examine any foreign subsidy, to the extent it is in the scope of this Regulation, in any sector of the economy on its own initiative, relying thereby on information from all available sources. To ensure effective control, in the specific case of large concentrations (mergers and acquisitions) and public procurement procedures above certain thresholds, the Commission should have the power to review foreign subsidies based on a prior notification by the undertaking to the Commission.
(preamble to Regulation 2022/2560)
For the purposes of Regulation 2022/2560, a concentration is deemed to arise where a change of control on a lasting basis results from either of the following:
The obligation to notify the intention and to finalise the implementation of a concentration arises if:
The implementation of the notified concentration of undertakings should be postponed until the EC has completed its examination of the case. However, Regulation 2022/2560 will not apply to concentrations for which the agreement was concluded, the public bid was announced, or a controlling interest was acquired before 12 July 2023.
In the case of public procurement, an economic operator's obligation to notify a financial contribution will arise if:
Financial contributions should include those received by both the economic operator and its subsidiaries without commercial autonomy, holding companies, and main subcontractors and suppliers. Under the Regulation, a subcontractor or supplier is deemed to be main where they ensure key elements of the contract and in any case where the economic share of their contribution exceeds 20 % of the value of the submitted tender.
Regulation 2022/2560 will only apply to public procurement procedures initiated after 12 July 2023.
According to the Regulation, activities of financing institutions or insurance undertakings involving transactions and dealing in securities and the acquisition of control of an undertaking by a person authorised by the public authorities or by financial holding companies will not be deemed to be concentrations.
In the context of public procurement, exemptions have also been introduced. Firstly, contracts awarded pursuant to Article 346 of the TFEU are excluded from the application of Regulation 2022/2560. Secondly, contracts in the field of defence and security awarded under Directive 2009/81/EC, the European Commission may only initiate a foreign subsidy review procedure ex officio. Thirdly, a foreign subsidy will not distort the internal market if it is aimed at making good the damage caused by natural disasters or exceptional occurrences.
Regulation 2022/2560 provides that:
The EC may also analyse any business activity taken up by an undertaking on the EU market where it suspects the use of foreign subsidies.
In this respect, the EC issues decisions imposing redressive measures or decisions imposing commitments. These may, e.g. order a reduction in capacity, an obligation to make certain infrastructure available, the granting of licences or the divestment of certain assets.
The EC also has the power to prohibit the conclusion of a public procurement contract or to order the dissolution of a concentration.
We therefore recommend that entities intending to carry out a concentration or operating in the area of public procurement in the EU analyse any financial contributions received by the undertaking from third countries over the past three years. The undertaking should include in its analysis not only the subsidies it has received, but also the financial contributions received by subsidiaries, holding companies, and main subcontractors and suppliers. We also recommend that procedures be developed to allow concentrations to be carried out and participation in EU procurement procedures in line with the new rules, including procedures to select concentrating entities, consortium members, subcontractors and suppliers.
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