Foreign Subsidies: New Screening Procedure For M&A Transactions And Procurement Processes

On 30 June 2022, the Council of the European Union and the EU Parliament agreed on the draft regulation proposed by the EU Commission on distortive foreign subsidies. Based on this agreement, the new regulation could already enter into force this year. Due to the introduction of a new mandatory screening mechanism, the regulation will have a considerable impact on transaction practice in M&A processes and in procurement procedures.

Foreign subsidies not screened to date

The European market is the primary destination of foreign direct investment worldwide. It is estimated that around 100,000 EU-based companies are already owned by foreign investors. In many cases, these companies receive state support from outside the Union (so-called "foreign subsidies"). While the granting of state subsidies by EU member states is regulated by state aid law, foreign states have so far been able to support EU-based companies without any specific control under competition law.