Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

December 5, 2022

EU Member States give final approval to Foreign Subsidies Regulation

  • The European Union (EU) formally adopted the new Regulation on foreign subsidies distorting the internal market which is expected to become applicable in Q2 2023.

  • In essence, the Regulation partly extends the EU’s State aid prohibition to State aid provided by third countries, focusing on large public procurement procedures and merger and acquisition (M&A) transactions that take place in the EU.

  • Further guidance on the governance of the Regulation by the European Commission is expected soon. The Regulation targets non-EU businesses as well as EU businesses that receive subsidies from foreign countries.

Executive summary

On 28 November 2022, the Council of the EU (i.e., the Member States) formally adopted a Regulation on foreign subsidies distorting the internal market (the Regulation). The adoption follows from a European Commission (Commission) proposal published on 7 May 2021 and a provisional agreement between the Council and the European Parliament (the Parliament) which was published on 30 June 2022. The Parliament adopted the Regulation on 11 November 2022. As a next step, the Regulation will be published and is expected to enter into effect as from Q2 2023 (exact date to be confirmed)

The Regulation aims to prevent distortions on the EU’s internal market which arise as a result of subsidies from foreign (non-EU) countries. This Regulation therefore expands the scope of the EU’s existing State aid prohibition to “subsidies” provided by non-EU countries. The Regulation can apply to EU as well as non-EU businesses that receive such foreign subsidies. The term “subsidies” is defined broadly and captures a wide range of subsidies, such as contributions, loans, grants, guarantees, and tax benefits. Similar to the existing EU State aid regime, the Regulation gives a key role to the Commission in monitoring and enforcing the new rules.

The Regulation focuses on public procurement procedures and M&A transactions (concentrations) that meet certain thresholds in size and amount of foreign subsidies. If these thresholds are met there is an advance notification requirement as well as further scrutiny by the Commission. However, other market distortions are also in scope and hence the Regulation could for example also apply to smaller acquisitions. The Commission can impose a range of redressive measures to address distortions, including the mandatory repayment of the foreign subsidy. In a worst-case scenario the Commission can prohibit an envisioned M&A transaction or prohibit the award of a contract in a public procurement procedure. The Commission may also on its own initiative examine information regarding alleged foreign subsidies and may engage in a dialogue with third countries to explore options aimed at obtaining the termination or modification of the subsidies.

The Regulation will be directly applicable, also without transposition into the domestic laws of EU Member States. Further guidance yet to be developed by the Commission is required to assess the full impact and governance structure.

Detailed discussion


The adoption of the Regulation and the new powers of the Commission towards third countries should be considered in the context of the growing attention for the EU’s trade relationship with non-EU countries.1 In this context the Commission has raised concerns on distortions of the EU’s internal market which are caused by market participants from outside the EU. Specifically, the Commission has concerns that subsidies and other forms of support from governments outside the EU may distort the EU’s internal market. For example, procurement bids may be awarded to non-EU competitors because of subsidies and there are concerns that non-EU companies may leverage foreign subsidies to acquire EU companies. This is especially sensitive if the acquired companies are active in the high tech or pharmaceutical sectors. The EU already has a comprehensive set of rules against distortive State aid provided by EU Member States. The Commission is responsible for the monitoring and enforcement of these rules. For example, in recent years the Commission has launched various high-profile State aid investigations in the area of direct taxation.2 The Regulation essentially expands the scope of the existing State aid rules to also cover State aid provided by non-EU countries.

Legislative path

On 7 May 2021, the Commission published a proposal for the Regulation following an earlier white paper dated 17 June 2020. The Council and the European Parliament subsequently reached a provisional agreement on the Regulation which was published on 30 June 2022. The European Parliament voted in favor of the Regulation on 11 November 2022. On 16 November 2022, the Council (together with the European Parliament) published an updated version of the proposal for the Regulation. On 28 November 2022, the Council of the EU formally adopted the Regulation. The Regulation was adopted in accordance with the ordinary legislative procedure.

Content: obligations for businesses and tools for the Commission

The Regulation provides the Commission the power to investigate financial contributions granted by public authorities of a non-EU country that benefit companies engaging in an economic activity in the EU, and to redress their distortive effects.

The Regulation provides the Commission, in short, with three tools:

  • A notification-based tool to investigate concentrations involving a financial contribution by a non-EU government, where the EU turnover of the company to be acquired (or of at least one of the merging parties) is €500 million or more and combined aggregate financial contributions from foreign countries amount to at least €50 million.
  • A notification-based tool to investigate bids in public procurements involving a financial contribution by a non-EU government, where the estimated value of the procurement is €250 million or more, and the foreign financial contribution is equal or greater than €4 million per third country.
  • A tool to investigate all other market situations and smaller concentrations and public procurement procedures, that the Commission can start on its own initiative (ex-officio) and may request ad-hoc notifications.

A foreign subsidy is a financial contribution from a non-EU government. The definition is very broad. Subsidies can include any transfer of funds or liabilities such as capital injections, grants, loans, loan guarantees, fiscal incentives, etc., but also the foregoing of revenue that is otherwise due or the provision of goods and services. Subsidies can be provided by all levels of government and other foreign public entities, even private entities if their actions can be attributed to third-country governments.

The Commission has a wide range of options for redress, including mandatory repayment of the foreign subsidy. In a worst-case scenario, the Commission can prohibit an envisioned merger or prohibit a participant from being awarded a contract in a procurement procedure. The Regulation provides the Commission with various other competencies. For example, the Commission is empowered to impose fines, including for failure to make the required notifications. Actions taken by the Commission under the Regulation are subject to review from the Court of Justice of the EU. The Commission is also granted the power to initiate a dialogue with a third country on the distortive effects of its subsidies.


The Regulation will enter into force on the day following its publication to the Official Journal of the EU and will generally apply from six months after its publication (nine months for some articles). Publication is expected soon, and the Regulation is therefore expected to apply as from Q2 2023 (exact date to be confirmed). The Regulation will be directly applicable, also without transposition into the domestic laws of EU Member States. The Commission can/must also adopt guidelines, implementing acts, and delegated acts covering aspects of the Regulation. Officials have hinted that the Commission’s guidelines will be published for consultation in December 2022, but this has not yet been officially confirmed.

The Regulation has retroactive effect as it applies to foreign subsidies that were granted up to five years prior to the date of the application of the Regulation if these continue to distort the internal market. For notifiable concentrations and public procurement procedures this term is limited to three years. There are grandfathering rules which exempt M&A activity which was announced, concluded, and/or effectuated prior to the application of the Regulation. Similarly, public procurement procedures that have been initiated and/or awarded before the application are also grandfathered.


The impact of the Regulation is not fully clear at this time, as the Commission’s guidelines are yet to be developed. However, it is clear that the Regulation effectively results in an extraterritorial effect of EU State aid rules in certain situations. For businesses that receive foreign subsidies and that seek to invest in the EU or participate in public procurement processes, the Regulation will have a significant impact warranting a timely analysis of the rules. This includes non-EU businesses as well as EU businesses that receive subsidies from foreign countries.

In the area of direct taxation
, the Regulation enters into effect right before January 2024, when the global minimum tax agreed under the Organisation for Economic Co-operation and Development’s Pillar Two initiative will likely also enter into effect.3 The global minimum tax rules in combination with countries promoting investments in technology and the green transition are spurring on the introduction of new subsidies and refundable tax incentives. Such new incentives may be subject to scrutiny under the Regulation, especially considering the aforementioned growing attention for the EU’s trade relationship with third countries.

Businesses should review whether they have received or anticipate receiving contributions that may be in scope, including tax incentives provided by third-country governments. This is particularly relevant for businesses involved in any (future) bids in EU public procurement and/or M&A processes involving the EU but also for any other activities. For M&A specifically, it should be considered whether the Regulation should already be reflected in the M&A process for current and future transactions. It is also recommended to assess readiness, especially as data may be required during procedures with a quick turnaround.


For additional information with respect to this Alert, please contact the following:

EY Société d’Avocats, Paris

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young LLP (United States), Global Tax Desk Network, New York



  1. Foreign Affairs Council (Trade), 25 November 2022 and the background brief to that meeting.

  2. See for example EY Global Tax Alert, EU General Court annuls Commission's decision on Luxembourg transfer pricing State aid case, dated 24 May 2021.

  3. See EY Global Tax Alert, OECD releases Model Rules on the Pillar Two Global Minimum Tax: First impressions, dated 20 December 2021.


The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more