Regulation on Foreign Subsidies (2022/2560)

Regulation (EU) 2022/2560, the Foreign Subsidies Regulation (FSR), entered into force in January 2023, with its public procurement notification obligations applying from October 2023. It is the EU's first legislative instrument specifically designed to address financial contributions from non-EU governments that may distort competition within the European single market. In procurement, it targets situations where a company receiving state support from a third country (such as a government-owned enterprise or a company receiving direct grants or preferential loans from a non-EU state) bids for a large public contract in the EU at prices that EU-based competitors without such support cannot match.

What is Regulation (EU) 2022/2560?

The Regulation introduces two main tools for procurement: mandatory notification and Commission investigation powers.

Mandatory notification thresholds. Where a public contract has an estimated value of at least EUR 250 million and a tender candidate has received foreign financial contributions of at least EUR 4 million per non-EU country in the preceding three years, the candidate must notify the contracting authority. The contracting authority then forwards the notification to the European Commission. Below-threshold situations may be investigated by the Commission on its own initiative.

Preliminary review and in-depth investigation. The Commission reviews the notification within 20 working days. If it finds grounds to suspect a distortive foreign subsidy, it opens an in-depth investigation (up to 110 working days plus possible extensions). During an investigation, the contracting authority may not award the contract.

Redressive measures and prohibition. If the Commission finds that a foreign subsidy distorts competition, it may impose redressive measures (such as requiring the company to divest assets or repay subsidies) or prohibit the award of the contract to the subsidised bidder altogether.

Definition of foreign subsidy. A foreign financial contribution is distortive if it gives the recipient an advantage in the EU market that it would not have received under normal market conditions. Common examples include below-market loans, unlimited state guarantees, preferential access to inputs, tax exemptions not available to competitors, and direct grants.

The Regulation interacts with Directive 2014/24/EU and Directive 2014/25/EU: it does not replace their procedures but adds a parallel notification and review layer for qualifying large contracts. It also applies to defence contracts under Directive 2009/81/EC above the relevant thresholds.

Why it matters for bidders

For EU-based suppliers, the Regulation is a competitive fairness tool. If your non-EU competitor is winning large contracts on the basis of subsidised pricing, you can bring this to the attention of the contracting authority or the Commission through the Regulation's mechanisms. The Commission may investigate on its own initiative even without a formal complaint.

For non-EU companies, or EU companies with significant non-EU public funding in their ownership chain, compliance with the notification obligation is mandatory for large contracts. Failure to notify when required can result in the tender being excluded or the Commission opening a formal investigation regardless.

Example

A Chinese state-owned enterprise bids for a EUR 500 million rail infrastructure contract in Poland. The enterprise has received EUR 30 million in government grants and a EUR 200 million below-market loan from Chinese public banks in the previous three years. These contributions trigger the notification obligation under the Foreign Subsidies Regulation. The Polish contracting authority forwards the notification to the European Commission, which opens a preliminary review and then an in-depth investigation into whether the subsidies give the bidder a distortive competitive advantage. The contract cannot be awarded until the investigation is resolved.

Frequently Asked Questions

Does the Regulation apply to all public contracts in Europe?

The mandatory notification obligation applies only to contracts above EUR 250 million where the foreign financial contributions threshold (EUR 4 million per non-EU country) is also met. The Commission may investigate smaller contracts on its own initiative if it has reason to suspect a distortive foreign subsidy, but there is no automatic notification requirement below the thresholds.

Can a company appeal a Commission prohibition decision?

Yes. Decisions by the European Commission under the Regulation are subject to review by the General Court and, on points of law, by the Court of Justice of the European Union. The Regulation also requires the Commission to apply the principle of proportionality when designing redressive measures, providing a basis for challenging disproportionate remedies.

Does the Regulation affect EEA countries such as Norway?

The Regulation applies within the EU internal market. EEA countries (Norway, Iceland, Liechtenstein) are not directly subject to the Regulation's notification obligations in the same way as EU member states, though contracts placed by EEA public bodies may interact with the Regulation where EU law applies through the EEA Agreement. The International Procurement Instrument is a related but separate tool addressing market access reciprocity.