Foreign Subsidies Regulation 2022/2560 (VBS/FSR) and its impact on daily public procurement

The Foreign Subsidies Regulation (VBS/FSR), officially designated as Regulation 2022/2560, was enacted on 14 December 2022, to address concerns related to foreign subsidies that could disrupt the European Union's (EU) internal market. The regulation, effective since 12 July 2023, and applicable since 12 October 2023, is a response to the recognition that the open internal market of the Union, while contributing to its prosperity, also presents certain risks.

The ’open‘ nature of the market, particularly in strategic sectors such as critical infrastructure and innovative technologies, poses risks when it comes to foreign subsidies in the context of acquisitions and procurement processes. Such subsidies, when utilized in these areas, have the potential to distort the internal market or disrupt the level playing field among parties involved. It is noteworthy that these subsidies were not initially subject to the Union's state aid rules.

The regulation primarily focuses on the control of foreign investments or support in cases of changes in control over enterprises due to concentrations and in public procurement tender requests. The overarching goal is to ensure the effective oversight of foreign interference in strategically significant infrastructure.

Key components of the regulation define a ’foreign subsidy‘ as any financial contribution, whether direct or indirect, from a third country (a non-EU state) that confers an advantage to a business engaged in economic activities within the internal market. The term ’financial contribution‘ encompasses a range of support mechanisms, including capital injections, loans, subsidies, loan guarantees, fiscal support measures, compensation for operating losses, debt write-offs, and non-collection of normally-owed income, such as tax exemptions. The provision of goods or services through their supply or purchase is also included.

Entities providing ’financial support‘ targeted by the regulation include not only any kind of central government but also local governments and private entities whose actions can be attributed to a third entity. This broad scope reflects the comprehensive approach taken to address potential disruptions and maintain the integrity of the internal market.

In conclusion, the Foreign Subsidies Regulation marks a significant step in safeguarding the EU's internal market from the potential distortions arising from foreign subsidies. By extending its reach to strategic sectors and various forms of financial contributions, the regulation seeks to foster a fair and competitive environment, ensuring the continued prosperity of the EU.

 

Obligation for Registration of Foreign Financial Contributions

Companies are obliged to register foreign financial contributions if the estimated value of a government contract or framework agreement is greater than or equal to EUR250 million, and if the company (including subsidiaries, participating companies, main subcontractors, and suppliers) has been awarded financial contributions with a value greater than or equal to EUR4 million in the three years preceding the registration. In case the contract is divided into lots, a threshold of EUR125 million applies as the total value of all lots for which the participant is bidding.

 

Registration Process

Registration must be done according to the defined foreign subsidy public procurement form (Annex II of EU Implementing Regulation 2023/1441 of 10 July 2023).

Procedure by the European Commission (Article 29 and following)

Registration is required at the first submission and when submitting the final offer. The registration is made to the contracting authority, which promptly transfers this information to the Commission. The contracting authority has an autonomous obligation to register in case of suspected foreign subsidies. Two phases of investigation are foreseen:

• Preliminary assessment of registered financial contributions.
• If necessary, an in-depth investigation. If an in-depth investigation is initiated by the Commission, the awarding of the contract is suspended, and the contract can only be awarded after the Commission has completed the investigation. The Commission has a binding deadline for this:
  
  • 110 working days (+30 working days in exceptional cases) for open procedures.
  • 20 working days (candidate phase) and 90 working days after full registration for non-open procedures.

Sanctions

The Commission can impose fines or penalties on companies if the regulation is not respected:

• 1% of the turnover in the previous fiscal year if entrepreneurs intentionally or negligently provided incorrect or misleading information in a registration.
• Up to 10% of the turnover in the previous fiscal year if entrepreneurs intentionally or negligently:
  
  • Failed to submit a registration.
  • Attempted to circumvent the registration requirements.

The implementation of the Regulation will result in increased administrative monitoring for companies of all support received worldwide and may also lead to potential delays in the awarding of government contracts. Given the potential financial sanctions for non-compliance, precise adherence to the Regulation is an absolute necessity for all companies participating in public procurement tenders of a certain scale within the EU.