Subsidy control and state aid - Supporting compliance with subsidy and state aid regulation

Government support to companies can take many forms, from targeted tax-breaks and incentives, through to grants and loans, as well as commercial arrangements on favourable terms – such as preferential licensing agreements or the disposal of land at sub-market rates. The regimes to monitor and regulate this support place burdens both on the governmental organisations granting aid, as well as the recipients.

KPMG’s multi-disciplinary team of legal, economic, tax and consulting specialists can consider every angle of any potential subsidy from the perspective of those providing, or receiving, the assistance. This includes:

• initial screening for subsidy-related risks;
• assessing whether financial assistance has been provided on commercial market terms;
• assessing permissibility and lawfulness of a subsidy by reference to legal and economic principles;
• identifying the potential for third party challenge and the steps which can be taken to mitigate those risks;
• supporting recipients and public bodies with mandatory or voluntary referrals to the Competition & Markets Authority; and
• Legal support, advice and representation in any challenges concerning the giving or refusal of subsidies.

Challenges to the giving of a subsidy must be made to the Competition Appeal Tribunal on ordinary public law principles, but careful thought must always be given to the correct venue when challenging the refusal of a subsidy.

Our team is strengthened by our in-house team of advocates. This allows us to stress test all advice in light of possible judicial challenges; and it allows us to provide seamless advice and representation at all stages of an engagement.

The EU’s new Foreign Subsidies Regulation (FSR) has introduced a new, and significant, data management and reporting burden regarding financial contributions granted by non-EU states. At KPMG, our broad range of experience enables us to effectively support firms in meeting all the challenges of the FSR.

The FSR has applied with effect from 12 July 2023. It introduces a new mandatory and suspensory notification obligation for qualifying transactions and tender processes that meet the following jurisdictional tests:

• transactions: the target has an annual turnover in the EU of at least €500 million and the parties have received combined aggregate financial contributions from third countries (foreign financial contributions or FFCs) of more than €50 million in the last 3 years; and
• tenders: the contract value exceeds €250 million (or the aggregate value of lots applied for is not less than €125 million) and the bidding party has received FFCs of at least €4 million per third country in the last three years.

The FSR creates a significant disclosure burden for many firms and has the potential to significantly delay mergers or tender bids. However, firms that are well prepared and engage positively with the aims and objectives of the Commission are likely to be able to efficiently minimise this risk.

To understand if those thresholds are met, and to be prepared to produce timely notifications, companies will need to have systems and controls in place to identify, track and analyse FFCs across their corporate group.

KPMG’s multi-disciplinary practice, drawn from teams within the EU, UK and other jurisdictions, gives us the ability to draw on specialist input as needed as part of a multi-disciplinary delivery team. This ensures we can bring the right set of skills and experiences to all cases and their unique challenges. We can provide these services as a holistic, one-stop shop offering, or on a standalone basis as required.

Our support for initial, and ongoing, FSR readiness, includes:

• advice on the framework for identifying FFCs, and assist with that analysis, drawing on our legal and tax expertise in multiple jurisdictions;
• support the development and/or refinement of an enquiry tool to facilitate data identification and extraction on an ongoing basis;
• provide risk mapping analysis to inform a high level assessment of the scope of potential disclosures;
• assess whether individual subsidies may be viewed as distortive within the EU, drawing on our legal and economic expertise, thereby informing what is disclosable; and
• undertake assurance analysis to test samples of disclosures to ensure accurate and complete reporting.

Where FSR notifications are required, we can assist with the preparation of timely and comprehensive notifications, as well as supporting you through the Commission’s review process.