Foreign Subsidy Regulation and state aid

The EU’s Foreign Subsidies Regulation (FSR) which began to apply from 12 July 2023, overhauled the M&A and public procurement regulatory landscape for businesses around the world. Public procurement and M&A transactions that meet certain thresholds (as set out below) are subject to a mandatory and suspensory notification obligation and therefore must be notified to the European Commission before the deal can close. Qualifying transactions and tender processes that meet the following jurisdictional tests are in scope of the regime:

·       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.

As outlined above, a key element to the assessment is whether the relevant businesses received a certain volume of “foreign financial contributions” (FFCs) i.e., funds from non-EU countries. These funds can take many forms (e.g., tax breaks or reductions, the provision of goods or services, grants, and so on) and the European Commission has not provided an exhaustive list of FFCs for businesses to track. Further, the nature of the tests necessitates that businesses have a rolling view of their FFC total at any given time, including a list of those FFCs which are disclosable within a notification form.  As such, tracking and maintaining FFC data is incredibly challenging for businesses.

KPMG’s Digital Gateway for Law – FSR Dashboard

Our clients have told us that they often struggle to gather, track and maintain FFC data to run FSR assessments for public procurement opportunities and transactions. Tracking FFC data is expensive and time consuming, often creating information siloes amongst external law firms. Furthermore, our clients need to understand its FFC landscape as of today, as well as explore solutions for future tracking and assessment.

KPMG’s FSR Dashboard was built in order to help support businesses in meeting these challenges, driving efficiency, reducing costs, and supported by our multi-disciplinary team of experts. KPMG’s team combines extensive experience across practice areas essential to supporting effective FSR data management: law, economics, finance, tax and forensics. The FSR Dashboard enables our clients to:

·       Track FFCs in real-time across your entire organisation, putting you in control of your data.

·       Ensure that data is auditable, traceable and downloadable into the FSR notification format.

·       Ensure full control of your own data, which is fully migratable (i.e., your business is not locked into the KPMG platform).

·       Avoid errors created by data management over excel and email.

KPMG’s FSR Dashboard has included the functionalities below to assist with these key stakeholder concerns:

·       Automated workflows & prioritisation of actions

·       Structured document storage and enhanced search

·       Automated emails & reminders

·       Automated approvals

·       Chat functionality: internal only & external

·       Dynamic questionnaires

·       PowerBI dashboards & analytics

·       Automatically tracked status updates & audit trails

KPMG Law’s Foreign Subsidy Regulation Team

KPMG Law has a team of experts which combines deep knowledge and experience of your group with the KPMG Network’s best and most experienced FSR experts in regulatory, law, economics and technology.

For further information about KPMG Law’s FSR solution, please contact a member of our team at the details listed below.

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.