Commission publishes guidelines on the Foreign Subsidies Regulation

On 9 January 2026, the European Commission (“Commission”) published guidelines on the EU regulation on foreign subsidies distorting the internal market (Foreign Subsidies Regulation, “FSR”). The guidelines are not legally binding and the final interpretation of the FSR is reserved to the EU courts; nevertheless, as soft law, the guidelines describe the Commission's practice and thus offer companies important guidance. The guidelines specify the following core concepts of the FSR:

• the determination of a distortion of competition in the internal market,
• the assessment of whether a distortion of competition can be justified by the positive effects of foreign subsidies (balancing test), and
• the conditions under which the Commission may require the notification of a concentration that is not subject to notification or of a foreign financial contribution that is not subject to notification in the context of a public procurement procedure (so-called “call-in right”).

Determination of a distortion of competition

The guidelines set out a two‑step assessment. First, the Commission assesses whether a foreign subsidy is liable to improve an undertaking’s competitive position in the internal market. Secondly, it assesses whether the foreign subsidy actually or potentially affects competition in the internal market.

For the first step, the decisive question is whether the foreign subsidy can confer a direct or indirect benefit on economic operators active in the internal market. In this context, the Commission distinguishes between targeted and non-targeted subsidies. Targeted subsidies aim to improve the competitive position of an economic operator in the European Union ("EU"). Non-targeted subsidies are granted for other purposes but may indirectly give rise to a distortion of competition.

The guidelines identify various criteria for assessing whether non-targeted subsidies are suitable for cross-subsidising of economic activities in the internal market. The assessment takes into account, for example, the ownership structure, the existence of functional, economic or organisational links, and the form of the subsidies. Against the risk of cross-subsidization, agreements with third parties (such as fiduciary duties), legal requirements, and the financial situation of the undertaking may speak. Mere internal guidelines, however, are only relevant if they cannot be unilaterally amended.

The guidelines also contain a catalogue of subsidies that are generally not suitable for improving the competitive position of the subsidised undertaking. These include subsidies to remedy market failures outside the internal market, purely non-economic or social subsidies, and disaster relief. According to the guidelines, de minimis subsidies totaling less than EUR 4 million for a company or EUR 200,000 per third country over a period of three consecutive financial years are also exempt.

In a second step, the Commission assesses the extent to which the foreign subsidy actually or potentially affects competitive dynamics to the detriment of other economic operators in the internal market, for instance by enabling the subsidised company to offer more aggressive prices or take on greater business risks to the detriment of other undertakings. In doing so, the Commission also takes into account the nature and amount of the subsidy, the subsidised undertaking and the specific characteristics of the industry concerned. If an economic operator receives several subsidies, the Commission considers the cumulative effects of the subsidies.

This test also applies when assessing whether foreign subsidies have enabled an economic operator to submit an unjustifiably advantageous or favourable tender in a procurement procedure. For example, the guidelines assume an unjustified advantage if the reduced price or increased quality of the service offered is largely attributable to a foreign subsidy. The same applies if these advantages cannot be plausibly explained by other factors. In such cases, it can be assumed that competing, non-subsidised economic operators are deterred from participating in the procurement procedure.

Balancing negative and positive effects

If a distortion of competition has been identified, the Commission may balance the negative effects of a foreign subsidy on competition in the internal market against the positive effects of the foreign subsidy. According to the guidelines, these positive effects include the correction of a market failure in the internal market, as evidenced by non‑competitive pricing or suboptimal levels of innovation, an increase in security of supply in the EU and the promotion of a higher level of environmental protection, higher social standards, or research and development. It is, however, crucial that these positive effects can specifically be attributed to the foreign subsidies in question and would not arise to the same extent in their absence; the burden of demonstrating this lies with the subsidised undertaking.

The Commission then weighs the nature, intensity and duration of the positive and negative effects against each other. If an undertaking has received several foreign subsidies, a cumulative assessment of the negative and, now explicitly, also the positive effects is carried out.

Call-in rights

The FSR provides for notification requirements with regards to concentrations and participations in public procurement procedures if certain monetary thresholds are reached. If the Commission suspects that the undertakings involved have received foreign subsidies in the previous three years, it may also require notification even if the thresholds are not met. However, this is subject to the condition that the concentration has not yet been fully implemented, or the contract has not yet been awarded by means of a legally binding conclusion of the contract with the bidder.

When exercising its call-in right, the Commission should, according to the guidelines, keep the administrative burden on undertakings as low as possible. Nevertheless, the guidelines hardly restrict the Commission's discretion. The guidelines merely list a non-exhaustive set of criteria for assessing whether effects in the EU are to be expected. According to these guidelines, it is particularly relevant whether

• the turnover of the target company adequately reflects its actual or future economic importance,
• strategic sectors or technologies are affected,
• a market position is established through numerous M&A transactions below the thresholds for notification (so-called roll-up scenario),
• the particularly critical categories of foreign subsidies referred to in Article 5 FSR are concerned, or
• the Commission has previously initiated an in-depth investigation under the FSR or has determined that the companies concerned have received distortive foreign subsidies.

However, the Commission will not exercise its call-in right if the total amount foreign subsidies over the last three years does not exceed EUR 4 million or if the subsidies are disaster relief.

Assessment and practical relevance

The guidelines improve transparency in the application of key concepts when assessing foreign subsidies and contain helpful clarifications compared to the draft guidelines (see our Noerr Insights of 5 August 2025). The explanations and examples on determining a distortion of competition as well as the positive and negative effects of foreign subsidies are particularly welcome.

At the same time, the Commission's discretion remains very broad, resulting in a high degree of legal uncertainty for the undertakings concerned. In particular, the assessment and potential consideration of subsidies that are not directly aimed at competitive activities in the EU increases the complexity of the assessment. It is therefore advisable to systematically record foreign financial contributions received (see our Noerr Insights of 23 December 2022) and to analyse them in terms of their relevance to the internal market. Where appropriate, measures should also be considered to ensure that subsidiaries operating in the EU cannot benefit directly or indirectly from foreign subsidies.

Our Noerr competence team consists of experienced experts in the field of FSR, EU state aid law and merger control and is available to answer any questions and provide support. You are also welcome to register here to receive all our FSR news alerts or click here to access our new FSR Checker and find out whether your M&A transaction is notifiable.