The FSR in a nutshell
Prior to the FSR, foreign financial contributions (FFCs), i.e. grants, loans, guarantees or tax advantages provided by non-EU governments to companies operating in the EU, were not subject to oversight equivalent to that applied to State aid granted by EU Member States. The FSR changed this two years ago by empowering the Commission to investigate and address distortions in the EU internal market caused by FFCs. This Regulation introduces mandatory notification and approval requirements for certain concentrations (such as mergers, acquisitions and joint ventures) and public procurement bids. It also allows the Commission to initiate ex officio investigations – those launched on its own initiative.
The procedures for notifying concentrations and public procurement bids that meet the FSR thresholds are set out in the FSR Implementing Regulation. The Implementing Regulation provides a standardised notification form and clarifies the Commission’s powers to request information and conduct unannounced inspections (dawn raids).
A FAQ on the Commission’s website, which has been updated several times, provides further practical FSR guidance. It covers responses to several questions on procedural, jurisdictional, implementation and practical issues.
FSR notifications and investigations: a disparity between volume and depth
Under the FSR regime, companies participating in public procurement procedures and transactions exceeding the relevant thresholds are required to notify the Commission of any foreign subsidies received. After two years of enforcement, we observe that FSR notifications have been submitted in very high numbers. With over 160 concentration notifications and more than 2,100 public procurement filings, the Commission’s initial annual estimate of 30 concentrations and 36 public procurement filings has far exceeded expectations.
Despite the substantial number of notifications received under the FSR, there has not been a correspondingly high number of in-depth investigations. To date, only one concentration has proceeded to the in-depth investigation stage, with a second likely to follow. In the area of public procurement, three procedures have undergone in-depth scrutiny, resulting in a withdrawal of the bid in all three cases. This raises the question of whether there is a need for a short-form notification, similar to that used in merger control procedures. Such a mechanism could reduce the administrative burden for both the Commission and the parties involved, while allowing the Commission to concentrate its resources on more complex and potentially problematic cases.
In contrast to the high number of notifications, the number of ex officio investigations remains limited. As far as we are aware, only two such investigations have been launched to date, instead of the anticipated 30 to 45 cases per year. It should be noted, however, that not all investigations are published, so additional cases may exist that have not yet been disclosed. In her mission statement, Commissioner Teresa Ribera, head of European Competition Policy, was tasked with “proactively mapping the most problematic practices that could lead to competition distortions”. The establishment of a dedicated FSR directorate underlines this approach. Furthermore, in its Clean Industrial Deal, the Commission announced its intention to deploy ex officio investigations in strategic sectors. Consequently, we anticipate an increase in ex officio investigations in the coming years.
Dawn raids under the FSR: the Nuctech case
Under the FSR, the European Commission has the power to conduct dawn raids at company premises. Nuctech, a China-based supplier of container and baggage scanning equipment, came under scrutiny by the Commission following indications of potentially distortive foreign subsidies. As outlined in last year’s FSR review, Commission officials conducted dawn raids at Nuctech’s subsidiaries in Poland and the Netherlands in April 2024. During these raids, the Commission sought access to specific mailboxes, the servers for which were situated in China. This action led to a legal dispute over the territorial scope of the Commission’s powers under the FSR.
Procedure before the EU courts
Nuctech sought an order from the General Court (GC) to suspend the Commission’s investigation. The company contended, among other things, that the Commission’s request for access violated public international law, as it would extend the Commission’s investigatory powers to individuals and territories outside the EU’s jurisdiction. Moreover, providing the requested information could lead to ‘serious and irreparable damage’ since Nuctech would be breaching Chinese (criminal) law.
The GC – and subsequently the European Court of Justice – dismissed Nuctech’s application. The courts found that, under public international law, the Commission is entitled to request information from companies outside the EU where their conduct infringes EU law and produces substantial effects on the internal market – a principle that has been well established in other areas of competition law. Furthermore, the courts found that Nuctech had not adequately substantiated its claims that sharing the requested information would breach Chinese criminal law. An infringement would, at most, lead to pecuniary administrative sanctions, which cannot be regarded as ‘irreparable’ since it can be compensated. China’s response remains uncertain, and it is possible that it may introduce blocking statutes to counter the enforcement of the FSR.
The first in-depth investigation: the e& case
As covered in our previous FSR year in review, in June 2024 the Commission opened an in-depth investigation under the FSR. The case concerned the proposed sale of PPF Telecom Group B.V. (PPF), a telecommunication company active in Eastern and Central Europe, to Emirates Telecommunications Group Company PJSC (e&), a telecom operator majority-owned by the Emirates Investment Authority (EIA).
The Commission initially identified sufficient indications that e& received foreign subsidies capable of distorting competition in the internal market. These subsidies included a term loan that was granted to finance the transaction, an unlimited government guarantee resulting from bankruptcy law not being applicable to e&, and loans and repayable advances provided to the EIA by the United Arab Emirates (UAE) Ministry of Finance.
Commission decision
During the investigation, e& proposed commitments to address the Commission’s concerns. After several revisions, the Commission accepted these commitments as binding, finding they effectively resolved the issues. As the Commission concluded that the term loan did not constitute a foreign subsidy within the meaning of the FSR, the commitments mainly targeted the unlimited guarantee and subsidies from the UAE Ministry of Finance. The commitments establish a framework that separates e&’s EU operations from its subsidised non-EU business, thereby preventing foreign subsidies from entering the EU market. The commitments include applying normal bankruptcy rules to e& so it can no longer benefit from the unlimited guarantee within the EU. Moreover, e& and EIA are, in principle, barred from financing PPF’s European operations, and any transactions between PPF and e& or EIA must be conducted on market terms. An independent trustee will monitor compliance.
The Commission’s decision shows its openness to commitments that partially separate EU and non-EU business activities. The commitments last for ten years, with a possible five-year extension, reflecting the Commission’s long-term focus on market effects.
FSR Guidelines in January 2026
To address the lack of transparency surrounding the FSR enforcement, the Commission will publish formal Guidelines. Therefore, the Commission launched a call for evidence in March this year, focusing on four topics: (i) the determination of a distortion by a foreign subsidy, (ii) the application of the balancing test, which assesses whether the positive effects of a subsidy offset its distortive impact, (iii) the Commission’s power to call in mergers and public procurements below the threshold and (iv) the assessment of distortions in a public procurement procedures.
This consultation generated substantial feedback by both European and Non-European stakeholders. Several of them expressed concern about the requirement for undertakings to collect and report detailed information on all FFCs received, which is resource-intensive, especially for large, international companies. This is further complicated by the fact that the data required for FSR notifications does not always align with the data firms customarily collect, and by the Commission’s use of the three years preceding the notification – rather than the previous three financial years – as the basis for its investigation.
Stakeholders have urged the Commission to clarify key concepts under the FSR; establish clearly defined thresholds or criteria for permissible subsidies (safe harbours); better align national foreign direct investment screening and merger control procedures with the FSR procedure; introduce annual or periodic reporting mechanisms to reduce the need for real-time data collection; and ensure that undertakings headquartered outside the EU are not subject to discrimination.
In parallel with a public consultation, the Commission will send questionnaires to stakeholders and publish draft Guidelines for an eight-week consultation period in the third quarter of this year. Final adoption is expected by January 13, 2026.
Outlook
The FSR has had a notable impact on M&A activity within the EU, with an average of over six notifications being submitted each month. While transactions subject to the FSR cover a range of sectors, the majority of notifications concerned the financial services, energy and consumer goods sectors. A significant proportion of these notifications pertain to acquisitions by private equity funds. In its investigations, the Commission places particular emphasis on scrutinising the origin of the funding, a process that has proven to be especially complex given the often intricate structures of private equity funds.
The reporting obligations under the FSR are extensive, requiring parties to disclose FFCs received by all controlled subsidiaries, irrespective of their relevance to the transaction, although certain exemptions may apply to limit this burden. This process is often complex and time-consuming, particularly in relation to tax measures, and may require reporting FFCs from unrelated businesses within the same corporate group. Nevertheless, while the Commission adopts a broad approach to the scope of reporting, in practice it tends to focus on overlaps or interactions with the acquirer and is generally willing to grant waivers where no direct link exists.
The e& case has offered preliminary guidance on the evaluation of foreign subsidies and the application of commitments to mitigate concerns. However, the question remains how far these measures will and should go. Further clarification is needed. The forthcoming Guidelines, of which a first draft is expected soon, will be useful for both undertakings and legal practitioners. Additionally, the Commission announced its intention to publish its first periodic report on the implementation of the FSR in July 2026, with a public consultation planned for the third quarter of this year. We look forward to this report as it will assess whether adjustments to the mandatory filing thresholds are warranted and will provide the Commission’s perspective on the complexity of the rules and costs incurred by businesses.