Guidelines on the EU Foreign Subsidies Regulation Has Been Published

On 9 January 2026, the European Commission (the “Commission“) published the long-awaited Guidelines on the implementation of the Foreign Subsidies Regulation (“FSR“), which entered into force to control foreign subsidies distorting competition in the European Union (“EU“) Internal Market.

These Guidelines clarify the obligations and application procedures for undertakings operating in the EU market, planning to acquire companies, or participating in public procurements and receiving financial support, incentives, or loans from non-EU countries.

I. GENERAL FRAMEWORK

Regulation (EU) numbered 2022/2560 [1], the FSR, entered into force on 12 January 2023 and became applicable as of 12 July 2023. Under the FSR, a notification obligation applies to companies intending to invest in the EU Market through acquisitions or participation in public procurement, specifically for mergers/acquisitions and public procurement procedures that exceed certain thresholds. Through the FSR, the EU aims to remedy “unfair competition” in the EU internal market caused by the commercial advantage secured upon financial contribution from third countries outside the scope of EU state aid law.

The Commission published the Guidelines on 9 January 2026 to clarify principles of implementation for the FSR [2]. The Guidelines clarify how the Commission will assess whether a subsidy impedes competition along with the evaluation criteria.

The Commission employs two main instruments under the FSR to ensure the protection of fair competition:

1. Notification to the EU Commission

1.1. Mergers and Acquisitions: Concentrations exceeding the following thresholds and creating/potentially creating distortive effects must be notified ex ante:

(i) The aggregate turnover in the Union of the target company (or one of the merging parties) is at least EUR 500 million;

(ii) The combined aggregate financial contributions granted by third countries (e.g., Türkiye) to the undertakings concerned in the three years preceding the concentration are more than EUR 50 million.

Concepts of “Financial Contribution” & “Foreign Subsidy”

Despite the lack of a numerus clauses list, examples of Financial Contributions include capital injections, grants, fiscal incentives, deferral of tax liabilities, or debt forgiveness.

For a financial contribution to be considered a Foreign Subsidy, the following conditions must be met:

(i) The financial contribution is provided by a third country (third country condition) to an undertaking engaging in an economic activity in the internal market (internal market condition);

(ii) It confers a benefit (benefit condition); and

(iii) It is limited, in law or in fact, to one or more undertakings or industries (specificity condition).

1.2. Public Procurement Procedures: Financial contributions received must be notified when participating in public procurement procedures that exceed certain thresholds [3].

2. Ex Officio Review: Even if they fall below the notification thresholds, all other market actions and transactions suspected of distorting the level playing field in the internal market may be reviewed by the Commission on its own initiative (ex officio).

“Call-In” Mechanism: Beware Even If You Are Below the Thresholds!

One of the most striking sections of the newly published Guidelines relates to the Commission’s power to request prior notification (Call-In).

Even if the transaction falls below the thresholds mentioned above, the Commission may request a prior notification and open an investigation into the relevant transaction if it suspects that foreign subsidies have been granted in the last 3 years, provided that:

• In a concentration à the transaction has not been implemented (before the closing);
• In public procurement procedure à the contract has not been signed (before the signing).

The Commission will exercise this power based on criteria such as the impact of the transaction in the Union, its relevance to strategic sectors (e.g., critical infrastructure, technology), investment patterns, and whether the undertaking has received distortive subsidies in the past. However, if the total amount of foreign subsidies received by the undertaking concerned in the last 3 years is below EUR 4 million, this power is generally not exercised, as such subsidies are considered unlikely to distort competition in the internal market.

II. SCOPE: EXTRATERRITORIAL APPLICABILITY

The FSR covers any undertaking engaging in an economic activity in EU:

(i) Offering goods and services in the internal market, regardless of where the undertaking is based or its nationality;

(ii) Purchasing goods or services in the EU internal market and using these goods or services to offer goods or services to its customers (regardless of whether it offers these goods or services inside or outside the internal market)

(iii) Acquiring control of, or merging with, an undertaking established in the EU; or

(iv) Participating in a public procurement procedure in the EU.

Therefore, Turkish companies engaging in economic activity in the EU market through the means listed above fall directly within the scope of this regulation.

III. CONCEPTS CLARIFIED BY THE GUIDELINES: TARGETED, NON-TARGETED, AND CROSS-SUBSIDISATION

When assessing the impact of subsidies, the Commission distinguishes between targeted and non-targeted foreign subsidies as well. Targeted foreign subsidies are presumed to improve the competitive position of the subsidised undertaking because they directly support activities such as production, investment, or service provision within the EU. However, non-targeted foreign subsidies supporting activities outside the EU may also carry the risk of distorting the internal market through cross-subsidization. In the cross-subsidization assessment, the Commission essentially aims to determine, based on economic and legal criteria, whether support received outside the EU finances aggressive pricing, investments, or acquisitions within the EU.

The Guidelines emphasize structural and legal factors that legally or factually limit the transfer of resources or render it economically irrational, rather than relying on purely theoretical possibilities when assessing whether non-targeted foreign subsidies indirectly support activities in the EU via cross-subsidization. In this context, it is accepted that certain factors, depending on the specifics of the case, reduce the likelihood of cross-subsidization.

IV. DETERMINATION OF THE “UNDUE NATURE OF ADVANTAGE” IN PUBLIC PROCUREMENT

The Guidelines place the concept of unduly advantageous tender at the center of the “distortive effect” analysis in public procurement. The Commission’s assessment is limited to the specific procurement procedure rather than general market effects.

According to the Guidelines, the Commission follows a practical three-step framework in determining “undue nature of advantage”:

(i) Is the tender advantageous?

Advantage is not perceived solely as low price; it is assessed by considering factors offered within the tender, such as increased quality, shorter delivery times, better warranty terms, more reasonable payment terms, and/or contractual flexibility.

(ii) Is the advantage undue?

The advantage is considered “undue” if it stems to an appreciable extent from the foreign subsidy. On the other hand, if it can be explained by reasonable factors other than the subsidy (e.g., more efficient use of resources, innovative technical solutions, etc.), it may be considered “due”.

(iii) Does this actually/potentially affect the outcome of the public procurement procedure?

The subsidy is deemed to de facto affect the outcome of a tender if it enables the awarding of the contract, either inherently or in terms of negotiation procedures, or if it assists in securing work that falls outside a framework agreement. Additionally, the deterrence of other potential tender participants due to the prospect of “competing against a subsidised rival” is also evaluated as a negative effect.

V. BALANCING TEST: WEIGHING DISTORTIVE AND POSITIVE EFFECTS

Even if the Commission establishes that a foreign subsidy has a distortive effect on fair competition in the internal market, it will carry out a final assessment by balancing these negative effects against the positive effects generated by the subsidy. This process is called the “Balancing Test” and is carried out on a case-by-case basis. In the context of the balancing test , elements such as the contribution to the development of the relevant subsidised economic activity on the internal market, effects regarding the remedying of structural market issues, effects regarding the achievement of relevant policy objectives, in particular those of the EU (such as environmental protection, promotion of social standards, energy security, EU defense policy, etc.), and ensuring the continuity of public services  are considered among the balancing positive effects.

Naturally, in assessing these positive effects, due regard is had to the existence of an appropriate causal link between the subsidy and the economic, political or social benefits alleged to be achieved through the subsidised investment, to whether the benefits put forward are sufficient to counterbalance the negative effects, and to whether a benefit necessary for the protection of the EU internal market or for the pursuit of common EU policies is being targeted. Given that the categories of subsidies listed in Article 5(1) of the FSR, which are considered most likely to distort competition, are regarded as having a very limited potential to be counterbalanced by positive effects as a matter of principle, it is highly unlikely that such subsidies would successfully pass the balancing test.

[1] EU Regulation dated 14.12.2022 and numbered (EU) 2022/2560, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R2560

[2] Guidelines, https://competition-policy.ec.europa.eu/document/download/c43a346a-fd4c-4268-aed0-ab0c8578022d_en

[3] see: the thresholds set pursuant to Article 4 (a), (b) and (c), EU Directive on Public Procurement numbered 2014/24/EU, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014L0024