European Commission Publishes Guidelines on the Application of the Foreign Subsidies Regulation (FSR)

• The European Commission has issued FSR Guidelines explaining how it will apply the Foreign Subsidies Regulation to investigate and remedy market distortions caused by foreign subsidies in the EU.
• The Guidelines set out the Commission’s methodology for distortion assessments, identifying unduly advantageous procurement bids, running the balancing test, and using call-in powers for cases below notification thresholds.
• Overall, they provide a practical roadmap for how the FSR will operate in day-to-day enforcement and compliance.

The FSR introduces a harmonised EU-level system for detecting, investigating, and, where appropriate, remedying distortions in the internal market linked to foreign subsidies. Its overarching logic mirrors classic competition-policy concerns: where financial support from non-EU states materially alters competitive conditions within the Union, the Commission should be able to intervene to restore fairness – while still keeping the EU market open and attractive for investment.

Within the FSR framework, a foreign subsidy is defined as a financial contribution from a third country that confers an advantage on an undertaking engaged in economic activity in the EU internal market and that is selective, meaning it is limited to certain undertakings or specific industry sectors. A critical point emphasised by the Regulation – and echoed in the Guidelines – is that foreign subsidies are not automatically prohibited. Rather, the Commission must evaluate whether a subsidy distorts the internal market, and it does so through a case-by-case assessment.

To ensure the framework is workable across different business contexts, the FSR provides three procedural pathways through which the Commission can examine foreign subsidies:

• Own-initiative (“ex officio”) reviews of foreign subsidies (Article 9 FSR);
• Mandatory notification for certain concentrations (Articles 19–26 FSR); and
• Mandatory notification for certain foreign financial contributions linked to public procurement (Articles 27–33 FSR).

These instruments are generally activated when defined thresholds are met. However, the regime also leaves room for action in circumstances where thresholds are not reached, particularly where the Commission nevertheless has indications that a foreign subsidy may have a distortive effect.

Because the FSR is still relatively new and can be relevant in very different market situations, the FSR empowered the Commission to enact so-called secondary rules to refine concepts and legal provisions under the FSR with respect to four aspects:

• how the Commission will analyse the existence of a distortion under Article 4(1) FSR;
• the Commission’s approach to the balancing test set out in Article 6 FSR; and
• the circumstances in which the Commission may require prior notification of cases that would otherwise fall outside the standard notification requirements—namely non-notifiable concentrations and non-notifiable foreign financial contributions in procurement—under Articles 21(5) and 29(8) FSR; and
• how distortions may arise in the setting of public procurement under Article 27 FSR.

The Commission underlines that the Guidelines are not meant to operate as a mechanical checklist. Rather, their stated objective is instead to strengthen legal certainty by explaining how the Commission expects to interpret the FSR and by providing structured analytical approaches that can be applied flexibly to the facts of individual cases.

1. Determining whether there is a distortion (Article 4(1) FSR)

A central clarification in the Guidelines is how the Commission understands the concept of “distortion” in the internal market for purposes of Article 4(1) FSR. The Commission confirms that a distortion is considered to exist where two cumulative conditions are satisfied:

• the foreign subsidy is liable to improve the competitive position of the beneficiary undertaking in the internal market; and
• the subsidy actually or potentially harms competition within the internal market.

In practice, these conditions become relevant once the Commission has first established that an undertaking engaged in economic activity in the EU has benefited from a foreign subsidy. To apply the distortion test in a structured way, the Guidelines explain that the Commission typically follows a two-step method.

Step 1: Does the subsidy strengthen the beneficiary’s competitive position in the EU?

The first part of the assessment focuses on whether the foreign subsidy is capable of improving the beneficiary’s position in the Union. For subsidies that are explicitly directed at EU activities, the analysis tends to be relatively straightforward. Examples include direct funding for an EU-based subsidiary, financial support linked to a specific project in the Union, or transaction financing that clearly facilitates an acquisition or investment in the EU.

By contrast, where a subsidy is not targeted at EU economic activity – i.e. it is granted without an explicit connection to operations in the internal market – the Commission expects to conduct a more granular examination. In such cases, it will look at whether and how the financial support can be used to cross-subsidise EU activities. The practical question becomes whether resources granted outside the EU can free up funding, reduce costs, or otherwise enable the beneficiary to compete more aggressively in the internal market.

Step 2: What is the effect on competition?

If the Commission concludes that the subsidy can strengthen the beneficiary’s position, it then considers whether the measure is liable to alter market dynamics in a way that disadvantages others. This element looks to the potential for the subsidy to affect competitive behaviour or broader market outcomes – such as pricing, investment incentives, expansion decisions, bidding strategies, or the ability of rivals to compete on equal terms.

To illustrate what may qualify as distortive, the Guidelines include a non-exhaustive set of examples, such as: subsidies granted to ailing undertakings, unlimited guarantees, and financial support that facilitates concentrations or enables unduly advantageous tenders, which are already provided for in the FSR itself (Art. 5(1) FSR). The examples are presented as indicative rather than determinative; the Commission retains discretion to assess each situation on a case-by-case basis.

2. The balancing test under Article 6 FSR

The FSR provides that the Commission may, in appropriate cases, weigh the subsidy’s negative effects (in terms of distortion of the internal market) against the positive effects associated with the subsidy. These positives may include the development of the subsidised economic activity in the internal market as well as broader benefits aligned with relevant policy objectives, including those of the Union.

The Guidelines make clear that the Commission applies the balancing test only after a distortion has been found under Article 4(1) FSR. The exercise is inherently fact-specific, and the Commission emphasises that it is not feasible to declare in advance that a certain category of subsidy – however structured – will necessarily generate positive effects that outweigh the distortion caused by that subsidy.

When assessing positive effects, the Guidelines indicate that the Commission will consider, among other things:

• the nature of the positive effects, including their relevance to the development of the subsidised activity in the internal market and/or their link to relevant policy objectives;
• the intensity or magnitude of these positive effects; and
• the timing of the benefits (including when they are expected to materialise).

The Commission also signals that, for subsidy types that are particularly likely to distort the internal market, it will generally be more difficult for positive considerations to outweigh the negative effects.

Where the Commission concludes that negative effects prevail, the balancing analysis can still play a practical role in that it may help determine the appropriate form and level of commitments or redressive measures. On the other hand, if the Commission finds that the positive effects outweigh the distortion, it may close the case without imposing remedies. If a balancing test is carried out based on the information available, the Guidelines indicate that the Commission will explain its reasoning in the decision that closes the in-depth investigation.

3. “Call-in” powers for non-notifiable cases (Articles 21(5) and 29(8) FSR)

Beyond the standard notification triggers, the FSR equips the Commission with a “call-in” mechanism. Specifically, the Commission may require prior notification of:

• concentrations that are not otherwise notifiable under the FSR and have not yet been fully implemented; and
• foreign financial contributions in a public procurement procedure that are not otherwise notifiable, provided that the contract has not yet been awarded.

According to the Guidelines, the Commission may use this power where it suspects that foreign subsidies were granted in the three years preceding the concentration or the submission of the tender. In deciding whether a call-in request is appropriate, the Commission looks at the case’s potential relevance for the Union. Factors that may be considered include actual or potential effects relating to production of goods or services in the EU, access to technology, intellectual property rights, or the availability of services.

At the same time, the Guidelines identify certain safe harbour situations that are generally unlikely to attract a call-in request. These include: low-value procurement procedures, cases where foreign subsidies do not exceed EUR 4 million over the relevant three-year period, and subsidies granted to address certain extraordinary circumstances.

4. Distortions in public procurement (Article 27 FSR)

The Guidelines devote particular attention to public procurement, where the FSR is concerned with situations in which foreign subsidies may allow an economic operator to submit a tender that is unduly advantageous relative to the contract at issue. For the Commission, procurement cases require a method that is structured but also capable of dealing with the practical realities of tendering processes.

The Guidelines therefore outline a three-part methodology for assessing whether a foreign subsidy has enabled an operator to submit a bid that is unduly advantageous in relation to the relevant works, supplies, or services.

1) Is the tender advantageous?

The starting point is to determine whether the tender is advantageous compared with the contract requirements and competitive benchmarks. The Commission may examine whether the foreign subsidy allowed the operator to offer more attractive conditions, which can include not only price but also a broad range of qualitative and contractual terms – such as quality, delivery and lead times, warranties, payment terms, service levels, innovation, or sustainability features. The Commission may compare the tender with other bids submitted in the same procedure, consult the contracting authority’s internal estimates and preparatory documents, or develop a counterfactual scenario – essentially, what the tender might have looked like without the foreign subsidy.

2) If advantageous, is the advantage “undue”?

Where the tender appears advantageous, the next step is to assess whether the advantage is undue, meaning it results, to an appreciable degree, from the foreign subsidy. The Commission will consider whether the bid’s attractiveness can be explained by other plausible, non-subsidy factors. The Guidelines mention examples such as efficient production methods, innovative solutions, novel technical approaches, or exceptionally favourable supply conditions. In this second step, the Commission seeks to distinguish advantages that arise from legitimate efficiencies and innovation from those that are materially enabled by foreign financial support.

3) Does it affect the procurement outcome?

If the Commission concludes that the tender is unduly advantageous due to a foreign subsidy, it then evaluates the actual or potential negative effects on the procurement process and its outcome. This step addresses how the subsidy-driven advantage may influence the awarding decision, the competitive landscape of the procedure, and the prospects of other bidders.

Taken together, the Guidelines provide a substantial interpretative framework for understanding how the Commission intends to apply the FSR in practice. They explain the Commission’s approach to identifying and analysing distortions, clarify when and how the balancing test may be used, and describe the circumstances in which the Commission might bring non-notifiable cases within scope through its call-in powers.

Compared with the initial draft of the guidelines from August 2025, the final Guidelines are clearer and more workable: they distinguish targeted vs. non-targeted subsidies, list categories that are unlikely to raise concerns, let the Commission weigh positive effects across multiple subsidies, and add additional guidance for small procurement bids, reducing the risk that routine cases face long reviews.

However, significant compliance burdens remain. The cross-subsidisation concept is still very expansive and may require extra evidence even where internal controls exist; the bar for finding a distortion is lower than in merger control, increasing the likelihood of scrutiny; and the call-in power remains broad and open-ended, making deal and bid planning less predictable.

As the Commission’s enforcement practice develops and more decisions are adopted, these Guidelines are expected to become an important reference point—both for shaping how the FSR is applied and for informing the compliance planning and transaction strategies of undertakings that operate in the EU internal market.