All companies operating in the EU need to start tracking foreign subsidies

The EU’s Foreign Subsidies Regulation comes into force 12 October 2023 and applies to all

From 12 October 2023, the EU’s Foreign Subsidies Regulation mandates new compliance obligations on all entities operating in the EU who receive foreign financial contributions (FFCs) from non-EU countries. 

FSR applies to all companies that are active in the EU and have received any form of direct or indirect financial contribution from a non-EU country (FFC). Those that engage in M&A transactions or public tenders in the EU are affected. 

Given the expansive nature of FSR, any entity receiving any FFC and who is submitting a public tender or M&A bid will have a compliance obligation to notify the EU Commission, who may request more information.

The main thing affected companies should do now is track any foreign financial contributions they or their subsidiaries receive. These may need to be reported when conducting M&A or submitting public tenders. Some companies will also need to consider how best to manage cost allocation, transfer pricing and governance issues, and prepare justifications relating to those foreign financial contributions.

What is a foreign financial contribution?

FFCs are defined in very broad terms and cover both actual transfer of state funds (such as a grant), as well as any foregoing of state revenue (such as a tax exemption). FFCs may come from central governments, as well as private or public entities whose actions can be attributed to a third country.

All financial contributions count. There is no threshold. FFCs can include:

✅ capital injections

✅ grants

✅ fiscal incentives

✅ loans

✅ guarantees

✅ contracts given below market terms

✅ debt to equity swaps

✅debt rescheduling

✅ tax exemptions

✅ granting of special or exclusive rights without adequate remuneration

Companies may be disqualified from public tenders if they do not report their foreign financial contributions or if they benefit from distortive subsidies. The European Commission has powers to investigate M&A deals and public tenders which have already been concluded, and could order a breakup of an M&A deal. The Commission can investigate foreign subsidies up to ten years from the date when they were given. 

What should you do now?

  • Track any and all foreign financial contributions your business or subsidiaries receive, including those from three years ago
  • Understand the thresholds and if you are required to file 
  • Prepare for FSR reviews if you engage in M&A in the EU, or public tenders
  • Get your deal documentation ready and be prepared to file it
  • Understand the complaints process
  • Consider the impact on public tendering

Even if your organisation doesn’t engage in M&A or public tenders now, it may do in the future. If you don’t start collecting FFC data now, you may be at a disadvantage in the future. This information will be required to assess whether the threshold has been met.

How can VinciWorks help?

Our Omnitrack system can track complex data at the touch of a button and get ready the FFC data your organisation needs to know. FRS includes all foreign financial contributions, including tax breaks, so it is vital to collect and monitor this data in order to prevent future possible M&A deals being broken up, or being blocked from public tenders. 

Omnitrack allows businesses to manage data collection, follow-up, approvals and reporting, all from one centralised portal. With ultimate flexibility and a best-in-class intuitive interface, you have complete control over your workflows.

  • Send out surveys
  • Aggregate data
  • Flag high-risk submissions
  • Automate reminder emails
  • Create dynamic dashboards
  • Build and edit forms
  • Download reports
  • Evidence your audit trail

Source link: https://vinciworks.com/blog/all-companies-operating-in-the-eu-need-to-start-tracking-foreign-subsidies/ by VinciWorks at vinciworks.com