Commission Guidelines on Foreign Subsidies Regulation

On 6 January 2026, the European Commission published Guidelines on Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (the ‘Foreign Subsidies Regulation’ or ‘FSR’).

FSR

The concern (vis-à-vis public procurement; the FSR also deals with concentrations, i.e. mergers and acquisitions etc.):

• Foreign subsidies (i.e. those granted outside the EU) could end up distorting competition in the EU if beneficiaries win public contracts
• Art. 4(1) FSR: “A distortion in the internal market shall be deemed to exist where a foreign subsidy is liable to improve the competitive position of an undertaking in the internal market and where, in doing so, that foreign subsidy actually or potentially negatively affects competition in the internal market.” Various factors are relevant to the question of distortion, including the amount and nature of the subsidy and the undertaking’s position in the EU market.
• Art. 27: “Foreign subsidies that cause or risk causing a distortion in a public procurement procedure shall be understood as foreign subsidies that enable an economic operator to submit a tender that is unduly advantageous in relation to the works, supplies or services concerned. The assessment pursuant to Article 4 of whether there is a distortion in the internal market and whether a tender is unduly advantageous in relation to the works, supplies or services concerned shall be limited to the public procurement procedure in question. Only foreign subsidies granted during the three years prior to the notification shall be taken into account in the assessment.”

The Commission’s 2026 Guidelines

Determining if there is a distortion

• Is the subsidy liable to benefit the undertaking’s economic activities in the internal market (even if no benefit actually materialises)? [18]
• Distinction between targeted foreign subsidies (supporting economic activity in the EU) and non-targeted. Targeted subsidies are assumed to improve the undertaking’s position in the EU; for non-targeted subsidies, the Commission will assess whether the undertaking is liable to utilise the subsidy to cross-subsidise activities in the internal market  [18]-[21]
• The Guidelines set out a wide understanding of targeted subsidies, to include, for example, supports to subsidise manufacturing or distribution activities in the EU; subsidies conditional on investments being made in the internal market; funding for research activities which might take place outside the EU but can be used to provide services in the internal market [19(a)].
• Regarding non-targeted subsidies, “the term ‘cross subsidisation’ includes any situation in which the undertaking transfers those resources to its economic activities in the internal market or uses them in any way which can be beneficial for those activities.” Detailed guidelines are set out as to how the Commission will go about assessing the potential for cross-subsidisation, including shareholding structures, economic links within groups of companies and agreements with third parties [22]-[32].
• Certain types of subsidies are not considered problematic – e.g. subsidies to address market failure outside the EU [33]

Negative Effects on Competition

• If liable to improve the undertaking’s position, the Commission assesses whether the subsidy actually or potentially negatively affects competition in the internal market
• The Commission assesses “firstly the impact of the foreign subsidy on the behaviour of the subsidised undertaking and secondly how that behaviour can alter, or interfere with, competitive dynamics to the detriment of other economic actors” [35]
• “In public procurement procedures, the Commission may look at the other tenders submitted in the same procedure to assess whether the subsidised tenderer had the potential to deter other operators from even participating in a given tender or outbid others and to be awarded the contract” [39]
• Factors to be considered by the Commission:
  • Impact of the subsidy on the undertaking’s behaviour; “the foreign subsidy might provide the subsidised undertaking with flexibility in its use, it might affect the undertaking’s costs and, consequently, affect the competitive dynamics through its impact on pricing or output decisions” [51]
  • Interference with competitive dynamics to the detriment of other economic actors

[A few more points to be added; include also an updated list of current Commission investigations under FSR]

For more detailed analysis of the FSR and the treatment of third country suppliers in public procurement, see our State Aid and Subsidies section