EU Puts Its Cards on the Table With New Foreign Subsidies Compliance Guidance

Key Takeaways

• Clearer Enforcement Playbook: The European Commission’s new Guidelines explain how it will apply the Foreign Subsidies Regulation in practice, focusing on predictability rather than introducing new legal obligations.
• Two-Step Distortion Test: Once a foreign subsidy is identified, the Commission will assess whether it strengthens a company’s competitive position in the EU and whether it distorts competition or market dynamics.
• Heightened Scrutiny in Public Procurement: Bids suspected of benefiting from foreign subsidies may be compared against rival bids and authority estimates to determine whether any advantage is undue and subsidy-driven.
• Balancing test matters: Subsidies with distortive effects may still be allowed if their specific, subsidy-linked benefits clearly outweigh the competitive harm.
• Call-In Powers Remain Broad but Bounded: The Commission can require prior notification for below-threshold deals or tenders, but new safe harbors apply for low-value procedures, subsidies under €4 million, and certain extraordinary circumstances.

Deep Dive

The European Commission recently released its Guidelines under the Foreign Subsidies Regulation, a framework that has been in force since mid-2023 but has left many companies guessing how aggressively it would be enforced in practice. The new document does not change the law. Instead, it offers a clearer picture of how the Commission intends to use it.

At its core, the guidance tries to answer a practical question facing dealmakers, bidders, and investors operating in Europe: when does foreign financial support become a problem for competition, and how will Brussels prove it?

According to the Commission, once it establishes that a company active in the EU has benefitted from a foreign subsidy, the analysis will move in stages. Officials will first look at whether that support strengthens the company’s competitive position in the EU. Where the subsidy was not explicitly aimed at EU activities, the Commission says it will dig deeper to assess whether the funds could nonetheless be used to cross-subsidize operations inside the Single Market.

From there, the focus shifts to market effects. The Commission will assess whether the subsidy is likely to influence competitive behaviour or market dynamics in a way that disadvantages other players. Rather than relying on a rigid checklist, the Guidelines outline examples of subsidies that could raise concerns, while leaving room for case-by-case judgment.

Public procurement is one of the clearest pressure points. The guidance explains how the Commission will approach tenders where it believes a foreign subsidy may have influenced the terms of a bid. The starting point is whether the subsidy played a role in shaping the offer itself. If it did, officials will compare the bid against competing submissions and the contracting authority’s own cost estimates. Where a bid appears unduly advantageous, the Commission will then examine whether that edge comes largely from the foreign subsidy or from legitimate commercial efficiencies.

The Guidelines also spell out how Brussels will apply the Regulation’s balancing test, a mechanism that allows subsidies with distortive effects to escape objection if their benefits clearly outweigh the harm. Only positive effects directly linked to the subsidy under review will count. The Commission will consider how serious the distortion is and whether the claimed benefits could be achieved without it. If the balance falls in favour of the benefits, the case can close without intervention. If not, companies may be asked to offer commitments or face corrective measures.

Senior officials framed the Guidelines as a practical roadmap rather than a shift in policy direction. Teresa Ribera, Executive Vice-President for Clean, Just and Competitive Transition, said the aim was to move from principle to practice.

“With the release of the Foreign Subsidies Regulation Guidelines, we are giving organizations a clear and practical way to turn good intentions into action. The Guidelines set out shared expectations for responsible decision-making, so investments can move forward in a way people can trust,” she said.

Another area of long-running uncertainty has been the Commission’s ability to “call in” transactions or procurement procedures that sit below formal notification thresholds. The Guidelines confirm that this power remains firmly on the table. Brussels can require prior notification where it suspects foreign subsidies were granted to the relevant companies within the previous three years, taking into account factors such as competitive impact, strategic importance, and the risk of distortion.

At the same time, the Commission has drawn some clearer lines around when it will not intervene. The guidance introduces safe harbours covering low-value procurement procedures, subsidies below €4 million, and certain subsidies granted in response to extraordinary circumstances. Even so, any call-in must happen before a transaction is fully implemented or a contract awarded.

Stéphane Séjourné, Executive Vice-President for Prosperity and Industrial Strategy, pointed to public procurement as a particular focus for enforcement, “Our goal is to ensure that European companies compete on a level playing field. With these new Guidelines, we are providing clarity on how we address the distortive effects of foreign subsidies in public tenders. By aligning EU procurement procedures with the principles of merit and fair play, we are protecting the Single Market and ensuring that public investment continues to support industrial leadership and competitiveness across Europe.”

The document is the product of nearly a year of consultation. The Commission launched a call for evidence in March 2025, followed by targeted discussions with Member States and stakeholders ranging from businesses and legal advisers to academics and consumer groups. A public consultation on the draft Guidelines ran between July and September 2025, feeding into the final version.

The timing was not optional. Under the Regulation, the Commission was required to publish the Guidelines by January 13, 2026. It is also required to report to the European Parliament and the Council by July 14, 2026 on how it has been applying the rules, with the option of proposing legislative changes if enforcement experience points that way.

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