The Draft FSR Guidelines : What they mean for businesses operating in the EU?
On 18 July 2025, the EU Commission published the draft guidelines on the application of the Foreign Subsidies Regulation (“FSR”). The draft is open for public consultation until 12 September 2025, and stakeholders are invited to submit feedback via the EU Commission’s website (see Consultation on FSR Guidelines - European Commission).
The guidelines aim to clarify how the Commission intends to apply key provisions of the FSR, as there is currently little case practice to illustrate its enforcement. The EU Commission has indicated that the guidelines will be updated regularly to reflect future developments and emerging case law.
While providing an analytical framework, the Commission emphasises that they “do not constitute a ‘checklist’, to be applied mechanically”. Instead, the FSR guidelines outline how the EU Commission will exercise its discretion across three central areas:
Determining the existence of a distortion caused by a foreign subsidy (Section 2);
Applying the balancing test to weigh negative and positive effects of a foreign subsidy (Section 3);
Exercising its power to request the prior notification of concentrations and foreign financial contributions in public procurement procedures (Section 4).
These areas have been among the most debated by stakeholders since the adoption of the FSR, with concerns raised about the scope and predictability of enforcement.
1. Distortion of competition by a foreign subsidy
We recall that two cumulative conditions for a foreign subsidy to be considered distortive:
The subsidy must be liable to improve the competitive position of the beneficiary in the internal market; and
It must actually or potentially have a negative effect on competition in the internal market as a result.
The FSR guidelines confirm that the Commission will interpret “distortion” broadly, covering not only subsidies used directly within the internal market but also those that indirectly strengthen an undertaking’s EU activities (for example, subsidies granted abroad that free up capital for operations in the EU).
a. Is the subsidy liable to improve the undertaking’s competitive position?
The EU Commission identifies four categories of foreign subsidies in its assessment:
Direct subsidies used in the internal market : the clearest case where the distortion condition is typically presumed;
Subsidies directed towards EU activities : the EU Commission examines the purpose, scope, and conditions of the subsidy (e.g., subsidies linked to manufacturing in the EU, technology licensing to EU licensees, or subsidies conditioned on EU investments or acquisitions, including indirect contributions);
General or indirect subsidies : the EU Commission examines the likelihood of cross-subsidisation and expects companies to provide credible evidence of safeguards (e.g., legal or contractual obligations, distinct shareholding structures, binding sectoral rules);
Non-insignificant benefits : the benefit must exceed the de minimis thresholds set out in Article 4(2) and (3) of the FSR. The Commission considers the company’s EU footprint, sector dynamics, and value chain impact when assessing this.
b. Does the subsidy actually or potentially negatively affect competition?
To determine whether a foreign subsidy negatively affects competition, the EU Commission examines whether it alters competitive dynamics to the detriment of other EU market participants. This includes not only the activities of the subsidised undertaking but also downstream, upstream, and related markets.
The assessment follows a two-step process:
Establishing a reasonable link between the foreign subsidy and the beneficiary’s behaviour in the EU market; and
Comparing the competitive situation with and without the subsidy, taking into account factors such as the amount, purpose, sectoral characteristics, and the size of the undertaking.
The FSR guidelines provide illustrative examples of distortions, including: (i) subsidies enabling a company to outbid rivals in M&A transactions, (ii) subsidies allowing aggressive pricing or expansion beyond market norms, harming competitors, (iii) subsidies influencing investment decisions (including high-risk or strategically important projects) and (iv) subsidies affecting value chains, such as through the relocation of suppliers or acquisition of EU-based intellectual property.
c. Distortion in Public Procurement Procedures
The FSR Guidelines dedicate a section to public procurement, where the key issue is whether the foreign subsidy allows an operator to submit an unduly advantageous tender (through reduced prices, higher quality, or improved terms). The EU Commission examines:
Subsidies granted to the tenderer, its non-autonomous subsidiaries, parent companies, or key subcontractors and suppliers involved in the bid;
In some cases, subsidies granted to other entities within the corporate group, if they are not legally or factually restricted and may indirectly benefit the tenderer;
Comparisons with other bids or the contracting entity’s estimates to determine whether the tender is “advantageous.”
The “undue” nature of the advantage is assessed solely by the EU Commission, although contracting entities must provide all relevant information. An offer will not be considered “undue” if objective factors (such as efficiency gains) explain its advantageous nature.
2. The Balancing Test
Article 6 of the FSR allows the EU Commission, in the in‑depth phase of an investigation, to balance the negative effects of a foreign subsidy (distortion of competition) against positive effects on the subsidised activity and broader policy objectives.
The FSR Guidelines outline the methodology the EU Commission applies but emphasise that the assessment remains case‑specific.
a. Positive effects
The EU Commission examines two types of positive effects:
Effects on the development of the subsidised economic activity in the internal market: The EU Commission assesses whether the subsidy enables the activity to exist, or significantly alters its development (e.g., by remedying a market failure). Market failure must be proven by the party invoking it and is narrowly construed ;
Broader effects linked to EU or other relevant policy objectives: The EU Commission may consider positive effects on other undertakings in the supply chain or on other economic activities of the same group, provided these are relevant. EU policy objectives, including those in the Charter of Fundamental Rights (e.g., environmental and social standards, R&D promotion), are particularly significant. Objectives from non-binding EU acts (communications, guidelines) or even non-EU policy goals may also be relevant if connected to the EU’s interests;
For tenders, the EU Commission considers the availability of alternative sources of supply. A subsidised tender may be deemed positive if no other eligible offers exist, provided the tender is structured so that non-subsidised bidders could realistically participate (i.e., no exclusionary design of tender terms).
b. General principles for the balancing test
The balancing test is guided by several principles that shape the EU Commission’s assessment:
Positive effects must be directly linked to the distortive subsidy. The party invoking them must demonstrate, with sufficient likelihood, that the subsidy caused (or could cause) a change in behaviour leading to those effects;
Subsidies causing serious distortions (especially those listed in Article 5(1) the FSR) are less likely to be offset by positive effects;
The EU Commission distinguishes between negative effects that are unavoidable to achieve the policy objective and those exceeding what is necessary; and
The EU Commission does not require the parties to provide a quantified comparison of positive and negative effects. Instead, it relies on a qualitative assessment, considering the nature, scope, and intensity of the effects in question.
The outcome of the balancing test directly affects how the case is resolved. If the positive effects outweigh the negative ones, the EU Commission may decide not to impose commitments or redressive measures. Conversely, if the negative effects prevail, the balancing test helps determine the scope and nature of any commitments or measures, which can be tailored to preserve the positive effects identified. While the test is usually carried out separately for each foreign subsidy, the EU Commission may, where appropriate, assess multiple subsidies jointly.
c. Procedural aspects
The burden of proof lies with the party invoking the positive effects, which may include the investigated undertaking, Member States, third countries, or other economic operators. These parties must provide detailed and substantiated evidence, addressing the nature, likelihood, and significance of the alleged effects, the timeframe in which they are expected to materialise, the reasons why they are specific to the distortive subsidy, and an analysis allowing the EU Commission to determine whether the distortive effects go beyond what is necessary to achieve the positive effects. They must also demonstrate why the benefits are capable of mitigating or outweighing the distortion identified by the Commission.
Although evidence can be submitted at any stage of the investigation, the EU Commission is not required to consider materials filed at the final stage of the proceedings, even if it will make reasonable efforts to do so. For parties other than the investigated undertaking, submissions should ideally be made within one month of the publication of the summary notice. The investigated undertaking itself can supplement the information included in its notification, particularly in merger or public procurement cases, within the timeframe specified by the Commission in its Statement of Grounds..
3. Prior Notification Powers
The FSR grants the EU Commission discretionary authority to require prior notification of certain operations that would not otherwise trigger mandatory filing. Specifically, under Article 21(5) of the FSR, the EU Commission may call in concentrations falling below the standard thresholds, while Article 29(8) of the FSR allows it to require the notification of foreign financial contributions in public procurement procedures that would not otherwise be subject to review.
The EU Commission may exercise these powers where it suspects that foreign subsidies have been granted to the undertakings concerned within the three years preceding the transaction or tender. In deciding whether to request notification, the EU Commission takes into account several factors, including the strategic importance of the sector, value chain, or assets involved, particularly where critical infrastructure or innovative technologies are concerned. It also assesses the economic significance of the transaction or tender, considering the contract value and duration, the market presence and influence of the parties, and whether the foreign subsidy falls within the “high risk” categories listed in Article 5(1) of the FSR.
Through these powers, the EU Commission signals its intent to maintain close oversight of transactions and tenders in sensitive sectors, even when they fall below the usual thresholds.
4. What Should Businesses Do Now?
The draft FSR Guidelines confirm that the EU Commission intends to adopt a wide-ranging and case-specific approach in enforcing the FSR. For companies receiving third-country funding, particularly those involved in EU investments, concentrations, or public tenders, the implications are considerable.
Thus, businesses should take proactive steps to mitigate regulatory and compliance risks. This includes conducting a thorough review of all foreign financial contributions to identify potential exposure under the FSR and establishing internal procedures to prepare for possible investigations or notification requests by the EU Commission. It is important for companies to gather and maintain documentation demonstrating either that the subsidies they have received do not distort competition or, where relevant, that any negative effects are outweighed by positive impacts, such as contributions to economic development or EU policy objectives.
The consultation period remains open until 12 September 2025, offering an opportunity for stakeholders to influence the EU Commission’s approach before the FSR Guidelines are finalised. Businesses should engage actively in the ongoing consultation process to raise concerns about the scope, predictability, and administrative burden of the draft FSR Guidelines.
The FSR Guidelines are scheduled to be adopted by no later than 12 January 2026.
For further information, please contact :
Bruno Lebrun - Partner - b.lebrun@janson.be
Wafa Lachguer – w.lachguer@janson.be