New EU FSR Guidelines: What Changed, What Still Hurts, and How to Prepare

The European Commission (Commission) has now published its Guidelines on the application of the Foreign Subsidies Regulation (FSR). These Guidelines introduce several important clarifications in comparison to the draft Guidelines of August 2025. While the added guidance is welcome, a number of positions in the final text still raise legal certainty and proportionality concerns for companies operating in the EU.

The Guidelines cover: (i) the distortion criteria under Article 4(1); (ii) the balancing test under Article 6 and (iii) the Commission’s call‑in powers to request prior notification of concentrations and foreign financial contributions in public procurement; and (iv) the assessment of distortions in public procurement. Here’s what’s new compared to the August 2025 draft:

1. Distortion: Cross-subsidisation safe harbours with blurry edges

The most controversial approach of the Guidelines is potential cross-subsidisation. The Commission is focused on situations where foreign subsidies, even if not targeted at the EU single market, might still indirectly distort competition here.

Whenever the Commission assesses distortions in the single market, one of the most problematic questions that companies will need to answer is whether money or support received by government entities outside the EU could benefit a company in the EU single market - even if that support was never intended to benefit EU activities. This is known as “cross-subsidisation.” 

The Guidelines now distinguish between targeted foreign subsidies (that support, directly or indirectly, the undertaking’s economic activities in the internal market) and non‑targeted foreign subsidies : 

• Targeted support will typically be considered liable to improve the undertaking’s competitive position. This includes, for instance, foreign subsidies granted to back manufacturing or distribution activities in the internal market or to fund research in relation to activities which take place either within or outside the EU.
• For non‑targeted subsidies, the Commission considers a range of factors to decide if there is a credible possibility that the funds could be found disruptive in the EU. This encompasses, for example, foreign subsidies of general scope or objective, or that could free up resources that the entity can deploy across any of its economic activities. 

This assessment is based on several factors including:

• Overlaps in the shareholding structure. The Guidelines consider that common control between various entities active in the EU could facilitate cross-subsidisation. By contrast, the presence of strong shareholders in only one entity decrease such risk.
• Functional, economic and organic ties. According to the Guidelines, inter alia common or coordinated strategies, or financial interdependence between various entities increase the likelihood of cross-subsidisation.
• Binding third‑party agreements. Binding fiduciary duties in partnerships between limited partners and fund managers, as well as certain obligations in shareholders’ agreements can effectively prevent cross-subsidisation.
• Applicable laws. Regulatory provisions imposing accounting or functional unbundling obligations between entities or bankruptcy or insolvency laws which protect creditors may be considered as credible obstacles for cross-subsidisation.
• Economic situation of the recipient undertaking. The Guidelines consider that recipient entities in financial distress have less incentives to cross-subsidise than other entities.

Practical takeaway: For non‑targeted subsidies, prepare evidence that credibly blocks transfer to or use of resources for EU activities (e.g., JV vetoes, binding agreements, regulatory unbundling, insolvency protections) and quantify why any amounts are insignificant relative to your EU footprint.

In addition, the Guidelines introduce types of subsidies considered not liable to improve the EU competitive position (so called “safe harbours”). These subsidies won’t trigger concerns or require further investigation under the FSR. 

These safe harbours cover subsidies (i) to address market failures for activities taking place exclusively outside of the Union; (ii) for purely non‑economic or social objectives; (iii) for natural disaster/exceptional occurrences; (iv) under de minimis amounts (i.e., €4m collectively or €200,000 from a single non-EU country over any consecutive period of three years); or (v) amounts insignificant relative to the undertaking’s EU activities. Beyond the specific de minimis carve-outs, there is no quantitative threshold up to which a foreign subsidy is always considered acceptable. Instead, the Commission assesses whether competition is affected to an appreciable extent. 

2. Balancing test: a roadmap with explicit aggregation of positives

Ultimately, the Commission uses a “balancing test” to decide whether the positive effects of a foreign subsidy (such as supporting important EU policy goals or innovation) outweigh any negative effects it might have on competition in the EU market. This approach intends to limit remedies or restrictions to cases where a subsidy has a negative effect on the EU market.

Under the Guidelines, the Commission may now aggregate positive effects of several subsidies, mirroring the possibility to aggregate negative impacts - ending the asymmetry we flagged in our response to the draft Guidelines. The Guidelines now also lay out a methodology for the balancing test.

Practical takeaway: When facing a transaction which might trigger in-depth scrutiny of the Commission, information about the positive impact of a subsidy in the EU should be collected early an. 

3. Call in powers: modest guardrails, but no early screening lane

Under the FSR, the Commission has the authority to “call in” certain transactions or public procurement bids for review – even if they don’t automatically trigger notification requirements. 

The final Guidelines do not limit the Commission’s powers to do so. The Guidelines only state that the Commission will not request prior notification of a concentration or a public procurement bid where it can determine without a notification that foreign subsidies involved are either non-material or non-distortive. In practice, this will not limit call-ins as such information is usually not in the public domain. 

If the Commission eventually decides to call in a case, it must provide evidence showing there is a real suspicion of foreign subsidies and explain how the case could impact the EU. To assess potential “impact on the EU”, the Commission looks at an open-ended list of factors including strategic assets, critical infrastructure and innovative technologies. 

While the Commission aims to avoid unnecessary delays in procurement processes, there are no fixed deadlines for these reviews. Proposals for a fast-track screening process were not adopted, and the broad list of factors means the Commission has significant discretion, which can create uncertainty for businesses. 

Practical takeaway: Assess the risk of an FSR call‑in in deal and public procurement planning. Companies should pre‑compute the €4m exposure per three‑year window and track “impact” factors (strategic assets/critical infrastructure/innovation) early to gauge call‑in risk.

4. What’s Good, What Still Hurts, and Practical Implications

What has improved by comparison to the draft Guidelines:

• The Guidelines now clearly separate “targeted” and “non-targeted” subsidies and provide a practical list of what is not likely to be a problem (“not liable” categories). This makes it easier for companies to understand where they stand and reduces uncertainty.
• The balancing test is now more balanced: the Commission can consider positive effects from several subsidies together, not just negative ones.
• The introduction of a clear “de minimis” threshold (€4m over three years) and guidance for smaller procurement bids means many routine transactions will not be caught up in lengthy reviews.

What remains a burden:

• The rules on cross-subsidisation are still extremely broad. Even if a company has strong internal policies, the Commission may look for additional evidence to show that foreign support isn’t being used to benefit your EU business.
• The threshold for what counts as a “distortion” is lower than in merger control, so even smaller or less obvious impacts can trigger scrutiny.
• Call‑in retains open‑ended with a wide range of impact factors making planning more difficult and creating uncertainty for businesses. 

Practical implications for companies:

• Maintain a consolidated register of foreign financial contributions (FFCs): Keep accurate records of all foreign financial contributions received over the past three years, including market-based transactions, to ensure you can quickly assess your exposure and meet threshold calculations if needed. Get in touch to see our guidance templates and trackers.
• Be alert to possible call-ins: Even if your deal or public procurement bid does not automatically require notification, the Commission can still “call in” your case for review if there are signs that foreign subsidies might distort competition in the EU. Early identification of risk factors can help you prepare and consider whether specific clauses in transaction documents are needed.
• Prepare early and document thoroughly: Since there is no fast-track or short-form screening process, proactive preparation and clear documentation are essential. This will help you respond efficiently if the Commission requests a review and reduce the risk of delays or surprises.