European Commission Adopts Final Guidelines on the EU Foreign Subsidies Regulation

Clarifying the notion of distortion, the balancing test, and its call-in powers

On Jan. 9, 2026, the European Commission (“Commission”) adopted Guidelines on the application of certain provisions of Regulation (EU) 2022/2560 on foreign subsidies distorting the internal market (the “Guidelines”) following the public consultation on the draft Guidelines in July 2025 (please see the coverage here). While the Guidelines offer further welcome guidance, some aspects remain open-ended and subject to a wide margin of discretion in practice.

The Guidelines are intended to support the application of the Foreign Subsidies Regulation (“FSR”) by clarifying how the Commission will assess foreign subsidies that may distort competition in the Union’s internal market.

The Guidelines are adopted pursuant to Article 46(1) FSR, which requires the Commission to publish and regularly update such guidelines. In line with this obligation, the Guidelines seek to enhance legal certainty by explaining the analytical framework the Commission will apply when examining distortive effects, the balancing test, and the exercise of its discretionary call-in powers in cases falling below the notification thresholds.

1. Assessment of the distortive effects of foreign subsidies

Under the FSR, the Commission may prohibit a concentration or prevent the award of a public procurement contract where it concludes that foreign subsidies received by a buyer or bidder distort competition in the internal market and that such distortion cannot be adequately remedied by commitments. The assessment of distortive effects therefore lies at the heart of the FSR framework.

1.1 Two cumulative conditions for distortion

Article 4(1) FSR sets out two cumulative conditions for a determination of distortion:

1. the foreign subsidy must be liable to improve the competitive position of an undertaking in the internal market;^*1 and
2. by improving that competitive position, the foreign subsidy must actually or potentially negatively affect competition in the internal market.^*2

In public procurement cases, the Commission applies a specific test focusing on whether a foreign subsidy enables the submission of an unduly advantageous tender.^*3

Given the complicated nature of foreign subsidies, the Commission confirms that it may rely on a non-exhaustive set of indicators including, the amount and nature of the subsidy, the situation of the undertaking concerned, the level and evolution of its internal market activity, and the purpose, conditions, and use of the subsidy.^*4

1.2 Liability to improve competitive position in the internal market: targeted subsidies and non-targeted subsidies (cross-subsidization)

The Guidelines confirm that foreign subsidies are liable to improve an undertaking’s competitive position where they are:

• used in the internal market,^*5 or
• intended or directed at the internal market,^*6 including subsidies granted to support EU economic activities ^*7 or are conditional on EU-related events (such as acquisitions, investments, or participation in public procurement).^*8

Such subsidies are classified as targeted foreign subsidies by the Guidelines.

The Commission also clarifies that non-targeted subsidies which are neither directly used in the EU nor explicitly targeted at it may nonetheless improve the competitive position of an undertaking through cross-subsidization.^*9 This may occur, for example, where a subsidy is granted to an undertaking outside the EU but:

• frees up resources that are subsequently used for EU activities;^*10
• is transferred, directly or indirectly, to EU operations;^*11 or
• enables EU entities to operate at a loss or with very low margins.^*12

To assess whether cross-subsidization is likely, the Commission will examine a range of practical factors, including:

• the design and conditions of the subsidy (including any direct or indirect conditions or obligations imposed by the granting authority), as they may prevent cross-subsidization;^*13
• shareholding and control structures, including joint control scenarios, that may prevent the entity from transferring the subsidy to another entity in which the jointly controlling shareholders have no shares in;^*14
• agreements with third parties, depending on their content and enforceability;^*15
• applicable laws and regulatory provisions;^*16 and
• the economic situation of the beneficiary undertaking, since cross-subsidization from entities in a distressed economic situation may be considered less likely.^*17

The Guidelines make clear that internal corporate policies or by-laws alone will rarely suffice to exclude cross-subzidisation.^*18

Undertakings are well advised to assemble documentation for non-targeted subsidies that convincingly demonstrate that the funds cannot be transferred to or used for EU-related activities.

Notably, the Guidelines also list certain foreign subsidies that are not liable to improve the competitive position of an undertaking in the internal market (additionally to those that fall under the de minimis threshold of Article 4(2) and (3) FSR), either because they are not liable to free up any resources or because any potential effects in the internal market would be insignificant. These are namely:

• foreign subsidies granted for addressing a market failure outside the Union and exclusively for activities taking place outside the Union;
• foreign subsidies pursuing purely non-economic or social objectives.

1.3 Actual or potential negative effects on competition in the internal market

Improvement of competitive position is not sufficient in itself for the Commission to conclude that a foreign subsidy is distortive.^*19 It must also determine whether the foreign subsidy actually or potentially negatively affects competition in the internal market.^*20

The Guidelines clarify that negative effects may arise, in particular:

• in the acquisition of other undertakings;^*21
• through the impact of the subsidy on the undertaking’s operating decisions;^*22
• through the alteration of investment decisions, including where and when investments are made;^*23 or
• through effects on other levels of the value chain, whether upstream or downstream.^*24

The Commission confirms that:

• potential effects are sufficient; actual effects are not required;^*25
• the subsidy need not be the sole cause of harm;^*26 and
• combined effects of multiple subsidies may be taken into account.^*27

2. Public procurement: unduly advantageous tenders

Foreign subsidies may also distort the internal market where they enable an undertaking to submit an unduly advantageous tender in a public procurement procedure. When assessing whether a foreign subsidy may have an impact on a tender, the abovementioned factors are used by the Commission in analogy.

2.1 Is the tender advantageous?

The Commission will first assess whether a tender is advantageous in relation to the works, supplies, or services concerned. An advantage may be reflected,^*28 inter alia, in:

• lower prices;^*29
• higher quality;^*30 or
• more favorable terms, including delivery schedules, warranties, after-sales support, payment terms, service levels, contractual flexibility, risk management, innovation, or sustainability commitments.^*31

To assess the tender, the Commission may compare it with:

• other tenders submitted;^*32
• the contracting authority’s estimates;^*33 or
• counterfactual scenarios reflecting what the tender would likely have looked like absent the foreign subsidy.^*34

2.2 Is the advantage undue?

A tender is unduly advantageous where the advantage stems, to an appreciable extent, from a foreign subsidy.^*35 The advantage may, however, be considered due where it can be plausibly justified by other factors, such as:

• cost-effective production processes;^*36
• innovations or novel technical solutions;^*37 or
• exceptionally favorable market conditions in the supply of goods or services.^*38

How the Commission assesses the notion of distortion in public procurement procedures can also be seen in the Commission’s practice, as it has opened several in-depth investigations under the public procurement tool. Some of them prompted the economic operator to withdraw their bid; while others are still pending. An indicator the Commission often refers to in its decisional practice for the assessment of distortion is the total amount of foreign financial contributions received in relation to the value of the tender, as foreign subsidies covering a substantial part of the estimated value of a contract to be awarded in a public procurement procedure are likely to cause distortions.^*39

3. Balancing test under Article 6 FSR

Once the Commission comes to the conclusion that there are negative effects stemming from a foreign subsidy in the form of distortion in the internal market, it may balance the negative effects against positive effects of the foreign subsidy in order to decide whether to impose redressive measures or accept commitments.^*40

The Guidelines provide helpful clarification on the types of positive effects that may be taken into account, such as contributions to the competitiveness and resilience of the Union’s economy.

In the context of public procurement procedures, the Commission also considers the availability of alternative sources of supply for the goods and services when performing the balancing test.^*41 The Guidelines clarify that the issue of missing alternatives for supply may also be relevant where the subsidised tenderer is the only tenderer that does not present a risk to security or public order.^*42

The Commission may rely on positive effects such as environmental protection, economic development in disadvantaged areas of the Union, energy security, innovation, contribution to the Union economy's competitiveness and resilience or contribution to the Union’s economic security or the Union defense policy.^*43 In addition, the Guidelines clarify that when the positive effects are related to non-EU policy objectives, the Commission may assess whether and how they have an impact on the Union. The Commission takes a rather broad approach, considering as potentially relevant even foreign subsidies that contribute to global welfare or promote global public goods, e.g., by supporting high environmental standards (such as climate change mitigation efforts in a third country or biodiversity protection), safeguarding human rights, or fostering research and development activities that lead to innovative products or technologies becoming available within the Union.^*44

This Commission’s approach should be welcomed as it adds a layer of flexibility. Practice will show how the Commission assesses whether and how positive effects related to non-EU policy objectives have an impact on the Union, as well as how strict the respective assessment standard of the Commission will be enforced.

4. Call-in powers for below-threshold cases

The Commission’s approach to call-ins below the thresholds for obligatory notifications has been clarified by the Guidelines. When assessing whether a case merits an ex-ante review, the Commission may consider elements such as:^*45

• in concentrations, contextual information that indicates the level of the relevant economic activity of the target (and in particular its turnover) and whether it reflects its actual or future economic significance;
• the strategic or important character of the current or future economic activity concerned, of the underlying or related sector, of the relevant supply or value chain, strategic or important character of the undertakings concerned (in concentrations), notably when they own strategic assets such as critical infrastructure or innovative technologies; and the strategic importance of the object of the public procurement procedure;
• patterns in investments, acquisitions, or participation in public procurement procedures;
• whether the Commission has already adopted a final decision which established that the undertakings concerned (in particular the acquirer in concentrations or the economic operator in public procurement procedures) or related undertakings, have already received distortive foreign subsidies, or whether the Commission has already adopted a decision to initiate an in depth investigation;
• contextual information indicating the possibility of a distortion, especially foreign subsidies that directly facilitate the concentration concerned, or enable the economic operator to submit an unduly advantageous tender.

The Guidelines also provide a safe harbor for concentrations and public procurement procedures, where the Commission can with sufficient certainty determine that the aggregate amount of foreign financial contributions do not exceed the threshold of EUR 4 million in the relevant prior three years. In such cases the Commission will not use its call-in powers.

The Commission also clarified that public procurement procedures are unlikely to have an impact in the Union and merit a call-in where their estimated value falls below certain thresholds (EUR 5,186,000 for public work contracts; EUR 134,000 for public supply and service contracts awarded by central government authorities; EUR 207,000 for public supply and service contracts awarded by sub-central contracting authorities; EUR 750,000 for public service contracts for social and other specific services).

The introduction of safe harbors for the Commission’s call-in powers represents the most significant change compared to the draft Guidelines. Beyond this, however, the Commission has avoided narrowing this power and has retained a broad discretionary margin based on a wide range of potential impact factors. As a result, for certain transactions and public bids, uncertainty remains as to whether the call-in power must be seriously taken into account early on.

5. Practical implications and outlook

While the administrative burden on the actually or potentially affected companies remains high under the FSR, the Guidelines provide valuable guidance and insights into the Commission’s assessment and clarify further aspects for undertakings and their advisors. This is especially reflected by the creation of safe harbors for the call-in powers of the Commission. However, certain aspects remain relatively vague including the notion of cross-subsidization and thus will benefit from further guidance by the Commission’s decisional practice.

More generally, the Guidelines are a welcome signal of the Commission’s commitment to making the FSR workable in practice. The level of detail and the effort invested in explaining the Commission’s analytical framework demonstrate a clear intention to provide better legal certainty and predictability for the market.

In line with this, the Commission has also launched a first review of the FSR and should publish by July 2026 a review report, potentially accompanied by legislative proposals. While the review report will also focus on some aspects that are addressed in the Guidelines, it will also focus on possible simplification of the FSR to reduce administrative burdens for undertakings.

• See FSR Guidelines, Section 2.2., para. 15; and Section 2.3., para. 18.
• See FSR Guidelines, Section 2.1., para. 10.
• See FSR Guidelines, Section 2.5., para. 78.
• See FSR Guidelines, Section 2.1., para. 11 and fn. 12.
• See FSR Guidelines, Section 2.3.1., para. 19(b).
• See FSR Guidelines, Section 2.3.1., para. 19(b).
• See FSR Guidelines, Section 2.3.1., para. 19(a).
• See FSR Guidelines, Section 2.3.1., para. 19(a).
• See FSR Guidelines, Section 2.3.2., para. 20; para. 21; para. 22; see also fn. 21 to para. 22.
• See FSR Guidelines, Section 2.3.2., para. 20; see also fn. 21 to para. 22.
• See FSR Guidelines, Section 2.3.2., para. 22.
• See FSR Guidelines, Section 2.3.2., para. 22, fn. 21.
• See FSR Guidelines, Section 2.3.2., para. 27.
• See FSR Guidelines, Section 2.3.2., para. 24.
• See FSR Guidelines, Section 2.3.2., para. 28.
• See FSR Guidelines, Section 2.3.2., para. 30.
• See FSR Guidelines, Section 2.3.2., para. 32.
• See FSR Guidelines, Section 2.3.2., para. 29.
• See FSR Guidelines, Section 2.4., para. 34.
• See FSR Guidelines, Section 2.4., para. 34.
• See FSR Guidelines, Section 2.4.4.1., para. 60.
• See FSR Guidelines, Section 2.4.4.2., para. 65.
• See FSR Guidelines, Section 2.4.4.3., para. 70; see also Section 2.4.2, para. 45.
• See FSR Guidelines, Section 2.4.4.4., paras 74–76.
• See FSR Guidelines, Section 2.4.2., para. 42.
• See FSR Guidelines, Section 2.4.2., para. 41.
• See FSR Guidelines, Section 2.4.1., para. 40.
• See FSR Guidelines, Section 2.5.1.1., paras 83–84.
• See FSR Guidelines, Section 2.5.1.1., para. 84.
• See FSR Guidelines, Section 2.5.1.1., para. 84.
• See FSR Guidelines, Section 2.5.1.1., para. 84.
• See FSR Guidelines, Section 2.5.1.1., para. 85(a).
• See FSR Guidelines, Section 2.5.1.1., para. 85(b).
• See FSR Guidelines, Section 2.5.1.1., para. 85(a); see also Section 2.5.1.1., para. 85(c).
• See FSR Guidelines, Section 2.5.1.2., para. 87.
• See FSR Guidelines, Section 2.5.1.2., para. 88.
• See FSR Guidelines, Section 2.5.1.2., para. 88.
• See FSR Guidelines, Section 2.5.1.2., para. 88.
• See FSR, Recital 19;See FSR Guidelines, Section 2.4.3.2., para. 57(b); For the Commission’s practice see for example Summary notice of 27 November 2025 concerning the initiation of an in-depth investigation in case FSP.103117 concerning a public procurement procedure with Portugal CRRC as main subcontractor OJ, C/2025/6441; Summary notice of 29 February 2024 concerning the initiation of an in-depth investigation in case FSP.100147, concerning a public procurement procedure with CRRC Qingdao Sifang Locomotive Co., Ltd. as notifying party, OJ, C/2024/1913; Summary notice of 22 April 2024, concerning the initiation of an in-depth investigation in Case FSP. 100151 concerning a public procurement procedure with LONGi Solar Technologie Consortium, consisting of ENEVO Group SRL and LONGi Solar Technologie GmbH as notifying parties, OJ, C/2024/2830; Summary notice of 22 April 2024, concerning the initiation of an in-depth investigation in Case FSP.100154 concerning a public procurement procedure with Shanghai Electric UK Ltd. and Shanghai Electric Hong Kong International Engineering Company as the notifying parties, OJ, C2024/2832.
• See FSR Guidelines, Section 3.1., paras 98–99.
• See FSR Guidelines, Section 3.2.3., para. 114; see also Recital 21 FSR.
• See FSR Guidelines, Section 3.2.3., para. 117.
• See FSR Guidelines, Section 3.2.2., para. 112.
• See FSR Guidelines, Section 3.2.2., para. 113.
• See FSR Guidelines, Section 4.3.2., para. 174.

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