Brussels à jour January 2026

New Year, New Rules: The Commission's Final FSR Guidelines

The European Commission published its final Guidelines under the Foreign Subsidies Regulation, introducing clearer subsidy categories, refined cross-subsidization criteria, and enhanced balancing-test guidance.

As the January frost settled over the European Quarter, on 9 January 2026 the Commission delivered the highly anticipated final set of guidelines to practitioners navigating the Foreign Subsidies Regulation (Regulation (EU) 2022/2560, FSR). The timing is apt: the new year invites new resolutions, and the final Guidelines – arriving after a spirited public consultation on the draft guidelines of mid-2025 – signal the Commission's own resolution to bring greater predictability to FSR enforcement. For dealmakers and their counsel, this is more than just another piece of Brussels bureaucracy. It's the new rulebook that sheds some light onto the Commission's application of the FSR. This edition of Brussels à Jour unpacks the key deviations from the draft, what they mean for your next transaction, and where the hidden traps lie.

Structure and Key Changes

The final FSR Guidelines refine concepts left vague in the 2025 draft guidelines. The Commission emphasizes that the Guidelines aim to enhance legal certainty while candidly acknowledging that enforcement remains at an early stage. The document covers three core areas: the criteria for determining a distortion under Article 4(1) FSR, the mechanics of the balancing test under Article 6 FSR, and the outer limits of the Commission's call-in powers under Articles 21(5) and 29(8) FSR.

Before delving into the novelties, it's worth recapping the fundamental test. The Guidelines reaffirm that a distortion exists only where a foreign subsidy meets two cumulative conditions: (1) it must be "liable to improve the competitive position" of an undertaking in the internal market, and (2) in doing so, it must "actually or potentially negatively affect competition" in the internal market. The final text provides much-needed granularity on how the Commission approaches each prong of this test, starting with a new taxonomy of subsidies.

Targeted and non-targeted foreign subsidies

What has changed? The most significant structural novelty in the final Guidelines is the formal distinction between "targeted" and "non-targeted" foreign subsidies. This new taxonomy brings welcome (if not absolute) clarity to the first prong of the distortion test, helping undertakings triage their subsidies and assess risk more effectively.

Targeted foreign subsidies are those that, by their nature, purpose, or conditions, are geared towards supporting an undertaking's economic activities in the internal market. The Guidelines provide a non-exhaustive list, including subsidies for EU-based production, subsidies conditional on making an investment or acquisition in the EU, or guarantees explicitly covering EU activities. Crucially, if a subsidy is targeted, the Commission will presume it improves the undertaking's competitive position, meaning this part of the test is generally satisfied without further deep analysis. The burden then shifts to assessing the actual or potential negative effects on competition.

Non-targeted foreign subsidies are those with no direct, obvious link to EU activities. This includes, for instance, general tax schemes, subsidies to build a factory in a third country, or other support for non-EU operations. Here, the Commission invokes the fungibility of money principle: a subsidy for activities abroad can free up resources that are then used to cross-subsidize EU operations. For this category, the Commission will assess the potential for such cross-subsidization. If there are no credible legal or economic factors preventing this transfer of value, the subsidy is still considered liable to improve the undertaking's competitive position.

Gauging Cross-Subsidization Risk for Non-Targeted Subsidies

So, how does an undertaking prove that a non-targeted subsidy won't leak into its EU business? The Guidelines set out an expanded list of factors the Commission will examine to gauge cross-subsidization risk:

Shareholding structure: whether entities sharing common ownership create incentives for resource transfer.
Functional, economic, and organic links: joint or overlapping management, common strategies, veto rights, centralized financing, vertical or horizontal integration. The Guidelines are explicit: "the closer and more numerous the functional, economic and organic links […] the more incentives there would be for cross-subsidisation".
Subsidy design and conditions: any third-country obligations that may prevent or disincentivize resource transfers.
Agreements with third parties: binding arrangements that legally or factually preclude transfers can be a powerful defense. Examples include fiduciary duties owed by a fund manager to limited partners or restrictive covenants in shareholder agreements. However, the Commission fires a warning shot: internal group policies or by-laws are insufficient on their own, as they can typically be changed unilaterally. The exception is where such policies require the consent of an independent third party.
Applicable laws: regulatory regimes imposing strict accounting or functional unbundling (e.g., in regulated industries) or capital requirements in financial markets may serve as a barrier. The Guidelines also note that insolvency laws protecting creditors can limit an entity's ability to shift profits. In a critical clarification for multinationals, the Commission states that transfer-pricing rules are insufficient to prevent cross-subsidization, as their purpose is purely fiscal.
Economic situation: distressed entities may have reduced incentive to shift resources, given creditor protections.

Subsidies Not Liable to Improve Competitive Position

A fresh addition is Section 2.3.3, listing categories of subsidies the Commission considers not liable to improve the competitive position:

Subsidies addressing market failure outside the EU, designed to crowd-in private investment;
Subsidies pursuing purely non-economic or social objectives (e.g., inclusion of minorities or persons with disabilities); and
Subsidies compensating for natural disasters or exceptional occurrences, pursuant to Article 4(4) FSR.

This carve-out provides a degree of comfort for undertakings with benign third-country funding streams, though the onus remains on the undertaking to demonstrate the subsidy falls within these exceptions.

Spotlight on M&A: Potential Theories of Harm

The Guidelines provide further insights into how distortion plays out in the context of M&A – an essential reading for dealmakers. The Commission's primary concern is that a foreign subsidy allows the acquirer to outbid or deter rivals, leading to an inefficient outcome where a less efficient but subsidized buyer prevails.

The Guidelines identify how subsidies can distort competition in the internal market in an M&A process, namely by enabling the buyer to offer a higher purchase price or by offering more attractive terms beyond the purchase price. Subsidies can lower an acquirer's cost of capital, allowing it to offer a purchase price that a non-subsidized rival, even one that could generate greater efficiencies, cannot match. This directly crowds out other potential bidders. Beyond price, a subsidy can enable an acquirer to offer a better deal structure to sellers, such as a larger proportion of upfront cash or more extensive financing commitments, making its offer more compelling.

When assessing this, the Commission will look for evidence. Where possible, it will benchmark the winning bid against competing offers. If there were no other bidders – perhaps because they were deterred from the outset – the Commission may compare the price to past transactions or scrutinize the acquirer's own internal valuation models to see if the offer makes economic sense absent the subsidy.

Gauging the Competitive Harm: A Multi-Factor Analysis

Once a subsidy is deemed liable to improve an undertaking’s competitive position, the Commission moves to the second prong: does it actually or potentially negatively affect competition? The Guidelines clarify this means an "alteration of, or interference with, competitive dynamics". To determine this, the Commission will consider a non-exhaustive list of indicators in combination:

Amount of the subsidy: Unsurprisingly, size matters. The higher the amount, the more likely the distortion. The Commission will assess this both in absolute terms and relative to the size of the market, the investment value, or the beneficiary's turnover.
Nature of the subsidy: Some subsidies are more suspicious than others. The "most likely" to be distortive are those listed in Article 5(1) FSR, such as unlimited guarantees, export financing not in line with OECD rules, and those directly facilitating a concentration. These are red flags.
Situation of the undertaking: A subsidy granted to a large company with a significant market presence is more likely to cause harm than one granted to an SME or a new entrant with a small footprint.
Characteristics of the sector: In a price-sensitive, low-margin sector, even a small subsidy can have a big impact. In sectors with high barriers to entry, a subsidy that helps an undertaking overcome those barriers can fundamentally alter the market structure.

Balancing Test: Expanded Policy Objectives

If a subsidy is found to be distortive, not all is lost. The undertaking can still argue that the subsidy's positive effects on the development of the economic activity or on broader policy goals outweigh the negative distortion. The final Guidelines significantly enrich the balancing test's framework under Article 6 FSR – which so far has not played a major role in the transaction reviewed by the Commission – expanding the catalog of policy objectives that may count as positive effects. In a nod to the EU's current geopolitical and industrial strategy focus, the list now explicitly includes:

Energy security: subsidies contributing to diversification or reduction of supply dependencies;
Innovation: support for new technologies, processes, or business models;
EU economic security: Contributions to supply-chain resilience or the reduction of strategic dependencies, aligning the FSR with the goals of instruments like the EU Chips Act; or
EU defense policy: bolstering European defense capacity.

However, invoking these positive effects is no simple task. The Guidelines clarify that the burden of proof rests squarely on the undertaking. Parties must provide "convincing" and "verifiable" evidence. Vague or theoretical claims will not suffice. The Commission now explicitly recommends submitting a counterfactual analysis demonstrating that the positive effects are specific to the subsidy and would not have occurred otherwise. Timing is also a new, distinct assessment criterion: parties must show when the positive effects are likely to materialize. The message is clear: if you want to benefit from the balancing test, be prepared to back up your claims with hard data – not a hurdle that is easy to overcome.

Call-In Powers: Safe Harbors and Thresholds

The revised Guidelines bring clarity to the Commission's discretionary call-in powers under Articles 21(5) and 29(8) FSR:

EUR 4 million soft safe harbor: In a key clarification, the Commission states it will generally not request a prior notification where it can establish with sufficient certainty that the suspected subsidies do not exceed the EUR 4 million de minimis threshold under Article 4(2) FSR. While not a legally binding safe harbor, this provides an indication of the Commission's enforcement priorities.
Public procurement thresholds: for tenders below the values set out in Directive 2014/24/EU (EUR 5.186 million for the execution of works, EUR 134,000 or EUR 207,000 for the supply of products or the provision of services), it is unlikely that their effects in the Union require prior examination.
Prior decisions as a factor: the Commission will consider whether it has already issued a decision finding that distortive subsidies were granted to the undertakings concerned.#

These thresholds offer useful guidance for transaction planning and tender strategy, though the Commission retains discretion, and the enumerated factors are non-exhaustive.

Why This Matters

The final Guidelines are a significant step toward predictability in FSR enforcement. For dealmakers, the new subsidy taxonomy and detailed cross-subsidization criteria provide a clearer roadmap for upfront risk assessment. The spotlight on M&A distortion theories of harm offers more insight into the Commission's thinking. Furthermore, the expanded policy objectives under the balancing test, particularly around economic security and defense, create new avenues for justifying transactions that align with the EU's broader strategic priorities.

However, this increased clarity comes at a cost. The detailed criteria for assessing cross-subsidization could increase the documentary and analytical burden during FSR filings. The evidentiary standard for proving positive effects is dauntingly high, requiring case-specific, solid, empirical data that may be difficult to produce. And while the new thresholds for call-ins offer some comfort, the Commission's ultimate discretion remains unchecked. The new rules are a double-edged sword: they provide a clearer path, but it's a path that a lot of preparation, more data, and more sophisticated legal and economic analysis.

What's Next?

The Commission has signaled that the Guidelines will be regularly updated in light of future developments and case practice. For further guidance, practitioners should monitor decisional practice, including the e&/PPF Telecom Group matter, which is referenced multiple times in the new Guidelines.

Until next time, may your new year's resolutions prove more durable than a draft notification. As you navigate this refined FSR landscape, remember that the devil is not just in the detail – it's in the annexes, the footnotes, and the economic models you'll need to defend your deal if pressured by the Commission. May your subsidies be non-targeted, your positive effects well-documented, and your FSR filings clear Phase I on the first pass.