Under the European Commission’s draft Regulation for a new regime to address the impact of subsidies from non-EU countries on trade within the EU published on 5 May 2021, tax concessions, reliefs and credits granted by the UK or other non-EU countries could, in certain circumstances, become subject to the EC’s oversight. Interested parties may want to make use of the opportunity to provide feedback on the proposal during the next 8 weeks.

The draft Regulation seeks to close a perceived regulatory gap in the internal market. Within the EU, existing rules on State aid and public procurement ensure fair competition is maintained when companies receive subsidies from Member States. However, these tools do not apply to subsidies granted by non-EU governments. Under the draft Regulation, the EC would have powers to investigate financial contributions granted by public authorities of a non-EU country (which now also includes the UK) where these confer benefits on individual companies engaging in an economic activity (in the form of acquisitions or tender activity) in the EU, and to redress their distortive effects.

If the Regulation is implemented, it will introduce a major new regulatory hurdle for UK and other non-EU businesses seeking to do business in the EU. The concept of “subsidy” that is applied in the draft Regulation is broad and could include support that is not specifically targeted at acquisitions or tender activity, such as tax concessions or credits targeted at particular business sectors. Indeed, subsidies given through the tax system feature in a number of the case studies included in the impact assessment published alongside the draft Regulation to illustrate potential distortive effects which the draft Regulation seeks to address.

Please refer to my colleagues’ briefing for more detail on the draft Regulations, as well as associated practical questions and challenges.