The Foreign Subsidies Regulation: the challenge of notifying non-selective tax expenditure

Abstract

The European Union’s new Foreign Subsidies Regulation will lead to particular challenges in the tax domain. While the final version of the FSR now contains clear links to State aid, the differences are all the more noticeable. Third country tax measures that benefit group financing or equity financing warrant special attention. Repayment of foreign tax incentives to the European Commission, as a last resort measure, might come at odds with taxing prerogatives as divided under existing bilateral tax treaties. Compliance with notification obligations when engaging in public procurement or planning a merger with or acquisition of an entity active in the EU will be hardly doable. Unlike EU State aid rules (and WTO subsidy rules), notification may also involve non-selective and non-beneficial tax measures received within a group. If these have come into the FSR’s scope by intent and not by omission, then this is to be strongly reconsidered. Sustainability tax incentives aimed at greening investment have not been exempt from scrutiny. Thus, EU subsidiaries of third country parent companies and EU parents of third country subsidiaries should gather more information for the purpose of this regulation than one might expect at first sight.