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Main developments on Italian FDI and an overview of the UE framework

Wed, 22 Apr 2026 11:32:09 +0200

The Italian regime on the control of foreign investments — the so-called “Golden Power” — went through several significant developments in recent months. Below is a brief overview of the main developments, with particular focus on those likely to have a significant impact on businesses and the management of M&A transactions. Section II will examine some new elements of the European framework, starting with the revision of the EU Regulation on the control of foreign direct investment, which is currently underway.

Click here to read the alert by Francesco Mazzocchi

The European Commission-One Year of Foreign Subsidies Regulation

Tue, 16 Jul 2024 10:56:00 +0200

Happy birthday, Foreign Subsidies Regulation! You took effect on 12 July 2023 and provided your guardian, the European Commission, with new powers to ensure a level playing field within the EU’s internal market. It may now investigate distortive effects of foreign subsidies in contexts such as company acquisitions and public tenders.The European Commission has embraced its new child and has so far used its tools more eagerly and broadly than many would have expected. These are the main Foreign Subsidies Regulation enforcement actions and trends so far:

Effects on M&A Transactions

Companies need to notify acquisitions, mergers and joint ventures to the European Commission when the target company/joint venture achieves an EU-wide turnover of at least EUR 500 million and the parties were granted at least EUR 50 million in combined financial contributions from non-EU countries in the previous three years. Financial contributions in this context not only include state guarantees, equity contributions or loans but also tax benefits, project grants and revenues from sales to state entities.

Notification obligations started on 12 October 2023. Since then, the Foreign Subsidies Regulation has been applied to more deals than initially assumed. In the first 100 days alone, the Commission engaged in pre-notification discussions for 53 transactions, of which 14 were then formally notified. Out of those transactions, many were subject to parallel assessment under the EU Merger Regulation, some to parallel assessment under national merger control procedures in the EU and roughly half also to parallel assessment under foreign direct investment screening in the EU.

The Commission has so far found sufficient indications of distortive foreign subsidies in one case. In June 2024, it opened an in-depth investigation of the planned acquisition by Emirates Telecommunications Group Company PJSC of Eastern European telecommunication operator PPF Telecom Group B.V. Emirates Telecommunications Group Company PJSC is a telecommunication operator based in Abu Dhabi and has allegedly received unlimited guarantees, loans and further financial contributions from the United Arab Emirates. The investigation is still ongoing.

Effects on Public Tenders

New ex-ante notification obligations also apply to public procurement procedures that exceed certain thresholds. Again, the tool aims at identifying and controlling direct or indirect financial contributions by non-EU countries that are limited to one or more companies or industries, and thus confer the beneficiaries an unfair competitive advantage in the EU market. If the European Commission finds such distortive effects caused by the foreign subsidies, it may issue structural and behavioral remedies.

The Commission has already opened several in-depth investigations into public tenders:

In February 2024, the Commission opened an in-depth investigation following the notification of a bid by Chinese state-owned company CRRC Qingdao Sifang Locomotive Co. Ltd. for providing and maintaining electric trains in Bulgaria.
In April 2024, the Commission opened in-depth investigations following two notifications of bidding consortia for the construction and operation of a solar plant in Romania. One consortium included a German subsidiary of LONGi Green Energy Technology Co. Ltd, which is listed on the Hong Kong Stock Exchange. The other consortium included Shanghai Electric UK Co. Ltd. and Shanghai Electric Hong Kong International Engineering Co. Ltd., both ultimately controlled by the P.R. China.

The Commission didn’t need to take a final decision as each bidder withdrew its offer.

Dawn Raids

The European Commission may as well start investigations on its own initiative: It may request notifications for smaller M&A deals and public procurement procedures, and it may also conduct dawn raids. During dawn raids, the Commission may examine all digital and physical company records, take copies thereof, seal business premises, and ask staff members for explanations on facts or documents relating to the subject matter of the inspection.

The Commission made first use of the latter option in April 2024: It carried out an unannounced inspection at the Dutch and Polish offices of the Chinese state-owned company Nuctech. The Commission claims that Nuctech may have received foreign subsidies that could distort the internal market at the expense of other security equipment companies. Nuctech is currently challenging the Commission’s actions before the EU’s General Court.

Early Enforcement Trends

The European Commission is using its new tools under the Foreign Subsidies Regulation very actively and extensively. Some priorities are already becoming apparent: while the Commission’s focus on Chinese companies had been anticipated from the start, the heightened scrutiny for state-owned Arab companies is a more recent trend. Still, the regulatory burden of the Foreign Subsidies Regulation is also felt by businesses based in the EU, the US, the UK or Switzerland when planning and implementing M&A deals.

Energy, transportation, telecommunication and security equipment are so far the sectors in the spotlight of the Commission’s actions. However, we expect the Commission to extend its investigations to further sectors – like other services for critical infrastructure – in the coming years.

Practical Advice for Businesses

Companies operating in these sectors and receiving financial contributions from non-EU countries should be particularly aware of the risk of investigations and prepare for them. For them, it is advisable to make themselves familiar with the European Commission’s dawn raid procedures. Notably, these rules may differ significantly from those applicable to investigations by national authorities in other contexts.

More generally, when preparing large M&A deals or offers for public tenders, the potential notification requirements need to be considered. First experiences show that, for example, the pre-notification discussions with the Commission for company acquisitions can be quite lengthy and can include several requests for information. The implementation of internal reporting systems to continuously gather information on all forms of financial contributions from non-EU governments helps in preparing for such scenarios.

Companies should also watch out for sectoral market investigations – a tool that the Commission has not used so far but will likely use in the mid-term.

Written By Christoph Heinrich and Dr. Cathleen Laitenberger (ADVANT Beiten), Manuela Becchimanzi and Francesco Mazzocchi (ADVANT Nctm)

By European Business Magazine

European Commission launches public consultation on draft guidelines on application of exclusion from Article 101 TFEU for sustainability agreements in agriculture

Mon, 30 Jan 2023 04:47:40 +0100

On 10 January 2023, the European Commission launched a new public consultation on the draft guidelines on sustainability agreements in agriculture (available at the following link) that are to be adopted by 8 December 2023.The initiative is part of the recent reform of the Common Agricultural Policy (so-called CAP Reform 2023-2027), which introduced - in certain cases - the possibility to exclude agreements that generally restrict competition from the application of Article 101 TFEU.Specifically, the Commission’s guidelines concern Article 210a of Regulation 1308/2013 or “CMO Regulation” (available at the following link), introduced by Regulation (EU) 2021/2117 of the European Parliament and of the Council of 2 December 2021.Article 210a excludes from the application of Article 101 TFEU (prohibition of restrictive agreements) those agreements, decisions and concerted practices that aim to apply a sustainability standard higher than mandated by Union or national law, provided that such agreements, decisions and concerted practices only impose restrictions of competition that are indispensable to achieve the following sustainability objectives:

a) environmental protection, including climate change mitigation and adaptation, the sustainable use and protection of landscapes, water and soil; the transition to a circular economy, including the reduction of food waste; pollution prevention and control; and the protection and restoration of biodiversity and ecosystems;b) reducing the use of pesticides and antimicrobial resistance, by favouring the production of agricultural products in ways that reduce the use of pesticides and manage risks resulting from such use, even if limited, or that reduce the danger of antimicrobial resistance in agricultural production;c) animal health and animal welfare.

The guidelines, on which undertakings are asked to comment, are intended to provide more certainty on such exclusion. In particular, among other things, they outline (i) the scope of the exclusion, (ii) the content of the assessment, to be carried out on a case-by-case basis, to identify any so-called indispensable restrictions, and (iii) the procedure for requesting an opinion from the Commission.

The scope of the exclusion is only limited to the agreements concluded by producers of agricultural products, either between themselves or with other operators involved in the agri-food supply chain;
Assessment is carried out through a four-stage test. The parties shall:(i) identify the obstacles that would prevent the parties from attaining the sustainability standard on their own and explaining why collaboration is necessary;(ii) determine the appropriate type of agreement (e.g. an agreement on price or quantity);(iii) identify indispensable restriction(s) to competition (e.g. an agreement on price can either fix the whole price, establish a minimum price or establish a price premium); and(iv) determine the appropriate level (e.g. the amount of the price) and duration of the restriction(s) in order to ensure that the option that is least restrictive to competition is adopted.

In support of the undertakings concerned, the Regulation also provides for the right to request an opinion from the Commission concerning the compatibility of such agreements with Article 210a, from 8 December 2023.Said right is granted to producers, associations of producers, non-producer organisations and interbranch organisations (if at least one of the members is a party to the agreement). In particular, producers and producer groups may request an opinion at any time, even before the implementation of the agreement.Upon receipt of the request (complete with all information, even if supplemented at a later stage), the Commission will have four months to assess the agreement.In any event, the Commission underlines that opinions will not be binding on the companies requesting them. However, the AGCM (and other national authorities), as well as national courts, will certainly be able to make use of them.Finally, the guidelines clarify that the Commission and national authorities have the right to stop or require amendments of the sustainability agreements if this is necessary in order to prevent competition from being excluded or where it is considered that the Common Agricultural Policy objectives are jeopardised.The public consultation is open to:

stakeholders from the agri-food supply chain, in particular primary producers, including producer organisations, processors, distributors, wholesalers, retailers, input providers, as well as inter-branch organisations gathering actors players from several stages in the supply chain, etc;
public authorities, in particular national competition authorities, ministries of agriculture and regional authorities;
consumer organisations;
organisations dealing with sustainability (offering/developing knowledge sharing, standards, certification, etc.).

More specifically, the parties concerned are invited to provide their opinion on:

a) whether the draft text exhaustively addresses the methods for applying Article 210a of the CMO Regulation to benefit from the exclusion. In particular, the European Commission is interested to know whether the draft guidelines address those points in a manner that is sufficiently clear and intelligible;b) the content of the text. In particular, the European Commission expects to obtain the stakeholder’s views and comments on how the draft guidelines detail the scope of the exclusion, the conditions for application of the exclusion, and the possibility for Commission’s intervention. The stakeholders are invited to provide their suggestions on how the text could be enhanced;c) the accuracy of the examples. The stakeholders are invited to provide their opinion on whether the examples are clear and realistic enough, and to propose ways to update the examples based, for instance, on their own experience.

It is possible to participate in the public consultation by accessing the following link by the deadline set at Monday 24 April 2023. The consultation is currently available in English only; from early February 2023 a consultation in all official languages will be launched.This note is for information purposes only and is not, and cannot be intended as, a professional opinion. For further information please email Luca Toffoletti and Francesco Mazzocchi.

Nctm comments to the proposal for a proposal on foreign subsidies distorting the internal market

Wed, 01 Sep 2021 06:30:47 +0200

Nctm participated in the public consultation promoted by the European Commission on the proposal for a Regulation aimed at remedying the distortions caused by foreign subsidies in the internal market.Luca Toffoletti and Francesco Mazzocchi's contribution on the proposed instruments on merger control and on the general instrument to capture foreign subsidies is available here.This contribution follows the one prepared by Nctm in September on the White Paper on foreign subsidies, available here. This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For further information please contact Luca Toffoletti and Francesco Mazzocchi.

State aid and competition | Extension of the Temporary Framework for aid measures to support the economy

Thu, 11 Feb 2021 03:30:05 +0100

Preamble

On 28 January 2021, the European Commission extended the Temporary Framework for State aid measures to support the economy in the current emergency of COVID-19” (the “Temporary Framework”) until 31 December 2021, at the same time increasing the aid caps of some measures to help Member States cope with the persistent economic and health crisis^[1]. The most significant changes relate to the increase in aid in the form of subsidies (or tax advantages) from 800 thousand to 1.8 million Euro per beneficiary undertaking and contributions in the form of support for fixed costs, from 3 to 10 million Euro, also per individual undertaking.

2. The context for the extension of the Temporary Framework

The Temporary Framework, the first version of which was adopted on 19 March 2020, provides for a series of ad hoc measures, designed to deal with the current emergency, that Member States can adopt to support their businesses.This is a Communication from the European Commission adopted on the basis of Article 107(3)(b) of the Treaty on the Functioning of the European Union (“TFEU”), which allows aid to be granted “to remedy a serious disturbance in the economy of a Member State”.^[2]The breadth and variety of the range of instruments contained in the Temporary Framework, as well as the gradual increase in caps, demonstrate the radical change in perspective of the European Commission, which has traditionally been wary of granting State aid to companies in difficulty.Except for specific derogations, the undertakings benefiting from the aid measures (whether general aid schemes or individual aid schemes in favour of individual undertakings) is restricted to those which experienced difficulties after 31 December 2019, in order to exclude subsidies not related to the difficulties deriving from the Covid-19 emergency^[3].

3. The main measures contained in the Temporary Framework

The first version of the Temporary Framework, adopted on 19 March 2020, provided for five types of aid: (i) direct grant aid schemes (or tax advantages) up to €800,000 per undertaking (cap recently increased to €1.8 million); (ii) State guarantees for bank loans; (iii) soft loans; (iv) aid to banks to be channelled to customers, in particular small and medium-sized enterprises; (v) short-term export credit insurance.The changes that have gradually taken place (no fewer than four before that of today) essentially concerned: (i) support for coronavirus-related research and development^[4]; (ii) recapitalisation measures in favour of non-financial companies, both large and SMEs^[5]; (iii) support for micro and small enterprises and start-ups ^[6] and, finally, iv) aid in the form of support for fixed costs^[7].The most significant measures certainly include recapitalisation aid, which can also be granted in the form of individual aid. Mindful of the potentially restrictive effects of competition and of the disparities between different Member States that such measures may produce, the Commission has set various limits on the granting of recapitalisation aid, concerning, inter alia, conditions relating to the entry and exit of the State into the capital of companies, remuneration mechanisms as well as additional restrictions on governance (dividends, buy-back, remuneration for management) and the prohibition on cross-subsidies and acquisitions^[8].

4. The new features introduced by the Extension of 28 January 2021

In view of the continuing economic and social difficulties and the assumption of the adequacy of the Temporary Framework as a means of ensuring that national support measures effectively help companies affected by the pandemic, the Commission has therefore decided to extend the validity of the Temporary Framework, already extended to 30 June 2021, until the end of the year.In addition, the Commission has increased the aid caps under sections 3.1 (limited aid) and 3.12 (aid in the form of support for uncovered fixed costs).With regard to limited aid, these caps have more than doubled (taking into account the availability of de minimis aid). The new caps are (i) €225,000 per undertaking operating in the primary production of agricultural products; (ii) €270,000 per undertaking operating in fisheries and aquaculture and (iii) €1.8 million per undertaking in all other sectors.Such aid may be combined with de minimis aid of up to €200,000 per undertaking (up to €30,000 per undertaking in the fisheries and aquaculture sector and up to €25,000 per undertaking in the agricultural sector) over three financial years.In addition, for companies particularly affected by the crisis, with losses in turnover of at least 30% in the eligible period (between 1 March 2020 and 30 June 2021) compared to the same period of 2019, the State can contribute to the part of the fixed costs incurred that are not covered by revenue, for an amount up to 10 million Euro per undertaking (initially, as stated, the amount was fixed at 3 million Euro).Furthermore, in order to encourage the choice of forms of repayable aid, the Commission has given Member States the possibility, after notifying the Commission accordingly before expiry of the Temporary Framework, of converting the forms of repayable aid granted - such as repayable advances, guarantees and loans - into other forms of aid, for example, grants. The conversion must comply with the conditions set out in section 3.1 (aid of limited amount) and be implemented by 31 December 2022 at the latest.Finally, in view of the continuing general lack of sufficient private capacity to cover all economically justifiable risks for exports to countries on the list of countries with risks insurable on the market, the Commission has planned measures to make public short-term export credit insurance more widely available^[9].

5. The Temporary Framework does not exhaust the list of possible instruments available to Member States to support businesses

The Temporary Framework sets out the conditions under which Member States can intervene with concessions and aid, but it is the various Member States which must actually package the measures and which, in accordance with Article 108(3) TFEU, must notify them to the Commission before granting them.States must, therefore, engineer aid measures that best meet the criteria set out by the Commission in the Temporary Framework, in order to obtain rapid authorisation from the Commission (which has informally described the measures as “plug-in measures”).However, the Temporary Framework is in addition to and does not replace the instruments already available to States for granting aid in line with European rules.Member States could therefore seek to have aid authorised on the basis of different instruments and rules, such as, for example, Article 107(2) b TFEU), which allows the granting of aid “aid to make good the damage caused by natural disasters or exceptional occurrences”.With regard to this latter rule, the Commission acknowledged in the Temporary Framework that, in principle, the conditions may exist in the Member States for granting aid to make good the damage caused by natural disasters or exceptional occurrences and referred to certain economic sectors particularly affected by the emergency, such as tourism, transport, the hotel and catering sectors.The peculiarity of Article 107(2) b) TFEU, a provision rarely applied in the past, is that the measures granted on this basis are considered a priori not to have a distorting effect on competition and the Commission is bound to authorise them. However, the conditions for its application are strict, since the State must demonstrate (i) the exceptional nature of the event; (ii) the damage; (ii) the causal nexus between the event and the damage.In recent months, the Commission has shown a certain reluctance to authorise aid measures notified by Member States on this legal basis, in line with the restrictive interpretation given to this rule by the Court of Justice (applied mainly for compensation following events such as earthquakes, landslides and floods), stressing that there must be a direct link between the damage caused by the exceptional event and the State aid and that as precise an assessment as possible of the damage sustained is required (excluding, for example, possible insurance payments).^[10] With the extension of 28 January 2021, the Commission clarified its position by specifying that “aid granted under Article 107(2)(b) TFEU must compensate for the damage directly caused by the COVID-19 pandemic, for example, the damage directly caused by the restrictive measures that prevent de jure or de facto the beneficiary from exercising its economic activity or a specific and separable part of its activity” (point 18). Furthermore, “Article 107(2)(b) TFEU requires that there is no overcompensation. Only damage caused directly by restrictive measures can be compensated and a rigorous quantification is necessary. It is therefore important to demonstrate that the aid compensates only for damage caused directly by the measure up to the level of profits that the beneficiary could credibly have generated in the absence of the measure, for the part of its activity that sustains a reduction” (point 19). However, there has been no shortage of authorisations: to date, the Commission has approved 36 measures on this legal basis, mainly targeting airports, airlines and event organisers.It should be noted that although the Temporary Framework does not provide for direct aid to banks, the Commission leaves the door open to the possibility that States will grant aid to credit institutions, both in the form of extraordinary public financial support, under the conditions laid down in Directive 2014/59/EU (“BRRD) (excluding in this case a priori the need for burden sharing of shareholders and subordinated creditors) and pursuant to Article 107(2)(b) TFEU, as compensation for the direct damage sustained as a result of the Covid-19 pandemic. In the latter case, the Commission specifies that the assessment of aid will take place outside the rules on banking resolutions.

6. The current situation and future scenarios

To date, the Commission has authorised around 370 aid measures based on the Temporary Framework.Until now, the main beneficiaries of the measures have been companies in a few Member States, particularly German, while companies in Member States with lower spending capacities are obviously disadvantaged. In terms of value, around 52% of the aid concerns Germany (compared to around 15% for Italy and 14% for France).Also to address these asymmetries, after a long gestation period, the Parliament recently approved the Recovery and Resilience Facility, with a budget of €672.5 billion, which provides Member States with financial support to intensify public investment and reforms after the COVID-19 crisis. This is the backbone of the Next Generation EU (“NGEU”), or Recovery Fund, the new recovery instrument that will strengthen the EU budget with funds raised on financial markets for the period 2021-2024. The latter has a total budget of 750 billion Euro (390 non-repayable grants and 360 loans).As is well known, to benefit from the measures under the Recovery and Resilience Facility, Member States must prepare national plans defining the reform and investment programme up to 2026, including intermediate and final targets and estimated costs. At least 37% of the programme budget should support the green transition and at least 20% the digital conversion. Excluding extensions, Member States should present the plans officially by 30 April 2021.The instrument should ensure the transition from the emergency phase, managed by each Member State according to its own economic resources, to that of reviving the EU economy as a whole, by benefiting each Member State from the vast resources agreed at EU level.However, the measures taken under the Recovery and Resilience Facility must comply with aid rules and be notified to the Commission in advance including from this standpoint. In this regard, on 21 December 2020, the Commission published a series of guidance models covering different types of investment projects, aimed at helping Member States draw up their national recovery plans in accordance with the EU aid rules.^[11] This article is for information purposes only and is not, and cannot be intended as, a professional opinion on the topics dealt with. For further information please contact Francesco Mazzocchi. [1] See Communication from the European Commission of 28 January 2021 (C(2021) 564): “Fifth amendment of the temporary framework for state aid measures to support the economy in the current COVID-19 emergency and amendment of the annex to the Communication from the Commission to the Member States on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export credit insurance”[2] In the period 2008-2015 the Commission made extensive use of the derogation from the ban on State aid under Article 107(1) TFEU to authorise State aid granted to European credit institutions during the financial crisis.[3] By way of derogation from this principle, it has been provided that aid may also be granted to micro-enterprises or small companies which were already in difficulty as at 31 December 2019, provided that they are not subject to insolvency proceedings under national law and have not received rescue aid or restructuring aid.[4] See Communication of 3 April 2020.[5] See Communication of 8 May 2020.[6] See Communication of 29 June 2020 (C(2020) 4509),[7] See Communication of 13 October 2020. The new measure must be granted by States under an aid scheme for undertakings that during the so-called "eligible period" (between 1 March 2020 and 30 June 2021), experienced a fall in turnover of at least 30% compared to the same period of 2019. In addition, with the fourth amendment to the Temporary Framework, the Commission extended for the first time the measures provided for in the Temporary Framework (until 30 June 2021) and, with regard to recapitalisation measures, until 30 September 2021,[8] As regards aid for recapitalisation of large companies, Italy, as is well known, has introduced a scheme with a total budget of €44 billion. The measures consist of capital contributions; bonds repayable by shares; convertible bonds, subordinated debt and are administered by the ad hoc corporate vehicle “Patrimonio Rilancio”, pursuant to the provisions of Article 27 of Legislative Decree No. 34/2020, under management of the Cassa Depositi e Prestiti. The Commission authorised the scheme on 17 September 2020.The Dedicated Assets operate in the form and under the conditions provided for in the Temporary Framework but may also operate under market conditions (i.e. without the intervention incorporating "State aid" pursuant to Article 107 TFEU. The interventions on the Dedicated Assets will concern companies, which: a) have their registered office in Italy; b) do not operate in the banking, financial or insurance sector; c) have annual turnover in excess of fifty million Euro.[9] The new measure provides for an amendment of the list of countries with risks insurable on the market set out in the Annex to the Communication on short-term export credit insurance, and an extension until 31 December 2021 of the temporary exclusion of all countries from the list of countries "with risks insurable on the market" set out in that Annex.[10] See for example the judgment of the Court of Justice in Case C-278/00, Greece v. Commission.[11] https://ec.europa.eu/commission/presscorner/detail/it/ip_20_2494

ANTITRUST | Public recapitalization of undertakings in difficulty due to the COVID outbreak. The (reluctant) green light by the European Commission

Thu, 14 May 2020 11:08:12 +0200

On 8 May 2020, the European Commission extended the scope of the ‘Temporary Framework for State Aid measures to support the economy in the current COVID-19 outbreak’ to allow public support in the form of recapitalisation aid in favour of non-financial companies in need (both large undertakings and SMEs).

1. A new route

In a certain way, the latest amendment to the Temporary Framework marks a turning point in the field of State Aid law. While public recapitalisation measures in line with normal market investments do not fall within the prohibition of Article 107(1) TFUE, the European Commission has always been sceptical vis à vis public capital injections in undertakings in difficulty. This traditional approach flies somewhat in the fact of the principle of ownership neutrality provided for in Article 345 of the Treaty.This latest amendment to the Temporary Framework introduces a number of new features as compared to the financial crisis in 2008/2009. Firstly, the Communication provides for a framework which applies across different industrial sectors and not just a measure dealing exclusively with credit institutions. On the substance the Communication sets out strict conditions concerning both the granting of aids and the remuneration for the investment.On a closer examination, however, the conditions set by the Communication seem to be less severe compared to other existing instruments (e.g. the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty). Moreover, the power to assess the compliance with the new provisions adopted by the Commission seems to be conferred on each Member State.

2. A detailed structure of restrictions and mechanisms to mitigate the effects on competition

The Temporary Framework sets out a number of safeguards to avoid undue distortions of competition in the EU internal market.

The conditions for recapitalisation

The recapitalisation measure must fulfil the following conditions:i) without the State intervention the beneficiary would go out of business or would face serious difficulties to maintain its operations;(ii) it is in the common interest to intervene. This may relate to avoiding social hardship and market failure due to significant loss of employment, the exit of an innovative company, the exit of a systemically important company, the risk of disruption to an important service, or similar situations duly substantiated by the Member State concerned;(iii) the beneficiary is not able to find financing on the market at affordable terms and the horizontal measures existing in the Member State concerned to cover liquidity needs are insufficient to ensure its viability.Furthermore, the benefits cannot apply to undertakings that were already in difficulty on 31 December 2019, in line with the other provisions of the Temporary Framework.That being said, the amended Temporary Framework will be in place until the end of December 2020. However, as solvency issues may materialise at a later stage as this crisis evolves, only for recapitalisation measures the Commission has extended this period until the end of June 2021.Member States must notify to the EU Commission aid schemes above a threshold of €250 million for individual assessment. States shall grant COVID-19 recapitalisation measures only following a written request for such aid by the prospective beneficiary undertakings.

Variety of financial instruments and extent of intervention

Member States can provide recapitalisation measures using a) equity instruments, in particular, the issuance of new common or preferred shares; and/or b) ‘hybrid capital instruments’ (in particular profit participation rights, silent participations and convertible secured or unsecured bonds).In order to ensure the proportionality of the aid, the amount of the intervention must not exceed the minimum needed to ensure the viability of the beneficiary, without establishing, however, a maximum threshold. In any event, the Commission emphasises that the amount “should not go beyond restoring the capital structure of the beneficiary to the one predating the COVID-19 outbreak, i.e. the situation on 31 December 2019”.

Remuneration and incentives to buy back the State capital injections

The State shall receive appropriate remuneration for the investment. The recapitalisation should be redeemed when the economy stabilises. Any recapitalisation measure shall include a “step-up mechanism” increasing the remuneration of the State, to incentivise the beneficiary to buy back the State capital injections.This increase in remuneration can take the form of additional shares granted to the State or other mechanisms, and should correspond to a minimum of 10% increase in the remuneration. Four years after the equity injection, if the State has not sold at least 40 percent of its equity participation resulting from the equity injection, the step-up mechanism will be activated. The step-up mechanism will again be activated six years after the equity injection, if the State has not sold in full its equity participation. If the beneficiary is not a publicly listed company, Member States may decide to implement each of the two steps one year later, i.e. five years and seven years after granting of the COVID-19 equity injection, respectively.The Commission may accept alternative mechanisms, provided they lead, overall, to a similar outcome with regard to the incentive effects on the exit of the State and a similar overall impact on the State's remuneration (point 62 of the Communication).

Exit strategies

Beneficiaries other than SMEs that have received a recapitalisation of more than 25% of equity at the moment of intervention must demonstrate a credible strategy for an exit from the participation of the Member State, unless the State’s intervention is reduced below the level of 25% of equity within 12 months from the date of the granting of the aid.The exit strategy should be prepared and submitted to the Member State within 12 months following the granting of the aid and must be endorsed by the Member State. The exit strategy shall lay out:

the plan of the beneficiary on the continuation of its activity and the use of the funds invested by the State, including a payment schedule of the remuneration and of the redemption of the State investment (together 'the repayment schedule’); and
the measures that the beneficiary and the State will take to abide by the repayment schedule.

If six years after recapitalisation aid to publicly listed companies, or up to seven years for other companies, the exit of the State is in doubt, a restructuring plan for the beneficiary will have to be notified to the Commission.

Alignment with the EU’s green and digital transformation objectives

Beneficiaries of a recapitalisation, other than SMEs, shall provide information on how their use of the aid received supports their activities in line with EU objectives and national obligations linked to the green and digital transformation policies, including the EU objective of climate neutrality by 2050.

Prevention of undue distortions of competition: dividend payments, buy back shares, management remuneration, M&A

With regard to governance, as long as the recapitalisation measures have not been fully redeemed, beneficiaries are subject to bans on dividends and share buybacks. Moreover, until at least 75% of the recapitalisation is redeemed a strict limitation of the remuneration of their management, including a ban on bonus payments, is applied. These conditions also aim at incentivising the beneficiaries and their owners to buy out the shares owned by the State as soon as the economic situation allows.Lastly, in order to ensure that beneficiaries do not unduly benefit from the recapitalisation aid by the State to the detriment of fair competition in the Single Market, until at least 75% of the recapitalisation is redeemed, beneficiaries, other than SMEs, are in principle prevented from acquiring a stake of more than 10% in competitors or other operators in the same line of business, including upstream and downstream operations.

3. Role of the Commission and Member States’ room for intervention

The Commission emphasises that recapitalisation measures should only be considered as a last resort and encourages support granted at EU level, taking into account the EU common interest, in order to reduce the risk of distortions in the Internal Market (point 8 Communication). The Commission refers to other instruments which appear more suitable to protect strategic undertakings of the different Member States (i.e. the Regulation (EU) 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, together with the Communication of 25.3.2020 from the Commission on Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets).In any case, the Commission’s flexibility in assessing State aid measures under the Temporary Framework appears significant as well as the scope for the States to intervene. Reference can be made to : i) the notion of “ risk of disruption to an important service, or similar situations duly substantiated by the Member State concerned” which could justify a State’s intervention in situations where there is no market failure; ii) the possibility to adopt alternative mechanisms for remuneration instead of the more severe step-up mechanisms mentioned above; iii) the absence of burden-sharing obligations by individuals, shareholders and subordinated creditors, which has constituted the leitmotiv for the review of State aid rules since 2013.In this regard, it is important to highlight the amendment to point 7 of the Temporary Framework: if due to the COVID-19 outbreak, banks would need extraordinary public financial support it will have to be assessed whether the measure meets the conditions of a precautionary recapitalisation under the Directive 2014/59/EU (BRRD) (see Monte dei Paschi case). The Commission makes clear that, if those conditions are fulfilled, the principle of burden-sharing by shareholders and subordinated creditors will not apply.

4. Decree-Law "Rilancio"

If Member States wish to provide recapitalisation aids to their undertakings, the principles and conditions set out by the new Communication must apply. With regard to the new Italian law, soon to be published (the “Decreto Rilancio”) the Italian Government has expressed its desire to intervene in favour of large companies through the Cassa Depositi e Prestiti, through an asset set up ad hoc, (“patrimonio destinato”) without, however, precisely defining the scheme within which these measures will be adopted. For undertakings with revenues up to 50 million euro, the law provides tax credits in relation to capital injections, as well as the institution of a fund (‘Fondo Patrimonio PMI’) aimed at subscribing, before the end of 2020, bonds or debt securities, in line with the provisions of the Temporary Framework.

5. State aid measures in the current COVID-19 outbreak

The Commission has, to-date, approved an estimated €1.9 trillion in State aid to the EU economy, of which more than 50% is in favour of Germany. 107 State aid measures have been approved under TFEU Article 107(3)(b). Of these, 103 measures have been approved under the Temporary Framework. The other 4 were in direct application of Article 107(3)(b), the rule of the Treaty which allows aid to remedy a serious disturbance in the economy of a Member State. The content of this article is for information purposes only and does not constitute professional advice.For further information, please contact Bernard O’Connor, Luca Toffoletti or Francesco Mazzocchi.

Antitrust | Adjustment of Italian merger control’s thresholds

Mon, 23 Mar 2020 10:30:50 +0100

The Italian Antitrust Authority has published today the yearly resolution on adjustment, based on annual increases of GDP deflator index, of the national merger control turnover thresholds. Based on Italian antitrust law, a prior notification to the Italian Antitrust Authority of a concentration is now due if:• the combined aggregate turnover in Italy of all the undertakings concerned exceeds EUR 504 million;and• the aggregate domestic turnover of at least two of the undertakings concerned individually exceeds EUR 31 million.The new thresholds apply as of today, 23 March 2020.

ANTITRUST | State aid. The Commission will adopt a State aid temporary framework to support the economy in the context of the COVID-19 outbreak

Wed, 18 Mar 2020 08:22:07 +0100

“The Commission will enable Member States to use the full flexibility foreseen under State aid rules to tackle this unprecedented situation”.With these unequivocal words, today the Commission approved a Temporary Framework on State aid to support undertakings in the context of the COVID-19 outbreak (the “Temporary Framework”).The Temporary Framework sets out special provisions modelled on the temporary framework that was adopted in 2009, at the outset of the financial crisis, and is based on Article 107(3)(b) TFEU, that allows aids aimed at remedying a serious disturbance to the economy of Member States.The final version was presented on Friday 20 March by the Commission[1], setting out the conditions on the basis of which the Member States could (i) set up schemes direct grants (or tax advantages) of up to € 800,000 to a single company; (ii) give subsidised State guarantees on bank loans; (iii) enable public and private loans with subsidised interest rates; (iv) provide aid to banks to be channelled to final customers; (v) introduce short-term export credit insurance.In order to avoid aid unrelated to the COVID-19 outbreak, only undertakings that entered into difficulty after 31 December 2019 will be eligible for aid under the Temporary Framework.The Temporary Framework complements but does not substitute the tools already available to Member States for granting aid in line with State aid rules. On Friday, the Commission stated[2] that it is ready to swiftly authorise aid granted by individual Member States on the basis of various existing instruments. The Commission referred to:(a) the rescue and restructuring Guidelines (allowing support schemes for SMEs (Small and Medium Enterprises);(b) aid to compensate companies for the damage directly caused by exceptional occurrences under Article 107(2)(b) TFEU; and(c) aid to remedy a serious disturbance in the economy, under Article 107(3)(b) TFUE.The Commission acknowledged that the impact of the COVID-19 outbreak in Italy is of a nature and scale that allows the use of Article 107(3)(b) TFEU, a legal basis rarely used in the past, especially for interventions potentially affecting different sectors of the economy (such as tourism, transport, hotels, restaurants). Aid granted on this legal basis is considered a priori not of a nature to generate distorting effects on competition.Of particular interest is the Commission statement that possible aid to banks, in the form of guarantees and liquidity (even outside the scope of the Temporary Framework), could also be granted under Article 107(3)(b) TFEU and will not be classified as "extraordinary public financial support" within the meaning of Directive 2014/59 ("BRRD"). In other words, the public support, if needed to mitigate the impact of COVID-19 on the banking sector, will not trigger the controversial mechanisms provided by the BRRD for the resolution of credit institutions (bail-in, etc.).Member States could grant public support either in the form of aid schemes (for specific sectors, specific categories of enterprises) or in the form of individual aid (in favour of individual enterprises), which the Commission promises to examine and approve as a matter of urgency, within days or hours from the formal notification.It remains to be seen how the Member States will use the wide degree of discretion allowed by the new and existing rules.On March, 17th, the Italian Government approved the Decree No. 18/2020 (so called "Healing Italy Decree - Decreto Cura Italia"), and mobilized around 25 million Euro to support the economy. Many of the proposed measures do not qualify as State aid under Article 107(1) TFEU, either because they are available to all companies (such as the extension of payment deadlines for corporate tax or social contributions) or don’t favour undertakings exercising an economic activity (i.e. public health service). For other measures, compliance with the criteria set out in the State aid rules will have to be checked more carefully, although it is clear that the dialogue between the Italian Government and the Commission on the merit of the measures (e.g. on the strengthening of the SME Guarantee Fund and on other support measures to SME) is already underway. The content of this article is for information purposes only and does not constitute professional advice.For further information, please contact Bernard O’Connor, Luca Toffoletti or Francesco Mazzocchi. [1] https://ec.europa.eu/commission/presscorner/detail/en/ip_20_496 [2] https://ec.europa.eu/commission/presscorner/detail/en/ip_20_459