European Commission raids Temu under Foreign Subsidies Regulation: key takeaways for businesses

The European Commission (Commission) is sending a clear signal: it means business when it comes to enforcing the Foreign Subsidies Regulation (FSR). Just this week, Commission officials announced that more FSR investigations can be expected – and the Commission has already followed up on that promise.

The Commission conducted a dawn raid at Temu’s European headquarters in Dublin. This is only the second dawn raid under the FSR, following a series of investigations that have primarily targeted Chinese-owned companies. The inspection shows the Commission is ready to flex its enforcement muscles, not just in merger and procurement reviews, but also in ex officio investigations – investigations initiated by the Commission on its own initiative – to examine potential distortions from foreign subsidies.

The Foreign Subsidies Regulation in brief

The FSR came into force on 12 July 2023 as a means to limit (potential) distortions of competition in the EU internal market as a result of financial contributions from non-EU governments. While subsidies from EU Member States fall under state aid rules, there was previously no tool to scrutinize subsidies granted by non-EU governments to companies operating in the EU. The FSR was designed to close this ‘gap’.

The FSR arms the Commission with substantial investigative and enforcement powers: reviewing and potentially blocking or remedying notifiable transactions and public procurement procedures, launching ex officio investigations, and imposing fines. Notification is mandatory for transactions and public procurement if certain financial thresholds are met, as set out in our earlier overview article. The Commission can also ‘call in’ transactions or tenders that fall below notification thresholds if there are indications of distortive foreign subsidies.

Beyond that, the Commission can launch ex officio investigations – including unannounced inspections at company premises, known as dawn raids. However, to date the Commission has made little use of this power, as it has been occupied with assessing mandatory notifications. As set out in an earlier article, the regulation triggered far more merger and public procurement notifications than initially expected: in the first 1.5 years alone, the Commission received over 100 merger notifications and more than 2,000 public procurement notifications – seven times the anticipate amount. Logically, this took up most of the Commission’s FSR enforcement capacity, leaving little room for ex officio investigations.

This is, however, expected to change. The Commission has indicated that its FSR team has expanded significantly, which should provide more room to pursue ex officio investigations. And such investigations can indeed be expected, according to Commission officials in discussions with our team earlier this week.

The Temu dawn raid – what we know so far

The Commission confirmed that it carried out a dawn raid under the FSR at an e-commerce company’s premises. While the Commission did not officially name the company, market sources confirmed the target: Temu, the online marketplace owned by Chinese e-commerce company PDD Holdings.

The timing is interesting. Earlier this year, the Commission found that Temu breached the Digital Services Act by failing to properly assess risks linked to illegal products on its platform. In parallel, the EU is preparing to end the VAT and customs exemption for low-value parcels from 2026, an exemption that currently benefits platforms as Temu and Shein. Together, this paints a clear picture: e-commerce platforms with significant Chinese operations are facing intensifying regulatory scrutiny.

FSR enforcement developments

The Temu raid is the second of its kind, following the Commission’s first FSR dawn raid in April 2024. That first case raised a crucial procedural question: can the Commission request data stored on servers outside the EU? In interim proceedings, both the General Court and the Court of Justice confirmed the Commission’s authority to request data stored outside the EU, including on servers in China. It remains to be seen how this will play out, given the preliminary nature of these judgments and the need for more substantive discussion on this issue.

Interestingly, yesterday – 11 December 2025 – the Commission announced that it followed-up on its first dawn raid by opening an in-depth investigation into the raided companies’ activities in the European threat detection systems market. The Commission suggests that grants, preferential tax treatment, and financing may constitute foreign subsidies that distort the EU’s internal market, by enabling the offering of conditions in tenders that competitors could not match. This marks only the beginning of the Commission’s in-depth investigation, and no outcomes can be precluded at this stage. Any finding of an FSR infringement is almost certain to be challenged before the EU courts.

The FSR formally applies to all foreign subsidies regardless of origin. Yet the Commission’s enforcement activity to date tells a different story: a clear focus on Chinese-owned companies. This has not gone unnoticed – earlier this year, and following a six month investigation, China’s Ministry of Commerce concluded that “EU FSR investigations constitute trade and investment barriers […], compromising the competitiveness of Chinese businesses and their products in the EU market”.

That said, the Commission does also investigate other non-EU subsidies, as evidenced by the Commission’s information requests in relation to Czech Republic nuclear tenders, where it sought information on possible foreign subsidies received by Korean company KHNP and its subcontractors. This case also demonstrates that third-party complaints – here, from a competing bidder – can trigger Commission scrutiny.

The Commission stated that it stands ready to launch ex officio investigations wherever market intelligence points to potentially distortive foreign subsidies.

Implications for businesses

What does this mean in practice?

• Be prepared for dawn raids. Companies best ensure they have protocols in place for unannounced inspections – covering document preservation, legal privilege, and immediate legal assistance.
• Companies with Chinese ownership or significant operations in China should anticipate intensified FSR scrutiny, public tenders, and ex officio investigations, and proactively assess their exposure to potential foreign subsidies.
• Ireland and the Netherlands can be expected to be enforcement hotspots. The Temu raid in Dublin and the Nuctech inspections in the Netherlands indicate that the Commission is actively targeting companies located in these EU hubs where many non-EU companies establish their European presence.

The Commission’s willingness to conduct dawn raids, demand access to extraterritorial data, and open in-depth investigations demonstrates one thing: the FSR is now very much a live enforcement tool.

Want to know more? Feel free to reach out to our EU, Competition & Regulatory team, which has extensive experience advising on FSR compliance, investigations, and enforcement proceedings and is in fact one of the only teams with on the ground experience in an FSR dawn raid.