Foreign Direct Investment In Europe ' A Closer Look At Developments And Trends In Germany, The Netherlands And The United Kingdom
Published date | 02 August 2023 |
Law Firm | Bird & Bird |
Author | Mr Stephan Waldheim, Janneke Kohlen and Anthony Rosen |
Originally published on the 6th April 2023.
Attractiveness to foreign investment is a key principle for the EU, as well as a major source of economic growth. However, concerns about foreign investors, notably state-owned enterprises from third countries (which could pose a threat to national security), strategically taking over EU companies which own or use key technologies has resulted in a more critical stance towards foreign investment and closer scrutiny. This reasoning led to the Commission's proposal1 for and adoption of the EU FDI screening Regulation 2019/4522 (the "FDI Regulation") on 19 March 2019.
Scope
The FDI Regulation does not create a directly applicable EU-wide foreign direct investment screening regime (unlike the EU Merger Regulation). Rather, it creates a framework and establishes a mechanism to coordinate national FDI reviews and sets out minimum conditions for Member State's FDI screening regimes (noting that FDI is a reserved matter for national authorities).3 It provides, for instance, that foreign investors and the companies concerned shall have the possibility to seek recourse against screening decisions of national authorities. Similarly, the Commission may bring infringement actions against Member States whose screening mechanisms do not comply with the FDI Regulation. Other key aspects include a requirement for Member States to notify the Commission and other Member States about foreign direct investments that are under review.
Aside from an understanding of the FDI Regulation, investors may wish to familiarise themselves with the FDI regime of the country in which they wish to invest, as local national law determines the substantive rules, the exact screening mechanism, and which sectors and sensitive technologies will be covered.
This ambiguous distinction between the merely, high-level monitoring duties of the Commission and the actual executive powers of the Member States is based on the regulatory competence derived from EU law. Pursuant to Article 207 of the Treaty on the Functioning of the European Union ("TFEU"), the EU has the exclusive power to regulate foreign direct investment (through the means of a 'Regulation').4 However, the rationale behind regulating foreign direct investment stems from protecting national security interests, which is not an EU competence and thus remains at the sole discretion of the Member States.5
Recently, the Advocate General ("AG") to the Court of Justice of the European Union ("CJEU") delivered its opinion on the scope of the FDI Regulation. The AG held that EU law does not, in principle, preclude national legislation, which allows for the screening of foreign direct investment of third country provenance even if implemented indirectly via an EU-based company.6 Furthermore, the AG points out that national screening mechanisms are nevertheless subjected to respect the four fundamental EU freedoms - in particular, the free movement of capital, which also grants rights to third-country undertakings - and the principle of proportionality.
The development of national FDI screening mechanisms
Four years after the entry into force of the FDI regulation, most of the Member States have adopted or amended their FDI regimes or are in the process of doing so. Most recently, in the Netherlands, the Investment, Merger and Acquisition Safety Test Act ("Vifo Act") is expected to enter into force before 1 July 2023. In Germany, the act amending the pre-existing German FDI law entered into force on 17 June 2020, followed by various further amendments and we comment on recent developments below. Finally, the United Kingdom adopted its National Security and Investment Act 2021, which came into force on January 4 2022; we also take a look at the evolution of the UK's regime.
I. FOREIGN DIRECT INVESTMENT SCREENING IN THE NETHERLANDS - IT IS FINALLY COMING
Initiatives for sector-specific FDI laws (i.e., in telecoms, energy, and defence) in the Netherlands pre-date the FDI Regulation. However, following the entry into force of the FDI Regulation, the Dutch legislator proposed a general FDI Act, namely the 'Investment, Merger and Acquisition Safety Test Act' (Wet veiligheidstoets investeringen, fusies en overnames or "Vifo"). The Vifo introduces an ex-ante FDI screening in all other sectors that are deemed vital to Dutch society. Thus, the Vifo is complementary to other sectoral regulation. In the situation where an investment falls within the scope of both the Vifo Act and a sector-specific review mechanism, the Vifo expressly provides that it will not apply, and the sector regulations take precedence.7
Enforcement
The competent national authority responsible for enforcing the Vifo is the Ministry of Economic Affairs and Climate Policy ("Ministry"), whose enforcement powers are delegated to the Bureau for Investment Screening (Bureau Toetsing Investeringen or "BTI").
Scope
The Vifo applies to all kinds of investments (e.g., direct investments, mergers, demergers, the creation of a full-functioning joint venture, and acquiring assets), which result in obtaining control or significant influence over an undertaking which:
- provides vital services;
- administers a business campus; or
- owns sensitive technology or extremely sensitive technology.
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