On June 22, 2020, the bill Implementing the Foreign Direct Investment Screening Regulation was introduced. This bill establishes the measures to implement the Regulation (EU) 2019/452 of the European Parliament which will become applicable on October 11, 2020.
The Regulation offers Member States the possibility to request certain information directly from a non-EU resident (hereinafter referred to as ' foreign') investor or an enterprise in which a foreign direct investment will take place or has taken place. The Regulation therefore affects Dutch companies invested in by investors from outside the European Union and investors from outside the European Union seeking to invest in the Netherlands.
Foreign direct investment (1) from non-European countries is a direct source of economic growth and employment. Partly because of this, the European Union continues to push for an open investment climate in the future. However, there is also a (growing) danger in this. Takeovers of and investments in critical infrastructure or companies that develop high-quality technology related to national security can create risks. These include risks related to the build-up of strategic dependencies, degradation of the continuity of service of vital services and processes, or degradation of sensitive information. This problem will be exacerbated when foreign governments are also involved; consider, for example, the feared Chinese government influence at Huawei.
At the time of the publication of Regulation (EU) 2019/452, no comprehensive framework for screening foreign direct investment for security or public order reasons existed at the Union level, while the European Union's main trading partners had already developed such frameworks (2).
In the Netherlands, only a few statutory screening mechanisms currently apply to foreign direct investments. These screening mechanisms then concern both investments originating from countries outside the European Union as referred to in the regulation and investments originating from the European Union itself. These include investments that allow direct or indirect control of certain power plants or LNG facilities and companies. Pursuant to the Law on Undesirable Control of Telecommunications, direct investments that realize predominant control in certain telecommunications parties will also be subject to prior review (3).
The Dutch bill Implementing the Foreign Direct Investment Screening Regulation does not introduce any new Dutch investment tests or screening mechanisms. The bill only regulates those elements that are necessary to secure the effective operation of the Regulation and for the Netherlands to comply with its obligations under the Regulation. In particular, the Regulation requires the designation and establishment of a so-called contact point for the purpose of facilitating and supporting the confidential exchange of information between Member States and with the European Commission on direct investments from third countries involving potential risks to public order and security.
Additional information may be requested from a foreign investor or the enterprise concerned by Member States in certain cases. This information may relate, for example, to the financing of the investment and its source and/or the ownership structure of the foreign investor and of the enterprise in which the foreign direct investment is planned or has been completed, including information on the ultimate investor and capital participation. Companies are not required to notify the investment themselves (leaving aside other notification obligations to the ACM, SER, NZa, etc.). It is up to the relevant Member State to submit the information request itself (4).
With the advent of this Regulation, all Member States will have to report on foreign direct investment that has taken place on their territory, based on the information available to them. To the extent that this information has not already been collected under a screening mechanism, data from the Commercial Register, the Land Registry, other public registers established by law and public information will be used.
If you intend to receive an investment and your company falls under the sectors described above to which the statutory screening mechanisms apply, the same rules continue to apply. A list of Member States' screening mechanisms is published on the European Commission's website and will be updated from time to time. Here you can see whether a screening mechanism may apply to your planned investment at any time. In most cases the screening of the investment takes place prior to the investment itself.
If your situation is not currently subject to an established investment screening mechanism, a Member State or the European Commission may submit a request for information if it considers that the foreign direct investment may have security or public order implications. If no national screening mechanism is applicable, this request can be made up to 15 months after the investment. Only the member state in which the investment took place is competent to decide whether the investment is permissible or not. The commission or other member states have no authority to block or reverse an investment (5).
In the Netherlands, a separate legislative process is underway to introduce additional measures in the area of investment testing. The present bill will have an impact when a minister in the future applies an investment test for their own domain to incoming investments where national security is compromised (6). The premise here is to minimize the burden on business (7). The average length of the information requirement is currently estimated at 35 days (8).
Failure to comply with information obligations is an economic offence and will be made punishable. This criminalization will be in addition to the proposed possibility of imposing an administrative order and/or administrative fine for non-compliance.
(1) Any type of investment by a foreign investor aimed at establishing or maintaining lasting direct relations between the foreign investor and the entrepreneur or enterprise to which the capital is made available with a view to carrying out an economic activity in a Member State, including investments that allow the effective participation in the management or control of an enterprise carrying out an economic activity.
(2) Recital 5 of the Regulation (EU) 2019/452.
(3) According to the Explanatory Memorandum to the Bill Implementing the Foreign Direct Investment Screening Regulation.
(4) Answer No. 20 of the Frequently asked questions on Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union.
(5) Answer No. 14 of the Frequently asked questions on Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union.
(6) So says the Explanatory Memorandum to the bill Implementing the Foreign Direct Investment Screening Regulation Act.
(7) Answers to Parliamentary Questions on the Investment Test for Risks to National Security of December 11, 2019.
(8) EU Framework for screening investments.
