New EU-regulation on screening of foreign direct investments
On 5 March 2019 the EU adopted a new regulation establishing a framework for the screening of foreign direct investments into the EU.
The EU underlines that it wishes to remain an attractive destination for foreign direct investments. However, the EU finds that, in exceptional cases, foreign investments may represent a risk for security or public order both in Member States and in the EU in general. Consequently, the aim of the new regulation is to prevent foreign investments in becoming a threat to security and public order within the EU.
14 EU Member States currently have national investment screening mechanisms, including Denmark. Currently, Denmark does not have a general legal basis to screen foreign investments, but screening applies in certain sectors, e.g. security of supply and cyber security.
The new regulation establishes a framework which EU Member States are required to comply with if a Member State nationally wants to regulate the screening of foreign investments. In other words, Member States are not obliged to regulate on this matter, but if they do, they will have to comply with the framework of the EU-regulation, which will apply from 11 October 2020.
The current Danish Government has declared that they expect to introduce a bill on this matter within 2019.
In the following, we will examine how the regulation affects Danish companies and investors who wish to invest in Denmark.
Investments that fall within the scope of the regulation
According to the regulation a “foreign direct investments” means an investment of any kind by a foreign investor aiming to establish or to maintain lasting and direct links between the foreign investor and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity in a Member State, including investments which enable effective participation in the management or control of a company carrying out an economic activity.
Therefore, one of the main characteristics of the term is that the investment comes from a person or undertaking from a third country, with the purpose to establish or maintain lasting and direct links between the foreign investor and the recipient to carry on an economic activity in a member state.
However, as the primary considerations are security and public order, not all sectors will be included. The regulation lists up examples of sectors considered a particular risk of foreign investments, such as “critical infrastructure”. According to the Danish Government the energy-, IT-, transport- and health sector are examples of such critical infrastructure.
Screening- and cooperation mechanisms
According to the regulation, national screening mechanisms will be required to consider whether a foreign investment is likely to affect security or public order, or other relevant factors, i.a. if there are risks that an investor is involved in criminal or illegal activities.
The new framework establishes a cooperation model between the Member States and the European Commission. For instance, a Member State is obliged to notify the Commission and other Member States about cases which undergoes national screening. The Member States and the Commission may request additional information and/or provide comments and opinions on the screening in question. The Member State, in which the investment takes place, must consider the provided comments and opinions, but is fully entitled to take the final decision about how the investment should be processed
Possible consequences for undertakings and investors in Denmark
At this point in time, it is not possible to account for the content of the future Danish legislation, as the EU-regulation leaves it to the member states to define the scope and the practical approach of the national screening mechanisms, if security and public order is the underlying basis. In addition, the national legislation must comply with the cooperation mechanism and the general conditions, and it must be transparent and not discriminate between third countries.
Nevertheless, despites its aim, the Regulation may affect the EU’s current position as one of the world’s leading source and destination of foreign direct investment, and the framework may also impose additional administrative burdens on the corporate world, especially with respect to merges and acquisitions in Denmark to prevent foreign investments in becoming a threat to security and public order.
Read the regulation here.
For further information
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