The EU Foreign Direct Investment Screening Regulation: in Search of a Clear Concept of FDI

Abstract

Regulation (EU) 2019/452 establishes a framework for the screening of foreign direct investments (FDIs) into the Union on grounds of security or public order. For this regulation to work well, a clear definition is needed of what constitutes FDI. FDI is currently laboriously defined as an investment 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. This definition is not very precise regarding the relevant threshold in terms of equity ownership or voting power. Moreover, the regulation does not make clear when foreign investors who are cooperating and acting together can be considered to be making an FDI. The regulation lacks a clarification of the notion of persons ‘acting in concert’, which could lead to potential qualification problems and divergent practices in the Member States. This is also relevant for the application of measures by Member States to prevent circumvention of screening mechanisms, which the regulation allows. Finally, the question arises to what extent (changes in) indirect holdings by a foreign investor could qualify as FDI.
To address these issues, this paper discusses other EU rules, including the Takeover Directive, the Transparency Directive and the EU framework on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector. It is argued that the concepts and definitions used within these instruments of EU law could also be relevant for regulation 2019/452.

Keywords: Foreign Direct Investment; Screening; Security; Takeovers; Mergers and Acquistions; Acting in concert; Control