Foreign investment control in the Netherlands – Lessons learnt from one year of practice

For a more technical explanation on the functioning of the regime, we refer to our previous blog post. A small note at the outset: the Dutch regime is technically not a foreign investment regime as it applies equally to investors from the Netherlands.

The scope of the regime

Contrary to some of its peers, the Dutch investment screening regime has a relatively well-defined and narrow scope. Guidelines published by the Dutch regulator (BTI) have addressed uncertainties around the scope of the regime. In addition, BTI is generally willing to give (informal) guidance to investors at an early stage about whether a specific investment falls within the scope of the regime. This has, in our experience, resulted in fewer “precautionary filings” being made than in certain other EU Member States.

We have set out below a number of key points to keep in mind in relation to the scope of the regime:

• The regime can apply to an acquisition of voting rights as low as 10% in a target active in certain highly sensitive technologies (such as semiconductors and quantum technology). Moreover, a new notification is required when the threshold of 20% and 25% of the voting rights in the same target is surpassed.
• Greenfield investments are not covered by the regime.
• Asset transactions are covered by the regime if the relevant assets (such as IP rights, licences, key personnel, equipment, etc.) are essential and specifically used to engage in sensitive activities covered by the regime.
• There is no de minimis threshold: contrary to merger control rules the investment screening regime does not rely on turnover thresholds to delineate its scope of application.
• Only the Dutch State benefits from an exemption from the notification requirements. Other publicly funded organisations and investors from the Netherlands must file.
• Internal reorganisations are generally not covered by the regime, provided the ultimate shareholders remain the same (and there is therefore no change of control). However, the (brief) acquisition of control by a trustee/custodian can trigger a filing requirement. In addition, the transfer of a target between two investment funds, even when those funds are managed (and controlled) by the same general partner, can trigger a filing requirement – the idea being that different investors (limited partners) can be involved in the funds.
• Companies researching, operating, or aiming to commercialise sensitive technologies are covered by the regime. Conversely, companies that are merely engaged in trading activities involving sensitive technologies fall outside the scope of the regime. For a narrow group of highly sensitive technologies, the regime also covers the (upstream) supply of any products, services equipment or know-how that are specifically tailored to researching, operating, or aiming to commercialise the relevant highly sensitive technologies.

An interesting development to note in this context is that, in April 2024, the Rotterdam District Court ruled that BTI cannot require an investor to make a notification when it merely suspects that a (closed) investment might pose a national security risk and is captured by the regime, but it does not have sufficient information to make a definitive assessment. To require a filing, BTI must first prove that the investment is covered by the regime, and request information from the parties to establish this. We will be commenting on this Dutch court decision in more detail shortly – stay tuned!

Review process

The review process can be unpredictable, opaque and lengthy, including for investments or investors that, at face value, do not trigger national security concerns. Similar to what we see in other EU Member States, the review process in the Netherlands can be a “black box”. This is driven by a number of factors. First, BTI relies on classified information in its review (provided by the Dutch intelligence services). Second, BTI relies on experts from different ministries for input in its review process (depending on the sector involved). Last, filings and decisions are also not published.

In its review, BTI seems to focus on the identity of the ultimate beneficial owners (UBOs), the rationale for the investment (including by looking at the investor’s activities in previous years) and the influence/involvement of foreign governments over the investor. There have not been any prohibition decisions so far, but that says nothing of course about the potential deterrent effect the regime has on foreign investments into the Netherlands.

Timeline

The initial screening phase can last up to eight weeks, which is longer than the four-week phase one screening process before the Dutch competition authority (ACM). The timeline can be extended through requests for additional information, which we often see happen in practice. Parties may be required – and should be prepared – to provide detailed information (for example on the ownership structure of the investor). The length and depth of the investigation typically correlates with the perceived national security risk.

What lies ahead?

The relatively narrow scope of the regime has proven to be its Achilles heel. Criticism has been voiced (at a political level) against the regime for being too restrictive. For example, BTI looked at the (completed) acquisition of Nowi by Nexperia but concluded it did not have jurisdiction (as Nowi’s technologies did not qualify as sensitive under the regime), even though Nowi has certain “energy-harvesting technologies” that could also have a military application. In addition, BTI did not scrutinise the acquisition of Ampleon (for $1.5 billion) by a Chinese investor, even though the company is active in the development of 6G technology and semiconductors for radar systems and telco networks.

With a new government in place, the expectation is that the scope of the Dutch regime will be expanded in the near future. In February 2024, a proposal was adopted to expand the scope of the regime to include the Dutch vegetable and seed breeding sector. Although this proposal has not yet been implemented, it is a sign of what lies ahead.

An expansion of the regime would also be in line with developments at the EU level, where the European Commission in January 2024 published a proposal that sets higher minimum standards (including on the sectors covered) for the foreign investment regimes of EU Member States. Sectors currently not covered by the Dutch regime, but included in the Commission’s proposal include, amongst others, certain medicines, biotechnology, and recycling technology. Although still a proposal at this stage, it signals the direction of travel for foreign investment control in the EU.

Carrot and stick

As a final note, in parallel to the investment screening regime, the Dutch government has created an economic security investment fund to invest in and support companies covered by the regime and fend of investments by certain investors. The Dutch government has used this method in the past. In 2020, before the entry into force of the regime, it invested in SmartPhotonics (a company active in the production of photonic chips) when a Chinese investor wanted to acquire a stake.