Year 1 of foreign direct investment screening in the Netherlands (Vifo Act)

The first of June 2024 marked the first anniversary of the Investments, Mergers and Acquisitions (Security Screening) Act, (Wet veiligheidstoets investeringen, fusies en overnames, Vifo Act (Dutch only)). In an era of geopolitical tensions, Europe has become more cautious towards foreign direct investments (FDI) in advanced technologies and critical infrastructure. EU Member States, including the Netherlands, have established and strengthened mechanisms to scrutinise transactions that could pose risks for national security or that could contribute to an increasing dependence on other countries. In this article, we reflect on one year of FDI screening by the Dutch Investment Screening Bureau (Bureau Toetsing Investeringen, BTI). We also outline our expectations for the coming year.

The Vifo Act and BTI

The Netherlands already had an FDI screening mechanism in place for the electricity, gas and telecommunications sectors through sector-specific legislation. However, the Vifo Act enables the BTI – which falls under the auspices of the Ministry of Economic Affairs and Climate Policy – to review investments in all sectors not covered by the sector-specific mechanism. The screening mechanism of the Vifo Act covers investments in target companies established in the Netherlands when the target company is (i) involved in vital processes, or (ii) active with sensitive technologies, or (iii) a manager of a business campus. The BTI can also conduct retroactive reviews of completed transactions until 1 February 2024. More specifically, it has a call-in power enabling it to require the notification of a completed transaction if a 'reasonable suspicion' arises that the investment poses a serious risk to national security.

Further Guidance by the BTI

Several months after the entry into force of the Vifo Act, the BTI provided more guidance (in Dutch only) on (i) internal restructurings, (ii) the qualification of asset purchases and (iii) the concept of being active in (highly) sensitive technology. The BTI has also provided additional explanations of various terms in the Vifo Act in the form of a list of frequently asked questions (in Dutch only), based on initial experiences and insights.

Investigations by the BTI

There have been no publicly known prohibition decisions to date. Nor is it known how many transactions have been notified to the BTI. However, the BTI has investigated at least four closed transactions retroactively. None of the investigations are made public.

In January 2023, the Ministry of Economic Affairs and Climate Policy announced that it was going to investigate Nexperia's takeover of Nowi. The BTI concluded that the retroactive effect did not apply in this case, as Nowi's products do not qualify as military goods or dual-use goods.

On the other hand, the BTI has remained silent on the acquisition of Ampleon, one of the biggest companies in the Dutch chip market, by a Chinese investor in the summer of 2022. Ampleon produces semiconductors for radar systems and telecommunication networks and might therefore be considered active in sensitive technology. As the retroactive power to call in and review investments elapsed on 1 February 2024, Dutch media has questioned whether the BTI has already started reviewing the case given that both parties to the transactions in Ampleon and Nowi acquisitions shared similar characteristics, the investor being Chinese and the target being a Dutch semiconductor company.

The first impressions are that the BTI appears to be focusing on investments made by Chinese investors.

Judgment of the Rotterdam Interim Relief Court on the call-in powers of the BTI

The extent of the BTI's call-in power has also been tested in court this year. In a Judgment of 25 April 2024 (in Dutch only), the District Court of Rotterdam ruled on the scope of the BTI's discretionary power to call in transactions for retroactive review. The case concerned a target company (Anteryon) established in the Netherlands, with activities concerning micro-optical products such as lenses, lasers, optical coatings and optical systems based on chip technology. When BTI learned that there had been a change in Anteryon's shareholding in 2021, it decided to call in the transaction for review, citing a reasonable suspicion of national security concerns.

The call-in decision was challenged in injunction proceedings on the grounds that the BTI had not clearly established that the transaction fell within the scope of the Vifo Act. The claimant demonstrated that no voting rights had been transferred as a result of the transaction. The court ruled for the claimant, finding that the BTI cannot rely solely on reasonable suspicions to require a notification. It must also establish that there has been a change in control within the meaning of the Vifo Act. The court suspended the call-in decision.

Outlook

In the next year, the Dutch FDI regime will expand as new technologies and vital processes are brought into its scope. For example, in February 2024, a motion (in Dutch only) was passed by the Dutch Parliament calling for the government to include vegetable and seed breeding companies in the scope of the Vifo Act as vital suppliers. The upcoming revision of the EU FDI Screening Regulation is likely to bring further changes to the Vifo Act, aligning it more closely with the FDI screening mechanisms of other Member States. We anticipate that the BTI will remain very active. However, its activity will shift away from retroactive review cases (for which the time period has lapsed) to notification cases. We eagerly await the first decisions under the Vifo Act. Although these decisions will not be published, it is likely that there will be some indications of the BTI's approach. FDI has become a standard part of our M&A services over the past year and we do not expect this to change any time soon.