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What Is a Foreign Direct Investment?

Understanding Third Country Direct Investments Conceptually and in Practise

Part of the YSEC Yearbook of Socio-Economic Constitutions book series (YSEC,volume 2020)

Abstract

The qualification of a transaction as ‘foreign direct investment’ (FDI) and, more specifically under Regulation (EU) 2019/452 (Screening Regulation), as third country direct investment opens—or closes—the scope of application of the Screening Regulation. Yet the Screening Regulation leaves many questions on that concept open. Therefore, this contribution aims at tackling some of the questions. It comes with two major parts: Sections 24 embed FDI in general and the Screening Regulation specifically in broader political and legal contexts, and Section 5 analyses specific legal elements of third country direct investments under the Screening Regulation. Section 2 outlines general fundamental global challenges that affect FDI law and politics. Section 3 contextualises third country investments within relevant EU law. The analysis shows that the Regulation’s definition of direct investments is just transplanted from the three-decades-old Capital Movements Directive. Also, this contribution argues that all third country investments are protected by the freedom of capital movement. They also fall within the scope of protection of EU fundamental rights. Section 4 argues for a very fundamental approach: the EU and its EU Member States should strive for a common European screening law and politics. Such a common European understanding goes beyond hard law: it includes the political and legal willingness to discourse and cooperation in order to develop a coherent FDI policy even without a legal obligation under EU law to do so. Yet this section emphasises that the Screening Regulation is set in uneasy contexts. The Regulation is a new policy, it is a key concept in the global struggle for adequate rules, it comes with the temptation of being used as a bargaining chip in international negotiations, and it may generate spillover effects on the internal market. One facet to tackle these uneasy contexts is to apply a strictly legal approach to the Regulation, not to fall prey to ‘reciprocity arguments’, and to consider international law more seriously. Section 5 is the legal centrepiece of this contribution. It starts with an analysis of the Regulation’s definition of direct investments as ‘aiming to establish or to maintain lasting and direct links’ between the investor and target. Whether a transaction qualifies as direct investment or as (mere) portfolio investment should be reviewed under an objective test; the investor’s subjective intentions on how to use the acquired shares do not constitute a legally sound basis. Next, this contribution argues that transactions also qualify as third country ‘direct’ investments if the transaction results in indirect links between a third country investor and an EU target; this would be the case in parent-subsidiary structures on the acquirer’s side. A further focus lies in the analysis of what it means for an investment to bring the opportunities for ‘effective participation in the management or control’ of the target. This contribution argues that an understanding of ‘control’ should seek inspiration from other EU law areas such as the EU merger control law, that ‘management’ should be interpreted in a broad manner (which could include ‘supervisory bodies’) and that the investment-management/control nexus should be fleshed out by a common European quantitative-qualitative approach. Furthermore, this contribution considers ex post screening challenges and the Regulation’s anti-circumvention clauses. The section closes with discussions on third country investors and third countries. While the nationality of the investor’s shareholders must not be taken into consideration, this contribution argues that ‘doubly organised undertakings’ (which have essential corporate relationships to both an EU Member State and a third country) should be qualified as third country investors. Lastly, several categories of countries are analysed regarding their third country qualification: the Organisation for Economic Co-operation and Development (OECD) countries, overseas countries and territories, the European Economic Area states, Switzerland, and the post-Brexit UK.

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Notes

  1. 1.

    ‘Times are changed; we, too, are changed within them.’; Latin 16th-century Germany adage basing on a thought of Ovid, Wikipedia: The Free Encyclopedia (2020) Tempora mutantur.

  2. 2.

    United Nations Conference on Trade and Development, a permanent intergovernmental body and part of the UN Secretariat; see UNCTAD (2020) About UNCTAD, available at https://unctad.org/en/Pages/aboutus.aspx.

  3. 3.

    UNCTAD (2019) National Security-Related Screening Mechanisms for Foreign Investment, pp. 1, 4.

  4. 4.

    That is, with a value exceeding USD 50 million; see UNCTAD (2019) National Security-Related Screening Mechanisms for Foreign Investment, pp. 1, 2, 13 ff.

  5. 5.

    Ibid.

  6. 6.

    Cf. on some aspects of uncertainty Rytter Sunesen and Henriksen in Bourgeois (2020), pp. 17–19.

  7. 7.

    Juncker J-C (13 September 2017) State of the Union Address 2017, p. 3 (emphasis omitted), available at https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_17_3165. For further citations of the ‘we are not naïve free traders’ statement, see Hindelang and Moberg (2020) (forthcoming), 2 f.

  8. 8.

    On some terms in this contribution: ‘FDI’ refers to a direct investment by any non-domestic (foreign) investor, while ‘third country direct investment’ refers to a direct investment by non-EU investors. This contribution deals mainly with third country direct investments since the Screening Regulation applies only to such extra-EU direct investments.

    The terms ‘EU undertaking’, ‘EU target’, ‘EU investor’, etc. mean an undertaking, target, investor, etc. that is constituted or otherwise organised under the laws of an EU Member State. The same applies mutatis mutandis to ‘third country undertakings’, ‘OECD undertakings’, ‘UK undertakings’, etc. The terms are used for semantic reasons and do not imply that the respective undertaking, target, investor, etc. is state-owned.

  9. 9.

    OECD (2020d) FDI restrictiveness (indicator): for 2019, the OECD comes with an index of 0.064. The United States of America (US) is at 0.089, while China exceeds even this number with 0.244. Most EU-27 Member States are less restrictive even than the OECD average, ranging from Luxembourg’s 0.004 to Austria’s 0.106 (no figures are available for Bulgaria, Cyprus, and Malta). For the FDI restrictiveness index, see OECD (2020) FDI restrictiveness (indicator): the OECD index gauges the restrictiveness of a country’s FDI rules by looking at four main types of restrictions—foreign equity restrictions, discriminatory screening or approval mechanisms, restrictions on key foreign personnel, and operational restrictions. Values range from 0 for open to 1 for closed. Data available at https://data.oecd.org/fdi/fdi-restrictiveness.htm.

  10. 10.

    For example, see European Commission, Commission Staff Working Document, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union, SWD (2017) 297 final, 13.9.2017, pp. 3 f. Hereinafter European Commission, Commission Staff Working Document, SWD (2017) 297 final, 13.9.2017. Rytter Sunesen and Henriksen in Bourgeois (2020), pp. 3–9.

  11. 11.

    Deutsche Bundesbank (2020) Direktinvestitionsstatistiken, p. 83, available at https://www.bundesbank.de/resource/blob/832150/d769909feb4add6d2a5fe131e7aff491/mL/2020-04-30-13-36-38-direktinvestitionsstatistiken-data.pdf (the figures reflect undertakings with foreign capital directly invested).

  12. 12.

    For example, European Commission (2017) Reflection Paper on Harnessing Globalisation, COM(2017) 240 final, 10.5.2017, p. 18: ‘Openness to foreign investment remains a key principle for the EU and a major source of growth’, reiterated in Proposal for a Regulation establishing a framework for screening of foreign direct investments into the European Union, COM(2017) 487 final, 13.9.2017, p. 2. Hereinafter Proposal for the Regulation, COM(2017) 487 final, 13.9.2017.

  13. 13.

    German Bundestag Legislative Material 19/645 of 6.2.2018, p. 2 (own translation): ‘Germany is an open economy. The Federal Government welcomes foreign investments that are compatible with German and European law.’

  14. 14.

    Communication from the Commission Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final, OJ C 99 I/1, 26.3.2020, pp. 1–5. Hereinafter FDI Screening Regulation Guidance, C(2020) 1981 final.

  15. 15.

    Cf. Hindelang and Moberg (2020) (forthcoming), p. 19.

  16. 16.

    In this contribution, Articles cited refer to the Screening Regulation unless stated otherwise.

  17. 17.

    Xi (2017), p. 25.

  18. 18.

    I.e., with a world that is becoming less Western and the West itself becoming less Western, too, see Munich Security Conference (2020) Munich Security Report 2020—Westlessness, p. 6, available at https://securityconference.org/publikationen/munich-security-report-2020/.

  19. 19.

    On challenges to export control law by emerging technologies, cf. Mousa (2020), pp. 228–230; Borman (2020), pp. 231–233.

  20. 20.

    UNCTAD (December 2019) National Security-Related Screening Mechanisms for Foreign Investment—An Analysis of Recent Policy Developments, Investment Policy Monitor, Special Issue, available at https://unctad.org/en/PublicationsLibrary/diaepcbinf2019d7_en.pdf, p. 2.

  21. 21.

    OECD (4 May 2020a) Foreign direct investment flows in the time of COVID-19, p. 1, available at https://read.oecd-ilibrary.org/view/?ref=132_132646-g8as4msdp9&title=Foreign-direct-investment-flows-in-the-time-of-COVID-19.

  22. 22.

    FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/1, 26.3.2020. On this Communication, see WilmerHale (27 March 2020a) COVID-19: EU Issues Guidelines Regarding Screening Foreign Investment in Connection with Industries Critical for Combating COVID-19, available at https://www.wilmerhale.com/en/insights/client-alerts/20200327-eu-issues-guidelines-regarding-screening-foreign-investment-in-connection-with-industries-critical-for-combating-covid-19.

  23. 23.

    Communication from the Commission, Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, 2020/C 91 I/1, 20.3.2020. This Communication was amended several times.

  24. 24.

    Communication from the Commission, Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak 2020/C 116 I/07, 8.4.2020. On the Communication, see WilmerHale (14 April 2020b) COVID-19: EU Temporary Antitrust Framework For Essential Cooperation, available at https://www.wilmerhale.com/en/insights/client-alerts/covid19-eu-temporary-antitrust-framework-for-essential-cooperation.

  25. 25.

    See with respect to Germany EURACTIV (15 May 2020b) Mitgliedsstaaten fürchten Marktverzerrungen durch massive deutsche Staatshilfen, available at https://www.euractiv.de/section/finanzen-und-wirtschaft/news/mitgliedsstaaten-fuerchten-marktverzerrungen-durch-massive-deutsche-staatshilfen/.

  26. 26.

    FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/5, 26.3.2020.

  27. 27.

    Wilmès et al. (25 March 2020) Joint letter to the President of the European Council Charles Michel, available at http://www.governo.it/sites/new.governo.it/files/letter_michel_20200325_eng.pdf.

  28. 28.

    Frank-Fahle (2019).

  29. 29.

    For a current global picture, cf. OECD (2020b) Acquisition- and ownership-related policies to safeguard essential security interests: Current and emerging trends, observed designs, and policy practice in 62 economies, available at http://www.oecd.org/investment/OECD-Acquisition-ownership-policies-security-May2020.pdf.

  30. 30.

    Hindelang and Hagemeyer (2017).

  31. 31.

    Bertelsmann Foundation/The German Marshall Fund of the United States/Institut Montaigne (2020) Transatlantic Trends 2020—Transatlantic opinion on global challenges before and after COVID-19, p. 8, available at https://www.institutmontaigne.org/ressources/pdfs/publications/transatlantic-trends-2020.pdf.

  32. 32.

    Ibid., p. 30 f.

  33. 33.

    WilmerHale (29 October 2019b) New Chinese Regulations on Improving the Investment Environment, available at https://www.wilmerhale.com/en/insights/client-alerts/20191029-new-chinese-regulations-on-improving-the-investment-environment.

  34. 34.

    Cf. for details and on the background WilmerHale (2 August 2018a) Congress Expands US Government Review of Foreign Investments, available at https://www.wilmerhale.com/en/insights/client-alerts/20180802-congress-expands-us-government-review-of-foreign-investments.

  35. 35.

    Cf. for details and on the background WilmerHale (26 September 2019a) CFIUS Publishes New Proposed Regulations, available at https://www.wilmerhale.com/en/insights/client-alerts/20190926-cfius-publishes-new-proposed-regulations.

  36. 36.

    Ninth Ordinance to Amend the German FTPO of 14.7.2017. On this amendment, see WilmerHale (24 July 2017) German Government Amends German Foreign Trade and Payments Ordinance to Widen Control of Foreign Takeovers of Critical German Companies, available at https://www.wilmerhale.com/en/insights/client-alerts/2017-07-24-german-government-amends-german-foreign-tradea-and-payments-ordinance-to-widen-control-of-foreign-takeovers-of-critical-german-companies.

  37. 37.

    Twelfth Ordinance to Amend the German FTPO of 19.12.2018. On the Ordinance, see WilmerHale (20 December 2018b) EU and Germany Move to Further Tighten FDI Screening Process, available at https://www.wilmerhale.com/en/insights/client-alerts/20181220-eu-and-germany-move-to-further-tighten-fdi-screening-process.

  38. 38.

    Fifteenth Ordinance to Amend the German FTPO of 25.5.2020; First Act to Amend the German FTPA and other Acts of 10.7.2020.

  39. 39.

    In the end, the prohibition was not issued since the Chinese investor withdrew. Cf., for details and the context of German screening law, Dammann de Chapto and Brüggemann (2018); German Federal Government (2018) Press conference of the Government of 1 August 2018, available at https://www.bundesregierung.de/breg-de/aktuelles/pressekonferenzen/regierungspressekonferenz-vom-1-august-2018-1507608.

  40. 40.

    German Bundestag Legislative Material 19/645 of 6.2.2018, p. 3; German Bundestag Legislative Material 19/18895 of 4.5.2020, p. 1.

  41. 41.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 9.

  42. 42.

    Hindelang and Moberg (2020) (forthcoming) (emphasis omitted), p. 19.

  43. 43.

    For some minor aspects of the discussion, see Neergaard in Bourgeois (2020), p. 154.

  44. 44.

    Council Directive 88/361/EEC of 24 June 1988 for the implementation of Art 67 of the Treaty, OJ L 178, 8.7.1988, pp. 5–18. Hereinafter the Capital Movements Directive.

  45. 45.

    Basis for both Nomenclature and Explanatory Notes: Art 1(1) sentence 2 in conjunction with Annex I of the Capital Movements Directive.

  46. 46.

    See below Sect. 5.4.3.3.

  47. 47.

    The Screening Regulation covers FDIs from other countries into the EU (inward FDIs) but not EU FDIs to other countries (outward FDIs). The Regulation further only covers FDIs from third countries (extra-EU FDIs) but not from one EU Member State to another EU Member State (intra-EU FDIs).

  48. 48.

    In this contribution, Recitals cited refer to the Screening Regulation unless stated otherwise.

  49. 49.

    Cf. Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 19 (the slight change from the Proposal’s plural wording ‘means investments of any kind’ to the Regulation’s singular wording ‘means an investment of any kind’ does not contain substantial value).

  50. 50.

    Cf. Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 17, on the proposed Recital 9. The amendment was proposed by the European Parliament (Legislative resolution of 14 February 2019, P8_TA-PROV(2019)0121, p. 6).

  51. 51.

    Cf. Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 12.

  52. 52.

    Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, para. 40.

  53. 53.

    Capital Movements Directive Explanatory Notes on direct investments, first subpara.

  54. 54.

    Capital Movements Directive Nomenclature (I—Direct investments) and Capital Movements Directive Explanatory Notes on direct investments.

  55. 55.

    See only Case Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 180; Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, para. 39.

  56. 56.

    Capital Movements Directive Explanatory Notes on direct investments, third subpara.

  57. 57.

    Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, para. 40; Judgment of the Court of 21 October 2010, Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis, C-81/09, ECLI:EU:C:2010:622, para. 48; similar in Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-35/11, ECLI:EU:C:2012:707, para. 102.

  58. 58.

    Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, para. 40.

  59. 59.

    See Hindelang (2009), pp. 204–206.

  60. 60.

    Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-35/11, ECLI:EU:C:2012:707, para. 102.

  61. 61.

    Judgment of the Court of 13 April 2000, C Baars v Inspecteur der Belastingdienst Particulieren/Ondernemingen Gorinchem, C-251/98, ECLI:EU:C:2000:205, paras. 22, 26; see also Judgment of the Court of 12 September 2006, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, ECLI:EU:C:2006:544, para. 31; Judgment of the Court of 13 March 2007, Test Claimants in the Thin Cap Group Litigation v Commissioners of Inland Revenue, C-524/04, ECLI:EU:C:2007:161, para. 27; Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, para. 47; Judgment of the Court of 21 October 2010, Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis, C-81/09, ECLI:EU:C:2010:622, para. 47; Judgment of the Court of 19 July 2012, Marianne Scheunemann v Finanzamt Bremerhaven, C-31/11, ECLI:EU:C:2012:481, para. 23; Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-35/11, ECLI:EU:C:2012:707, para. 91; Judgment of the Court of 3 September 2020, Vivendi SA v Autorità per le Garanzie nelle Comunicazioni, C-719/18, ECLI:EU:C:2020:627, para. 40.

  62. 62.

    The relationship between the right of establishment and the free movement of capital is significantly disputed among scholars. Conceptions range from mutually exclusive scopes of application over primacy/subsidiarity to parallel applicability; see Lutter et al. (2018), § 4, para. 25, with further references.

  63. 63.

    See Hindelang (2009), pp. 204–206.

  64. 64.

    Judgment of the Court of 24 May 2007, Winfried L. Holböck v Finanzamt Salzburg-Land, C-157/05, ECLI:EU:C:2007:297, para. 28; Judgment of the Court of 19 July 2012, Marianne Scheunemann v Finanzamt Bremerhaven, C-31/11, ECLI:EU:C:2012:481, para. 33; Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-35/11, ECLI:EU:C:2012:707, para. 97.

  65. 65.

    See Judgment of the Court of 19 July 2012, Marianne Scheunemann v Finanzamt Bremerhaven, C-31/11, ECLI:EU:C:2012:481, paras. 17–35. The CJEU reviewed a German tax clause (applicable on ‘definite influence’ shareholdings) with respect to the freedom of establishment. Ms. Scheunemann’s shares of a capital company established in a third country, however, did not fall within the personal scope of application of the freedom of establishment. The Court did not (re)consider the freedom of capital movement and, thus, did not address the protection gap issue.

  66. 66.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, pp. 4, 28 f.

  67. 67.

    FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/4 f of 26.3.2020.

  68. 68.

    See especially the lack of any such statements in the Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, pp. 4 f., 29 (discussing the personal scope of both fundamental freedoms).

  69. 69.

    Other scholars do not deal with these arguments but rather accept the gap; see Zwartkruis and de Jong (2020), p. 456.

  70. 70.

    Hindelang (2013), p. 77 f.; Lutter et al. (2018), § 4, para. 26; Schmidt and Meckl (2020), p. 1224; see also Herrmann (2019), p. 441 f.

  71. 71.

    On ‘golden shares’ in general, see Lutter et al. (2018), § 15.

  72. 72.

    Hindelang and Hagemeyer (2017), p. 886.

  73. 73.

    Ibid., p. 885.

  74. 74.

    Hindelang (2013), p. 80; Hindelang and Hagemeyer (2017), p. 885.

  75. 75.

    This section only discusses (non-extensively) the rights of the investor. It leaves out possible rights of the target or the vendor (a screening decision also touches upon their rights, of course). Besides, the discussion of the fundamental rights under the CFR (as guaranteed via Art 6(1) TEU) is without any prejudice to the rights guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and to rights resulting from the constitutional traditions common to the Member States (cf. Art 6(3) TEU).

  76. 76.

    Cf. Judgment of the Court of 26 February 2013, Åklagaren v Hans Åkerberg Fransson, C-617/10, ECLI:EU:C:2013:105, para. 21; Judgment of the Court of 26 September 2013, Texdata Software GmbH, C-418/11, ECLI:EU:C:2013:588, para. 73; Judgment of the Court of 16 May 2017, Berlioz Investment Fund SA v Directeur de l’administration des contributions directes, C-682/15, ECLI:EU:C:2017:373, para. 49.

  77. 77.

    See, e.g., Art 1(3), Recital 8 sentence 2, Recital 17 second subpara, or Recital 19 second subpara sentence 2.

  78. 78.

    Cf. Judgment of the Court of 26 February 2013, Åklagaren v Hans Åkerberg Fransson, C-617/10, ECLI:EU:C:2013:105, para. 19; Judgment of the Court of 26 September 2013, Texdata Software GmbH, C-418/11, ECLI:EU:C:2013:588, para. 72.

  79. 79.

    On the basics of Art 16 of the CFR, see the Explanations relating to the Charter of Fundamental Rights (2007/C 303/02), OJ C 303/23, 14.12.2007 (that must be given due regard when interpreting the CFR pursuant to Art 6(1) third subpara TEU and Art 52(7) of the CFR).

  80. 80.

    Art 16 of the CFR is not a mere principle in the meaning of Art 52(5) of the CFR but a right; see Oliver in Bernitz/Groussot/Schulyok (2013), pp. 295–296; Groussot et al. in Douglas-Scott/Hatzis (2017), p. 331. This is implicitly accepted in Judgment of the Court of 6 September 2012, Deutsches Weintor eG v Land Rheinland-Pfalz, C-544/10, ECLI:EU:C:2012:526, paras. 54–60, and in Judgment of the Court of 22 January 2013, Sky Österreich GmbH v Österreichischer Rundfunk, C-283/11, ECLI:EU:C:2013:28, paras. 41 ff.

  81. 81.

    Judgment of the Court of 6 September 2012, Deutsches Weintor eG v Land Rheinland-Pfalz, C-544/10, ECLI:EU:C:2012:526, para. 54; Judgment of the Court of 22 January 2013, Sky Österreich GmbH v Österreichischer Rundfunk, C-283/11, ECLI:EU:C:2013:28, para. 45.

  82. 82.

    Ibid., para. 46. The limitation must be proportional pursuant to Art 52(1) sentence 2 of the CFR; see id., paras. 47 ff.

  83. 83.

    Cf. Oliver in Bernitz/Groussot/Schulyok (2013), pp. 298. f.; Groussot et al. in Douglas-Scott/Hatzis (2017), pp. 327–336.

  84. 84.

    Jarass (2016), Art 16 EU-Grundrechte-Charta, para. 6.

  85. 85.

    That is, national restrictions to EU fundamental freedoms must be compliant with EU fundamental rights; cf. the landmark case Judgment of the Court of 18 June 1991, Elliniki Radiophonia Tileorassi Anonimi Etairia (ERT AE) and Panellinia Omospondia Syllogon Prossopikou ERT v Dimotiki Etairia Pliroforissis (DEP) and Sotirios Kouvelas and Nicolaos Avdellas and Others, C-260/89, ECLI:EU:C:1991:254, para. 43.

  86. 86.

    Judgment of the Court of 21 December 2016, Anonymi Geniki Etairia Tsimenton Iraklis (AGET Iraklis) v Ypourgos Ergasias, Koinonikis Asfalisis kai Koinonikis Allilengyis, C-201/15, ECLI:EU:C:2016:972, paras. 63–66.

  87. 87.

    Recital 6 sentences 1 and 2.

  88. 88.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 8.

  89. 89.

    Pursuant to Art 3(1)(e) in conjunction with Art 207(1) TFEU, see Opinion procedure 2/15, Free Trade Agreement with Singapore, Opinion of the Court of 16 May 2017, ECLI:EU:C:2017:376, paras. 81 f., 243.

  90. 90.

    Opinion of the Court of 16 May 2017, Free Trade Agreement with Singapore, Opinion 2/15, ECLI:EU:C:2017:376, paras. 83, 238, 243.

  91. 91.

    Cf. ibid., para. 80.

  92. 92.

    On the relationship between CCP and FDI regulation, including an analysis of the CJEU’s Opinion 2/15, see Cremona in Bourgeois (2020) EU Framework for Foreign Direct Investment Control, pp. 31–55; for further discussions of Art 207(1) TFEU as legal basis for the Regulation, see Zwartkruis and de Jong (2020), p. 458 f.

  93. 93.

    See Herrmann (2019), p. 462 f.; Hindelang and Moberg (2020) (forthcoming), pp. 7–10; for a discussion of the legal basis, see also Bismuth in Bourgeois (2020) EU Framework for Foreign Direct Investment Control, pp. 108, 111 f.

  94. 94.

    Hindelang and Moberg (2020) (forthcoming), p. 10.

  95. 95.

    Cf. Art 1(3), Recital 8 sentence 2, Recital 17 second subpara, or Recital 19 second subpara sentence 2. On the ‘optional nature’ of the Regulation, see Neergaard in Bourgeois (2020), p. 154 f.

  96. 96.

    Arts. 6–10.

  97. 97.

    Art 23, Recital 28 sentences 2 and 3. Cf. Commission Decision of 29 November 2017 setting up the group of experts on the screening of foreign direct investments into the European Union, C(2017) 7866 final, 29.11.2017. For details on this expert group, see European Commission (2020b) Commission expert group on the screening of FDI into the EU.

  98. 98.

    Art 3(7), Art 5, Recital 22.

  99. 99.

    Cf. ‘Member States wanting to put in place such mechanisms in the future could take into account the functioning, experiences and best practices of existing mechanisms’ (Recital 4 sentence 4).

  100. 100.

    Art 5(3) TEU in conjunction with Protocol No 2.

  101. 101.

    See, however, an interesting obiter dictum of a recent statement of the Commission: ‘At present, the responsibility for screening FDI rests with Member States.’ FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/2, 26.3.2020 (emphasis added). Moreover, during the legislative procedure of the Screening Regulation, the European Economic and Social Committee argued that ‘the EU should make use of its competence in terms of foreign direct investment, where the investment has a cross border impact on whole EU or parts of it. The Commission needs to be able to both screen investments and decide whether they are permissible’ (European Economic and Social Committee, Opinion, OJ C 262/94, 25.7.2018, p. 98).

  102. 102.

    Pursuant to Art 6(10), Art 7(9). During the legislative procedure, the European Economic and Social Committee recommended involving the social partners and civil society in an appropriate way in the contact points (ibid.)

  103. 103.

    Hindelang and Moberg (2020) (forthcoming), p. 11.

  104. 104.

    Cf. only Art 6–9 and Art 12.

  105. 105.

    Eidenmüller (2009), p. 641 f. and passim; Kersten in Isensee and Kirchhof (2013), pp. 325 f. (cf. also id., pp. 305–331, for a broader analysis on the competition between legal orders).

  106. 106.

    See on economic grounds in the context of the Screening Regulation Bourgeois and Malathouni in Bourgeois (2020) EU Framework for Foreign Direct Investment Control, pp. 178, 188–190.

  107. 107.

    Cf. EURACTIV (23 September 2019b) Budapest-Belgrade railway: Orbán flirts with China, available at https://www.euractiv.com/section/eu-china/interview/budapest-belgrade-railway-orban-flirts-with-china/.

  108. 108.

    Cf. only Schulz (2018), p. 59.

  109. 109.

    Cf. only Schladebach and Becker (2019), p. 1079.

  110. 110.

    Schmidt (2020), p. 301.

  111. 111.

    European Economic and Social Committee, Opinion, OJ C 262/94, 25.7.2018, p. 98.

  112. 112.

    Cf. only EURACTIV (27 March 2020a) Golden visas and passports still widespread in Europe, study finds, available at https://www.euractiv.com/section/justice-home-affairs/news/golden-passports-still-widespread-in-europe-study-finds/.

  113. 113.

    While not ignoring, of course, that in such cases the Regulation’s anti-circumvention clause may be applicable, cf. below Sect. 5.3.

  114. 114.

    See the issue of a regulatory ‘race to the bottom’ in general Eidenmüller (2009), p. 648 f.; Kersten in Isensee/Kirchhof (2013), pp. 313–315.

  115. 115.

    Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 171; see also Judgment of the Court of 10 February 2011, Haribo Lakritzen Hans Riegel BetriebsgmbH (C-436/08), Österreichische Salinen AG (C-437/08) v Finanzamt Linz, joined Cases C-436/08 and C-437/08, ECLI:EU:C:2011:61, paras. 119 f.; Judgment of the Court of 28 October 2010, Établissements Rimbaud SA v Directeur général des impôts, Directeur des services fiscaux d’Aix-en-Provence, C-72/09, ECLI:EU:C:2010:645, para. 40. On this topic of an interpretation more tolerant to third country investment restrictions, see also Herrmann (2019), pp. 451–454.

  116. 116.

    FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/5, 26.3.2020.

  117. 117.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 9.

  118. 118.

    Hindelang and Moberg (2020), p. 19 (forthcoming) (emphasis omitted).

  119. 119.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 10. In the subsequent legislative procedure, the European Committee of the Regions regretted ‘the fact that such an important proposal is presented by the Commission without an impact assessment’ (European Committee of the Regions, Opinion, OJ C 247/36, 13.7.2018).

  120. 120.

    Jones and Davies (2014), p. 467.

  121. 121.

    Cf. Bundestag Legislative Material 19/4382 of 18.9.2018, p. 2. The FDI screening tools at that time were only applicable to direct investments that would result in at least 25% of the voting rights. Under current German law, the threshold would be 10% of the voting rights; see section 56(1) no 1 in conjunction with section 55(1) sentence 2 no 1 of the German FTPO.

  122. 122.

    Papadopoulos (2019).

  123. 123.

    Cf. the Summary of Commission Decision of 6 February 2019 declaring a concentration to be incompatible with the internal market and the functioning of the EEA Agreement (Case M.8677—Siemens/Alstom), OJ C 300/14, 5.9.2019; European Commission (2019) Mergers: Commission prohibits Siemens’ proposed acquisition of Alstom. Press release of 6 February 2019.

  124. 124.

    Cf. Reuters (6 February 2019) Germany presses for changes in EU competition rules after Siemens/Alstom deal blocked, available at https://www.reuters.com/article/us-alstom-m-a-siemens-eu-germany/germany-presses-for-changes-in-eu-competition-rules-after-siemens-alstom-deal-blocked-idUKKCN1PV1BO.

  125. 125.

    German Federal Ministry for Economic Affairs and Energy, French Ministry of the Economy and Finance (19 February 2019) A Franco-German Manifesto for a European industrial policy fit for the twenty-first century, available at https://www.bmwi.de/Redaktion/DE/Downloads/F/franco-german-manifesto-for-a-european-industrial-policy.pdf?__blob=publicationFile&v=2.

  126. 126.

    Stam (19 February 2019a) France, Germany call for a change of European regulatory rules. EURACTIV, available at https://www.euractiv.com/section/competition/news/france-germany-call-for-a-change-of-european-regulatory-rules/.

  127. 127.

    Schill in Bourgeois (2020), p. 57.

  128. 128.

    Ibid.

  129. 129.

    Ibid., pp. 58 f., 70, 73–75.

  130. 130.

    Cf. below Sect. 4.3.2.

  131. 131.

    Hochstatter (2019), p. 290.

  132. 132.

    Cf. European Commission, White Paper on levelling the playing field as regards foreign subsidies, COM(2020) 253 final, 17.6.2020, p. 7.

  133. 133.

    On the situation of investments made to circumvent screening decisions, see below Sect. 5.3.

  134. 134.

    On indirect foreign investments, see below Sect. 5.1.4.2.

  135. 135.

    Cf. with further citations Judgment of the Court of 14 March 2000, Association Église de Scientologie de Paris, Scientology International Reserves Trust v The Prime Minister, C-54/99, ECLI:EU:C:2000:124, para. 17; Judgment of the Court of 21 December 2016, Anonymi Geniki Etairia Tsimenton Iraklis (AGET Iraklis) v Ypourgos Ergasias, Koinonikis Asfalisis kai Koinonikis Allilengyis, C-201/15, ECLI:EU:C:2016:972, para. 72. Cf., however, also the earlier decision in Judgment of the Court of 4 June 2002, Commission of the European Communities v Portuguese Republic, C-367/98, ECLI:EU:C:2002:326, para. 52: ‘It is settled case-law that economic grounds can never serve as justification’, lacking the ‘purely’ economic ground qualification.

  136. 136.

    Judgment of the Court of 21 December 2016, Anonymi Geniki Etairia Tsimenton Iraklis (AGET Iraklis) v Ypourgos Ergasias, Koinonikis Asfalisis kai Koinonikis Allilengyis, C-201/15, ECLI:EU:C:2016:972, para. 72.

  137. 137.

    On economic considerations and third country direct investments, cf. also Herrmann (2019), p. 447 f.; cf. in general also Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 171: ‘[I]t may be that a Member State will be able to demonstrate that a restriction on capital movements to or from non-member countries is justified for a particular reason in circumstances where that reason would not constitute a valid justification for a restriction on capital movements between Member States[.]’

  138. 138.

    Cf. above Sect. 4.2.3.

  139. 139.

    For example, Proposal for the Regulation, Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 2: ‘While the Union’s openness to foreign direct investment will not change, it has to be accompanied by vigorous and effective policies to, on the one hand, open up other economies and ensure that everyone plays by the same rules, […].’; see also ‘Although the issue of reciprocity is not addressed in the proposal for the Regulation, the [European Economic and Social Committee] calls on the Commission to apply the principle of reciprocity in all cases of the EU negotiations with the third countries on FDI as more non-EU investors purchase EU businesses and entities while the EU investors often are facing barriers to investing in other countries. Above all the Committee calls for the speed-up of the negotiations about the investment agreement with China’ (European Economic and Social Committee, Opinion, OJ C 262/94, 25.7.2018, p. 95). For further references, see Hindelang and Moberg (2020), p. 3 (forthcoming).

  140. 140.

    Zwartkruis and de Jong (2020), p. 465.

  141. 141.

    On that topic, cf. Schmidt and Meckl (2020), pp. 1225–1226.

  142. 142.

    The Capital Movements Directive, of course, is an EU secondary law, but the Court applies its Nomenclature and Explanatory Notes to define direct investments as part of the free movement of capital in the meaning of Art 63(1) TFEU.

  143. 143.

    The Screening Regulation, of course, does not require the Member States to introduce a screening law. Yet it encourages to do so, as reflected in Recital 17 first subpara: ‘[The Member State] should give such comments [of other Member States] or opinion [of the Commission] due consideration through, where appropriate, measures available under its national law, or in its broader policy-making[.]’; see also FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/2 of 26.3.2020 (emphasis added): ‘To this end, the European Commission calls upon Member States to: […] For those Member States that currently do not have a screening mechanism, or whose screening mechanisms do not cover all relevant transactions, to set up a full-fledged screening mechanism and in the meantime to use all other available options to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU, including a risk to critical health infrastructures and supply of critical inputs.’

  144. 144.

    Capital Movements Directive Explanatory Notes on direct investments, first subpara sentence 2. The same understanding is applicable to direct investments as part of capital movements in the meaning of Art 63 TFEU (since the Explanatory Notes still have indicative value for interpreting the EU primary law of Art 63 TFEU, see only Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 180).

  145. 145.

    On that topic, cf. also a notable statement by the European Committee of the Regions during the legislative procedure of the Regulation. It pleads ‘for entering into dialogue on investment screening with the EU’s main trade partners. International approximation of rules on screening foreign direct investment would indeed limit conflicts and promote investment certainty’ (European Committee of the Regions, Opinion, OJ C 247/37, 13.7.2018). For a similar statement, see European Economic and Social Committee, European Economic and Social Committee, Opinion, OJ C 262/94, 25.7.2018, p. 99.

  146. 146.

    Cf. for details Dolzer and Schreuer (2012), pp. 60–76.

  147. 147.

    Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, and Sweden; see OECD (2020e) List of OECD Member countries, available at https://www.oecd.org/about/document/list-oecd-member-countries.htm.

  148. 148.

    Australia, Canada, Chile, Colombia, Iceland, Israel, Japan, Korea, Mexico, New Zealand, Norway, Switzerland, Turkey, United Kingdom, and the United States; see ibid.

  149. 149.

    The Commission has almost the same rights as the OECD Members; see OECD (2020c) Status of the European Commission within the OECD, available at https://www.oecd.org/legal/europeancommissionstatus.htm.

  150. 150.

    Art 4(3) first subpara TEU.

  151. 151.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 10.

  152. 152.

    Annex A, List A, I. Direct Investment of the OECD Code of Liberalisation of Capital Movements.

  153. 153.

    Pursuant to the InfoCuria case law database, the OECD Code of Liberalisation of Capital Movements was only mentioned three times: Opinion of Advocate General Darmon delivered on 29 September 1987, Commission of the European Communities v Hellenic Republic, Case 194/84, ECLI:EU:C:1987:389, para. 7; Opinion of the Court of 24 March 1995, Competence of the Community or one of its institutions to participate in the Third Revised Decision of the OECD on national treatment, Opinion 2/92, ECLI:EU:C:1995:83 (the Code is mentioned as mere background information); and Opinion of Advocate General Geelhoed delivered on 10 April 2003, Margarethe Ospelt and Schlössle Weissenberg Familienstiftung v Unabhängiger Verwaltungssenat des Landes Vorarlberg, C 452/01, ECLI:EU:C:2003:232, paras. 42 f.

  154. 154.

    As an example to bring international law into effect, see Schmidt and Meckl (2020), pp. 1225–1226, who apply reciprocity issues under OECD rules to the Screening Regulation. Note, however, that this contribution argues that notions of reciprocity cannot be applied in the interpretation of the Screening Regulation at all; cf. above Sect. 4.3.2.

  155. 155.

    See only Judgment of the Court of 24 May 2007, Winfried L. Holböck v Finanzamt Salzburg-Land, C-157/05, ECLI:EU:C:2007:297, para. 33.

  156. 156.

    Opinion of Advocate General Wathelet delivered on 7 February 2018, EV v. Finanzamt Lippstadt, C-685/16, ECLI:EU:C:2018:70, para. 83.

  157. 157.

    See Chen (2018), pp. 105–117.

  158. 158.

    OED Online (2020a) ‘aim, n.’, meanings 1.b. and 6, available at https://www.oed.com/view/Entry/4347.

  159. 159.

    Judgment of the Court of 26 February 2019, X GmbH v Finanzamt Stuttgart—Körperschaften, C-135/17, ECLI:EU:C:2019:136, para. 26 (emphasis added).

  160. 160.

    See Opinion of the Court of 16 May 2017, Free Trade Agreement with Singapore, Opinion 2/15, ECLI:EU:C:2017:376, para. 80 on the one hand (‘direct investment where the shares held by the shareholder enable him to participate effectively in the management of that company’) and para. 227 on the other (‘acquisition of company securities with the intention of making a financial investment without any intention to influence the management’).

  161. 161.

    It is ‘well established case-law that the purpose of the legislation concerned must be taken into consideration’ (Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation, C-35/11, ECLI:EU:C:2012:707, para. 90, and the case law cited; emphasis added); cf. also Judgment of the Court of 19 July 2012, Marianne Scheunemann v Finanzamt Bremerhaven, C-31/11, ECLI:EU:C:2012:481, para. 23; Judgment of the Court of 10 June 2015, X AB v Skatteverket, C 686/13, ECLI:EU:C:2015:375, paras. 18 f.

  162. 162.

    Cf. Opinion of Advocate General Campos Sánchez-Bordona of 18 December 2019, Vivendi SA v Autorità per le Garanzie nelle Comunicazioni, C-719/18, ECLI:EU:C:2019:1101, para. 32: the ‘acquisition of a significant proportion of [the target’s] shares would fall either within the free movement of capital (if [the acquirer’s] intention was simply to make a financial investment) or with the freedom of establishment (if [the acquirer] sought to intervene in [the target’s] management)’.

  163. 163.

    Cf. Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation, C-35/11, EU:C:2012:707, paras. 91 f.; Judgment of the Court of 3 September 2020, Vivendi SA v Autorità per le Garanzie nelle Comunicazioni, C 719/18, ECLI:EU:C:2020:627, paras. 40 f. Yet the CJEU still considers the investor’s intentions; see, ibid., para. 44 (emphasis added): ‘Furthermore, first, the acquisition of 23.94% of Telecom Italia’s capital enabled Vivendi to obtain a majority of the voting rights in Telecom Italia’s shareholders’ meetings and, subsequently, to acquire control of that undertaking, a situation which comes within the scope of freedom of establishment. Second, it is apparent from the file before the Court that the objective pursued by Vivendi when it acquired Mediaset’s shares was not to make a mere financial investment, but to intervene in the management of Mediaset and to acquire a significant share of the Italian media sector.’

  164. 164.

    See Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 81: ‘[T]o the extent to which the holdings in question confer on their owner a definite influence over the decisions of the companies concerned and allow it to determine their activities, it is the provisions of the Treaty relating to freedom of establishment which apply.’

  165. 165.

    One remark on German FDI law: asset deals are covered by German FDI regulation law. This has previously been discussed (cf. Voland (2009), p. 520 f.; Söhner (2011), p. 460, with further citations) but was recently clarified by the new section 55(1a) and section 60(1a) of the German FTPO; see Circular Foreign Trade No 3/2020 of 25.5.2020, pp. 1, 3.

  166. 166.

    Cf. above Sect. 3.2.1; see also Zwartkruis and de Jong (2020), p. 462.

  167. 167.

    OECD (2020) Acquisition- and ownership-related policies to safeguard essential security interests: Current and emerging trends, observed designs, and policy practice in 62 economies, pp. 31 ff., available at http://www.oecd.org/investment/OECD-Acquisition-ownership-policies-security-May2020.pdf.

  168. 168.

    Section 56 and section 60a of the German FTPO.

  169. 169.

    Section 140(1) of the German Stock Corporation Act.

  170. 170.

    Pottmeyer in Wolffgang/Simonsen/Rogmann/Pietsch (2019).

  171. 171.

    Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (codification), OJ L 169, 30.6.2017, pp. 46–127.

  172. 172.

    See, for example, the national forms of public liability companies listed in Annex I.

  173. 173.

    See the de minimis exemption in section 2(2) of the Austrian Investment Control Act: no authorisation of the FDI is required where the target company is a micro-enterprise, including start-up companies, with fewer than ten employees and an annual turnover or annual balance sheet total of less than EUR 2 million.

  174. 174.

    FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/3, 26.3.2020. Start-ups in general have been in the Commission’s focus recently; cf. Communication from the Commission, An SME Strategy for a sustainable and digital Europe, COM(2020) 103 final, 10.3.2020, passim; Stöbener de Mora (2020), p. 302.

  175. 175.

    Art 15 of the Italian Decree-Law of 8 April 2020, no 23.

  176. 176.

    Cf. FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/3, 26.3.2020: ‘The need to screen a transaction may indeed be independent from the value of the transaction itself.’ During the legislative procedure of the Regulation, the European Economic and Social Committee expressed a similar thought: ‘So as to avoid an additional administrative burden, there is a need to examine whether a minimum investment amount—above which investments must be screened—should be set. The fact that start-ups can also be of considerable significance to key technologies needs to be taken into account’ (European Economic and Social Committee, Opinion, OJ C 262/94 of 25.7.2018, p. 100).

  177. 177.

    Cf. Cunningham et al. (2020) (forthcoming). This antitrust study argues that investors may acquire innovative targets solely to discontinue the target’s innovation projects and pre-empt future competition; such acquisitions disproportionately occurred just below the thresholds for antitrust scrutiny.

  178. 178.

    Canton and Solera (2016), p. 3.

  179. 179.

    M&As sometimes are synonymously referred to as ‘brownfield investments’ (e.g. European Commission, Commission Staff Working Document, SWD(2017) 297 final, 13.9.2017, p. 5), while others denote with ‘brownfield investment’ a hybrid situation between greenfield and M&A where the foreign investor acquires a company but almost completely replaces plant and equipment, labour, and product line (see UNCTAD (2000) World Investment Report 2000—Cross-border Mergers and Acquisitions and Development, p. 135, available at https://unctad.org/en/Docs/wir2000_en.pdf).

  180. 180.

    European Commission, Commission Staff Working Document, SWD(2017) 297 final, 13.9.2017, pp. 5, 17.

  181. 181.

    Ibid., pp. 7, 11.

  182. 182.

    European Commission (2020) MEMO—Frequently asked questions on Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the Union, p. 2, available at https://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157945.pdf.

  183. 183.

    German Federal Ministry for Economic Affairs and Energy (2019) FAQ on Investment Screenings of 13 May 2019, p. 1.

  184. 184.

    Cf. Art 6(9) sentence 1. Where this contribution refers to the comment of a Member State and/or the opinion of the Commission, this includes all variations of the cooperation mechanisms of Art 6–9 of the Screening Regulation, unless stated otherwise.

  185. 185.

    European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018, 4.6.2018, p. 49.

  186. 186.

    Explanatory Notes on direct investments, fourth subpara sentence 1.

  187. 187.

    Cf. above Sect. 5.1.1.

  188. 188.

    Zwartkruis and de Jong (2020), p. 461 f., mention another very relevant topic that can be considered to be part of the ‘direct links’ element: the situation of investors that act in concert. This topic shall not be further discussed in this contribution.

  189. 189.

    On this anti-circumvention clause, see below Sect. 5.3.

  190. 190.

    On FDI taking place indirectly, see section 56(2), (3) and section 60a(2), (3) of the German FTPO; section 1(3) and section 5(2) of the Austrian Investment Control Act.

  191. 191.

    Zwartkruis and de Jong (2020), p. 466, discuss indirect investments in the context of circumvention. This all-inclusive approach is not consistent with the requirement of circumventions being ‘artificial arrangements that do not reflect economic reality’ in Recital 10 sentence 2; for further details, see below Sect. 5.3.

  192. 192.

    Capital Movements Directive Explanatory Notes on directs investments, first subpara sentence 1 (emphasis added): ‘Investments of all kinds by natural persons or commercial, industrial or financial undertakings, and which serve to establish or to maintain lasting and direct links between the person providing the capital and the entrepreneur to whom or the undertaking to which the capital is made available in order to carry on an economic activity.’

  193. 193.

    Judgment of the Court of 6 December 2007, Columbus Container Services BVBA & Co. v Finanzamt Bielefeld-Innenstadt, C 298/05, ECLI:EU:C:2007:754, paras. 31 f.: ‘[A]ll shares in Columbus are held, either directly or indirectly, by members of one family. […] It follows that the Treaty provisions on the freedom of establishment apply to a situation such as that in the main proceedings.’

  194. 194.

    On these methods to interpret EU law, see Judgment of the Court of 26 May 2016, Envirotec Denmark ApS v Skatteministeren, C-550/14, ECLI:EU:C:2016:354, para. 27, and the case law cited.

  195. 195.

    Admittedly, the legislative materials of the Screening Regulation seem to challenge that interpretation. The European Parliament’s Committee on International Trade proposed to amend Recital 9 to explicitly include indirect links: ‘This Regulation should cover a broad range of investments […] which establish or maintain lasting direct or indirect links between a foreign investor, whether or not such investor is the ultimate investor, and undertakings […]’ (European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018, 4.6.2018, p. 9; emphasis in original, clarifying the changes with respect to the Commission’s Proposal). Correspondingly, an amendment of Art 2(1) was proposed (id., p. 20 f.). However, these proposed amendments were not endorsed by the European Parliament (cf. European Parliament, Legislative resolution of 14 February 2019, P8_TA-PROV(2019)0121, pp. 6, 20), nor did they make it into the Regulation. Yet this does not allow the conclusion that the Regulation would exclude indirect investments from its scope or deal with it only via Art 3(6). Such an understanding would be incompatible with the broad range of investments that shall be covered by the Regulation (Recital 9 sentence 1). Instead, the non-endorsement can be explained by the intention to just stick to the decade-long established definition from the Capital Movement Directive Explanatory Notes on direct investments, first subpara sentence 1 (‘to establish or to maintain lasting and direct links’).

  196. 196.

    Cf. Section 56(2), (3) and section 60a(2), (3) of the German FTPO.

  197. 197.

    Cf. Pottmeyer in Wolffgang/Simonsen/Rogmann/Pietsch (2019). Remarkably, this calculation principle is not discussed in Germany.

  198. 198.

    On Recital 9 sentence 2, see above Sect. 3.1.

  199. 199.

    Communication of the Commission on Certain Legal Aspects concerning Intra-EU Investment (97/C 220/06), OJ C 220/15, 19.7.1997, p. 16: ‘Thus, the acquisition of controlling stakes, as well as the full exercise of the accompanying voting rights, in domestic companies by other EU investors is also [next to portfolio investments] considered to be a form of capital movement.’

  200. 200.

    Capital Movements Directive Explanatory Notes on direct investments, third subpara (emphasis added). For the same approach under CJEU case law, cf. Judgment of the Court of 20 September 2018, EV v. Finanzamt Lippstadt, C-685/16, ECLI:EU:C:2018:743, para. 68, and the case law cited.

  201. 201.

    European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018 of 4.6.2018, p. 49 (emphasis added).

  202. 202.

    OECD (2020) Acquisition- and ownership-related policies to safeguard essential security interests Current and emerging trends: Observed designs, and policy practice in 62 economies, p. 11 (emphasis added), available at http://www.oecd.org/investment/OECD-Acquisition-ownership-policies-security-May2020.pdf.

  203. 203.

    Several language versions of Art 2(1) leave semantically open whether the element ‘effective participation in the’ also refers to control (or only to management), e.g. the English version ‘investments which enable effective participation in the management or control’ or the German version ‘Investitionen, die eine effektive Beteiligung an der Verwaltung oder Kontrolle eines Unternehmens ermöglichen’. However, the ‘participation in the’ element should be interpreted to refer also to ‘control’ for various reasons. First, the German and English languages allow (though not require) to interpret ‘participation in the’ as also referring to ‘control’. Second, other language versions textually explicitly state the reference on ‘control’, e.g. the Italian version (‘investimenti che consentono una partecipazione effettiva alla gestione o al controllo’, emphasis added) or the French version (‘les investissements permettant une participation effective à la gestion ou au contrôle’, emphasis added). Fourth, the interpretation of ‘participation in the control’ is supported by the recent Opinion in Opinion of Advocate General Wathelet delivered on 7 February 2018, EV v. Finanzamt Lippstadt, C-685/16, ECLI:EU:C:2018:70, para. 82.

  204. 204.

    See Lutter et al. (2018), § 23, paras. 44 ff. regarding financial statements.

  205. 205.

    Art 3(3)(a) of the EC Merger Regulation.

  206. 206.

    Art 3(3)(b) of the EC Merger Regulation.

  207. 207.

    Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings (2008/C 95/01), OJ C 95/1, 16.4.2008, p. 7.

  208. 208.

    Ibid., p. 1; on the concept of control, see ibid., p. 5.

  209. 209.

    See, for example, European Commission, Case M.8465 – Vivendi/Telecom Italia, C(2017) 3834 final, 30.5.2017, p. 11, para. 49: to assess whether the acquiring undertaking has control over the target company, the Commission scrutinises factors of holding the share capital, holding the majority of the voting rights in certain previous shareholders’ meetings, appointment of the majority of the board in previous in the last two terms, appointment of members of the board of directors by acquirer (serving for a certain period), and access to specific information or other rights, which materially differ from those of any other minority shareholder.

  210. 210.

    Explanatory Notes on direct investments, third subpara.

  211. 211.

    Above, the section “Participation in the Control”.

  212. 212.

    Art 3(2)(b) of the EC Merger Regulation.

  213. 213.

    OED Online (2020b) ‘effective, adj. and n.’, meaning 4, available at www.oed.com/view/Entry/59674.

  214. 214.

    This factor list approach, of course, would follow the same legal design as Art 4, i.e. be a list of factors that the Member States may consider in determining whether a foreign direct investment is likely to affect security or public order.

  215. 215.

    European Commission, Commission Staff Working Document, SWD(2017) 297 final, 13.9.2017, p. 8.

  216. 216.

    European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018 of 4.6.2018, p. 49.

  217. 217.

    Art 70 of the Slovenian Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic (10% share in capital or in voting rights).

  218. 218.

    Section 4 Austrian Investment Control Act 2020 (10%, 25%, and 50% of the voting rights of targets from listed sectors; 25% and 50% of the voting rights of all other targets).

  219. 219.

    Section 56 FTPO and section 60a of the German FTPO.

  220. 220.

    Cf. Judgment of the Court of 13 April 2000, C Baars v Inspecteur der Belastingdienst Particulieren/Ondernemingen Gorinchem, C-251/98, ECLI:EU:C:2000:205, para. 26 (a definite influence is ‘self-evidently always the case wherever there is a 100% holding’, not considering the Netherlands law any further); Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 37 (‘the nature of the interest […] [in companies that are wholly owned by the investor] will confer on the holder[s] definite influence over the company’s decisions’); Judgment of the Court of 10 May 2007, Lasertec Gesellschaft für Stanzformen mbH v Finanzamt Emmendingen, C-492/04, ECLI:EU:C:2007:273, para. 21 (‘the national measure at issue applies to circumstances in which the non-resident lending company has a substantial holding in the nominal capital of the resident borrowing company, namely a holding of over 25%’); Judgment of the Court of 21 October 2010, Idrima Tipou AE v Ipourgos Tipou kai Meson Mazikis Enimerosis, C-81/09, ECLI:EU:C:2010:622, para. 51 (the CJEU stated abstract from the national law that ‘[d]epending on the manner in which the remainder of a company’s capital is distributed, in particular if it is spread among a large number of shareholders, a holding of 25% may be sufficient […] at least to exert a definite influence’); Judgment of the Court of 19 July 2012, Marianne Scheunemann v Finanzamt Bremerhaven, C-31/11, ECLI:EU:C:2012:481, paras. 25 f., 29 (the CJEU accepted Germany’s qualification that 25% allow to exert a definite influence under German law); Judgment of the Court of 8 November 2012, European Commission v Hellenic Republic, C 244/11, ECLI:EU:C:2012:694, paras. 23 f. (the CJEU accepted when ‘the Commission maintained, without being contradicted by the Hellenic Republic’ that a 20% share under Greek law reaches the influence level); Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, para. 58 (the Court considers the abstract case of ‘a company in which [the shareholders] hold 10% or more of the voting rights, without that holding conferring on them a definite influence’); Judgment of the Court of 11 September 2014, Kronos International Inc. v Finanzamt Leverkusen, C 47/12, ECLI:EU:C:2014:2200, paras. 33, 35 (a 10% share ‘does not necessarily mean that the holder exerts a definite influence’); Judgment of the Court of 10 June 2015, X AB v Skatteverket, C 686/13, ECLI:EU:C:2015:375, para. 21 (as a statement abstract from Swedish law, the CJEU stated that ‘a holding of at least 10% of the shares or voting rights does not necessarily imply that the owner of the holding exerts a definite influence’); Judgment of the Court of 26 March 2009, Commission of the European Communities v Italian Republic, C-326/07, ECLI:EU:C:2009:193, para. 38 (‘It is conceivable, in respect of companies having in general large numbers of smaller shareholdings, that the holders of shareholdings corresponding to those percentages [at least 5% of voting rights or, as the case may be, a lesser percentage fixed by the competent minister] might have the power to influence in a definite manner the management of such a company and to determine its activities, which is covered by [the freedom of establishment].’).

  221. 221.

    For example, Lutter et al. (2018), § 4, para. 7; Herrmann (2019), p. 440.

  222. 222.

    Art 5(1) sentence 1 of the Takeover Bid Directive.

  223. 223.

    Art 5(3) of the Takeover Bid Directive. On different percentages in EU Member States, see Lutter et al. (2018), § 28, para. 35.

  224. 224.

    Cf. above Sect. 5.1.4.3.

  225. 225.

    OECD (2008) Benchmark Definition of Foreign Direct Investment (BMD4), p. 23, available at https://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf.

  226. 226.

    Ibid., p. 20: the OECD benchmark is used to measure foreign direct investments globally to provide FDI statistics in order to assist users in their analysis of the global and/or regional nature of FDI activity and the industry sectors that FDI affects.

  227. 227.

    Section 56(1) no 1, (2) no 1(a), (2) no 2, (3) no 1 and section 60a(1), (2), (3) FTPO.

  228. 228.

    Cf. also the reference to a 10% threshold in EU financial law by Zwartkruis and de Jong (2020), p. 461.

  229. 229.

    Judgment of the Court of 26 March 2009, Commission of the European Communities v Italian Republic, C-326/07, ECLI:EU:C:2009:193, para. 4.

  230. 230.

    Ibid., para. 38.

  231. 231.

    FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/4 of 26.3.2020.

  232. 232.

    Section 1 no 3(b) of the Austrian Investment Control Act.

  233. 233.

    Section 1 no 3(c) of the Austrian Investment Control Act.

  234. 234.

    Section 1 no 3(d) of the Austrian Investment Control Act.

  235. 235.

    See Judgment of the Court of 11 November 2010, European Commission v Portuguese Republic, C-543/08, ECLI:EU:C:2010:669, para. 58: ‘the voting rights attaching to shares constitute one of the principal ways whereby the shareholder can actively participate in the management of an undertaking or in its control’.

  236. 236.

    See Judgment of the Court of 10 November 2011, European Commission v Portuguese Republic, C-212/09, ECLI:EU:C:2011:717, paras. 6, 56–61.

  237. 237.

    Judgment of the Court of 26 March 2009, Commission of the European Communities v Italian Republic, C-326/07, ECLI:EU:C:2009:193, para. 38.

  238. 238.

    Cf. above, the section “Quantitative and Qualitative Factors to Determine ‘Effective Participation’”.

  239. 239.

    See Judgment of the Court of 26 March 2009, Commission of the European Communities v Italian Republic, C-326/07, ECLI:EU:C:2009:193, para. 38.

  240. 240.

    Art 1 no 4(a), (b), (c) of the Twelfth Ordinance to Amend the German FTPO of 19.12.2018.

  241. 241.

    Circular Foreign Trade No 3/2020 of 19.12.2018, p. 1 (own translation).

  242. 242.

    These ‘individual cases’ may include the 50Hertz Transmission GmbH case (cf. above Sect. 4.2.2). Yet such educated guesses are of little help to a common European understanding.

  243. 243.

    CJEU case law set as temporal point of reference for the risk assessment ‘the time of issuing the authorisation’, Judgment of the Court of 8 November 2012, European Commission v Hellenic Republic, C 244/11, ECLI:EU:C:2012:694, para. 71, though apparently the Court has never dealt with ex post screenings.

  244. 244.

    Pursuant to Art 7(10), this shall not apply to foreign direct investments completed before 10 April 2019.

  245. 245.

    And take utmost account of the Commission’s opinion in the case of Art 8(2)(c).

  246. 246.

    This ex post situation was explicitly stressed by the Commission in its FDI Screening Regulation Guidance, C(2020) 1981 final, OJ C 99 I/4 of 26.3.2020.

  247. 247.

    Cf. Art 72(2) first bullet point of the Slovenian Act Determining the Intervention Measures to Mitigate and Remedy the Consequences of the COVID-19 Epidemic: in cases of mandatory notification of the FDI, the ministry may screen FDI within five years at the latest; cf. also S 14a(3) sentence 2 of the German FTPA: the ministry’s screening competences are limited to a maximum of five years after the FDI contract has been concluded.

  248. 248.

    White Paper on levelling the playing field as regards foreign subsidies, COM(2020) 253 final, 17.6.2020.

  249. 249.

    Cf. also European Commission Press Release (2020a) Commission adopts White Paper on foreign subsidies in the Single Market, Press release.

  250. 250.

    White Paper on levelling the playing field as regards foreign subsidies, COM(2020) 253 final, 17.6.2020, pp. 17–20 (redressive measures must not be imposed later than ten years after a subsidy is granted; other than that, the temporal scope of the review is not qualified and, therefore, includes ex post reviews), and in general pp. 13–22 (general instrument to capture foreign subsidies [Module 1]).

  251. 251.

    Ibid., p. 19.

  252. 252.

    Ibid., p. 43.

  253. 253.

    See only Judgment of the Court of 20 September 1990, Commission of the European Communities v Federal Republic of Germany, C-5/89, ECLI:EU:C:1990:320, para. 13.

  254. 254.

    Cf. above Sect. 5.1.4.2.

  255. 255.

    Recital 10 sentence 2.

  256. 256.

    Bayer and Schmidt (2019), p. 2187.

  257. 257.

    Judgment of the Court of 12 September 2006, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, ECLI:EU:C:2006:544, para. 55; Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, paras. 89, 92.

  258. 258.

    Judgment of the Court of 12 September 2006, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, ECLI:EU:C:2006:544, para. 51.

  259. 259.

    Judgment of the Court of 12 September 2006, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, ECLI:EU:C:2006:544, para. 68.

  260. 260.

    For example, Judgment of the Court of 13 December 2005, Marks & Spencer plc v David Halsey (Her Majesty’s Inspector of Taxes), C-446/03, ECLI:EU:C:2005:763, para. 57; Judgment of the Court of 12 September 2006, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, ECLI:EU:C:2006:544, paras. 51, 55, 57, 61, 63, 68 f., 72, 75; Judgment of the Court of 13 March 2007, Test Claimants in the Thin Cap Group Litigation v Commissioners of Inland Revenue, C-524/04, ECLI:EU:C:2007:161, paras. 72, 74, 79 (note that this Judgment also uses ‘purely’ artificial arrangements in paras. 81–83, 86–88, 92, obviously as synonym; Judgment of the Court of 26 February 2019, X GmbH v Finanzamt Stuttgart—Körperschaften, C-135/17, ECLI:EU:C:2019:136, para. 73. Emphasis added.

  261. 261.

    Cf. above Sect. 4.3.3.

  262. 262.

    For example, Judgment of the Court of 21 February 2006, Halifax plc, Leeds Permanent Development Services Ltd, County Wide Property Investments Ltd v Commissioners of Customs & Excise, C-255/02, ECLI:EU:C:2006:121, paras. 68 ff.; Judgment of the Court of 12 September 2006, Cadbury Schweppes plc, Cadbury Schweppes Overseas Ltd v Commissioners of Inland Revenue, C-196/04, ECLI:EU:C:2006:544, paras. 51 ff.; Judgment of the Court of 13 March 2007, Test Claimants in the Thin Cap Group Litigation v Commissioners of Inland Revenue, C-524/04, ECLI:EU:C:2007:161, paras. 72 ff.; Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, paras. 89 ff.

  263. 263.

    Cf. Kiekebeld (2009), pp. 144–145; Chen (2018), pp. 91–120.

  264. 264.

    For some examples, see ibid., pp. 96–105.

  265. 265.

    See Judgment of the Court of 17 September 2009, Glaxo Wellcome GmbH & Co. KG v Finanzamt München II, C-182/08, ECLI:EU:C:2009:559, paras. 99, 102.

  266. 266.

    Martinek (2020), p. 42.

  267. 267.

    Opinion of the Committee on Industry, Research and Energy, 25.4.2018 (in European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018 of 4.6.2018, p. 63, Amendment 17; emphasis in original, clarifying the changes with respect to the Commission’s Proposal); see also Opinion of the Committee on Economic and Monetary Affairs, 3.4.2018 (in European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018, 4.6.2018, p. 124, Amendment 26).

  268. 268.

    Not even in the European Parliament itself; cf. European Parliament, Legislative resolution of 14 February 2019, P8_TA-PROV(2019)0121, p. 20.

  269. 269.

    For Germany, see Pottmeyer in Wolffgang/Simonsen/Rogmann/Pietsch (2019).

  270. 270.

    Dolzer and Schreuer (2012), p. 48.

  271. 271.

    Cf. Müller-Graff in Streinz R (2018), Art 54 AEUV, para. 10 (with further references).

  272. 272.

    This example is a completely theoretical scenario. This contribution does not provide a legal-empirical question whether and (if so) in what variations such doubly organised undertakings may occur. It suffices to say that prima facie it seems within the EU Member States legal competence to accept such double relationships.

  273. 273.

    This issue is not decisive in the case of indirect direct investments where the parent company undoubtedly is a third country investor (cf. on that topic above Sect. 5.1.4.2). Such a transaction would qualify as third country direct investment in any case.

  274. 274.

    For that discussion, it may be helpful to keep in mind that in international investment law, the main seat of the business is one of the most commonly used criteria to determine the corporate nationality pursuant to Dolzer and Schreuer (2012), p. 47.

  275. 275.

    See only Judgment of the Court of 29 November 2011, National Grid Indus BV v Inspecteur van de Belastingdienst Rijnmond/kantoor Rotterdam, C-371/10, ECLI:EU:C:2011:785, para. 32.

  276. 276.

    Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation, C-35/11, ECLI:EU:C:2012:707, para. 97, and the case law cited.

  277. 277.

    Judgment of the Court of 19 July 2012, Marianne Scheunemann v Finanzamt Bremerhaven, C-31/11, ECLI:EU:C:2012:481, para. 33.

  278. 278.

    Judgment of the Court of 11 September 2014, Kronos International Inc. v Finanzamt Leverkusen, C 47/12, ECLI:EU:C:2014:2200, para. 53; Judgment of the Court of 13 November 2012, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-35/11, ECLI:EU:C:2012:707, para. 100; see also Judgment of the Court of 24 May 2007, Winfried L. Holböck v Finanzamt Salzburg-Land, C-157/05, ECLI:EU:C:2007:297, para. 28.

  279. 279.

    On the anti-circumvention clause in broader context, see above Sect. 5.3.

  280. 280.

    See, e.g., Opinion of Advocate General Geelhoed delivered on 10 April 2003, Margarethe Ospelt and Schlössle Weissenberg Familienstiftung v Unabhängiger Verwaltungssenat des Landes Vorarlberg, C-452/01, ECLI:EU:C:2003:232, para. 51.

  281. 281.

    The dispute was settled when the German FTPA was reformed; see Pottmeyer in Wolffgang/Simonsen/Rogmann/Pietsch (2019), para. 19.

  282. 282.

    For further details on the OECD, cf. Sect. 4.4. above.

  283. 283.

    Cf. Sect. 4.4. above.

  284. 284.

    Opinion of Advocate General Geelhoed delivered on 10 April 2003, Margarethe Ospelt and Schlössle Weissenberg Familienstiftung v Unabhängiger Verwaltungssenat des Landes Vorarlberg, C-452/01, ECLI:EU:C:2003:232, paras. 42 f.

  285. 285.

    Sedlaczek and Züger in Streinz (2018), para. 21.

  286. 286.

    Bourgeois and Malathouni in Bourgeois (2020), pp. 185–187, assess the Regulation with respect to OECD guidelines, including the aspect of equal treatment (ibid., p. 185). They do not, however, address the problems discussed here.

  287. 287.

    OECD (2019) OECD Codes of Liberalisation—User’s Guide, Commentary on Art 10, p. 38, available at http://www.oecd.org/investment/investment-policy/38072327.pdf.

  288. 288.

    Ibid. Similar ibid., p. 15: ‘In particular, harmonisation and liberalisation within the EU may not raise new barriers to operations with third countries.’

  289. 289.

    Cf. Sect. 4.3.3 above.

  290. 290.

    Greenland, New Caledonia and Dependencies, French Polynesia, French Southern and Antarctic Territories, Wallis and Futuna Islands, Mayotte, Saint Pierre and Miquelon, Aruba, Netherlands Antilles (Bonaire, Curaçao, Saba, Sint Eustatius, Sint Maarten), Anguilla, Cayman Islands, Falkland Islands, South Georgia and the South Sandwich Islands, Montserrat, Pitcairn, Saint Helena and Dependencies, British Antarctic Territory, British Indian Ocean Territory, Turks and Caicos Islands, British Virgin Islands, Bermuda. Note, however, that with the UK having withdrawn from the EU, the Withdrawal Agreement (see Art 3(1)(e) of the WA) provides special rules for those OCTs special relations with the United Kingdom: Anguilla, Bermuda, British Antarctic Territory, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Montserrat, Pitcairn, Saint Helena, Ascension and Tristan da Cunha, South Georgia and the South Sandwich Islands, and Turks and Caicos Islands. This means for their qualification under the Screening Regulation: These OCTs are treated the same way as other OCTs, unless the Withdrawal Agreement states otherwise (cf. below Sect. 5.4.3.5).

  291. 291.

    European Commission (2020a) Overseas Countries and Territories, available at https://ec.europa.eu/international-partnerships/where-we-work/overseas-countries-and-territories_en.

  292. 292.

    Opinion of the Court of 4 October 1979, Opinion given pursuant to the second subparagraph of Art 228(1) of the EEC Treaty - International Agreement on Natural Rubber, Opinion 1/78, ECLI:EU:C:1979:224, para. 62; Opinion of the Court of 15 November 1994, Competence of the Community to conclude international agreements concerning services and the protection of intellectual property - Art 228 (6) of the EC Treaty, Opinion 1/94, ECLI:EU:C:1994:384, para. 17.

  293. 293.

    Judgment of the Court of 5 May 2011, Prunus SARL, Polonium SA v Directeur des services fiscaux, C-384/09, ECLI:EU:C:2011:276, para. 29.

  294. 294.

    The issue of the location of the targets was discussed in the legislative procedure; see European Parliament, Committee on International Trade, Report on the proposal, A8-0198/2018 of 4.6.2018, p. 9, Amendment 9: targets should be ‘undertakings carrying out an economic activity in the territory of a Member State, in its Economic Exclusive Zone declared pursuant to the United Nations Conventions on the Law of the Sea (UNCLOS), or continental shelf’ (emphasis in original, clarifying the changes with respect to the Commission’s Proposal). Correspondingly, an amendment of Art 2(1) was proposed (ibid., p. 20 f.). Yet neither did these proposed amendments make it into the Regulation, nor do they explicitly deal with the status of OCTs.

  295. 295.

    This stands even though Art 59(2) of the Overseas Association Decision 2013/755/EU addresses the Member States (and not the EU itself). Since the Member States are bound to Art 59(2) of the Overseas Association Decision 2013/755/EU, the Screening Regulation must respect this obligation. Consequently, the Screening Regulation cannot be interpreted to qualify OCTs as third countries for its framework to national FDI screenings, while at the same time the Member States must treat OCTs as non-third countries in their national FDI screening.

  296. 296.

    Judgment of the Court of 5 June 2014, X BV, TBG Limited v Staatssecretaris van Financiën, C-24/12 and C-27/12, ECLI:EU:C:2014:1385, paras. 51–53.

  297. 297.

    From a dogmatic perspective, tax haven cases and direct investment cases differ slightly. Where the tax carve-out clause (Art 66(2) of the Overseas Association Decision 2013/755/EU) is the point of reference in tax haven cases, the scope of application Art 59(2) of the Overseas Association Decision 2013/755/EU is not opened (Judgment of the Court of 5 June 2014, X BV, TBG Limited v Staatssecretaris van Financiën, C-24/12 and C-27/12, ECLI:EU:C:2014:1385, para. 53). Direct investment cases, on the other hand, fall within its scope of application but are discussed on the level of justifying restrictions of capital movements (Art 59(3) of the Overseas Association Decision 2013/755/EU in conjunction with Art 65(1)(b) TFEU).

  298. 298.

    The standstill clause can be invoked if the national screening law does not introduce a new screening framework that would affect the inherent logic of a national legal restriction on direct investments from OCT undertakings that formed part of the respective national legal order continuously since the end of 1993/1999, cf. Judgment of the Court of 5 May 2011, Prunus SARL, Polonium SA v Directeur des services fiscaux, C-384/09, ECLI:EU:C:2011:276, paras. 34, 36. On Art 64(1) TFEU, see further Judgment of the Court of 12 December 2006, Test Claimants in the FII Group Litigation v Commissioners of Inland Revenue, C-446/04, ECLI:EU:C:2006:774, paras. 187 ff.; Judgment of the Court of 24 May 2007, Winfried L. Holböck v Finanzamt Salzburg-Land, C-157/05, ECLI:EU:C:2007:297, para. 41; Judgment of the Court of 11 February 2010, Fokus Invest AG v Finanzierungsberatung-Immobilientreuhand und Anlageberatung GmbH (FIAG), C 541/08, ECLI:EU:C:2010:74, para. 42.

  299. 299.

    They are also Member States of the European Free Trade Association (EFTA) Convention. Iceland, Liechtenstein, and Norway are therefore referred to as ‘EEA EFTA States’ in this contribution (derogating from the terminology of Art 2(b) of the EEA Agreement). Their EFTA membership, however, is not relevant for the purposes of this sector. On Switzerland (EFTA Member State but not an EEA State), see Sect. 5.4.3.4 below.

  300. 300.

    Judgment of the Court of 23 September 2003, Margarethe Ospelt and Schlössle Weissenberg Familienstiftung, C-452/01, ECLI:EU:C:2003:493, para. 29; Judgment of the Court of 28 October 2010, Établissements Rimbaud SA v Directeur général des impôts, Directeur des services fiscaux d’Aix-en-Provence, C-72/09, ECLI:EU:C:2010:645, para. 20.

  301. 301.

    Art 31–35 in conjunction with Annexes VIII to XI of the EEA Agreement.

  302. 302.

    Art 40–45 in conjunction with Annex XII of the EEA Agreement.

  303. 303.

    On the interpretation of Art 6 of the EEA Agreement, see Fredriksen and Franklin (2015), p. 631 f.

  304. 304.

    Judgment of the Court of 23 February 2006, Finanzamt Offenbach am Main-Land v Keller Holding GmbH, C-471/04, ECLI:EU:C:2006:143, para. 49; Judgment of the Court of 23 October 2008, Finanzamt für Körperschaften III in Berlin v Krankenheim Ruhesitz am Wannsee-Seniorenheimstatt GmbH, C-157/07, ECLI:EU:C:2008:588, para. 24.

  305. 305.

    Judgment of the Court of 23 September 2003, Margarethe Ospelt and Schlössle Weissenberg Familienstiftung, C-452/01, ECLI:EU:C:2003:493, para. 32; Judgment of the Court of 28 October 2010, Établissements Rimbaud SA v Directeur général des impôts, Directeur des services fiscaux d’Aix-en-Provence, C-72/09, ECLI:EU:C:2010:645, para. 22; Judgment of the Court of 12 April 2018, European Commission v Kingdom of Belgium, C-110/17, ECLI:EU:C:2018:250, para. 63. Arguing for an amendment of the EEA Agreement that explicitly reflects the liberalisation of the freedom of capital movement in EC/EU law Stefánsson (2016), pp. 721–723; Fredriksen and Franklin (2015), p. 636, are more indulgent since a uniform interpretation of Art 40 of the EEA Agreement and Art 63 TFEU was possible.

  306. 306.

    Judgment of the Court of 23 September 2003, Margarethe Ospelt and Schlössle Weissenberg Familienstiftung, C-452/01, ECLI:EU:C:2003:493, para. 23.

  307. 307.

    Judgment of the Court of 16 July 2015, ClientEarth v European Commission, C-612/13, ECLI:EU:C:2015:486, para. 33, and the case law cited.

  308. 308.

    Art 31 of the EEA Agreement. The EEA EFTA States, contrary to other third countries (see above Sect. 3.2.2), can invoke the right of establishment according to the EEA Agreement.

  309. 309.

    Art 40 sentence 1 and Art 42(1) of the EEA Agreement.

  310. 310.

    The Capital Movements Directive is applicable (with qualifications) to the EEA EFTA States pursuant to Art 40 sentence 1, sentence 2, in conjunction with Annex XII (which lists the Capital Movements Directive) in conjunction with No 9 of the Protocol 1 on Horizontal Adaptations of the EEA Agreement (which extends the Directive’s guarantees from the EU Member States to the EEA EFTA States).

  311. 311.

    For example, see Art 33 of the EEA Agreement on restrictions to the right of establishment for foreign nationals on grounds of public policy, public security, or public health.

  312. 312.

    However, increasing contextual differences between EU and EEA law may still justify different results; see in general Fredriksen and Franklin (2015), pp. 650–652.

  313. 313.

    Art 3(2) sentence 1.

  314. 314.

    Section 5(2) sentence 3 of the German FTPA, section 55(2) sentences 4 and 5 of the German FTPO.

  315. 315.

    Proposal for the Regulation, COM(2017) 487 final, 13.9.2017, p. 19 (proposal for Recital 22): ‘The implementation of this Regulation by the Union and the Member States should comply with the relevant requirements for the imposition of restrictive measures based on grounds of security or public order stipulated in EU law, in the Agreement on the European Economic Area (EEA Agreement) […].’

  316. 316.

    It does not seem a very bold claim to assume that most participants of the Regulation’s legislative procedure may hold the opinion that a special clause for the EEA EFTA States was not omitted but was not necessary due to the EEA Agreement. Such an opinion would not be convincing, as argued above.

  317. 317.

    Cf. above Sect. 3.2.4.

  318. 318.

    Art 99(1) of the EEA Agreement.

  319. 319.

    Cf. Art 99(1) of the EEA Agreement.

  320. 320.

    Cf. Art 99(2) first subpara of the EEA Agreement.

  321. 321.

    Procedures in the EEA EFTA States, the EFTA Secretariat, and the EU for the incorporation of legislation into the EEA Agreement, Note 27 (‘The EEA EFTA States submit EEA EFTA Comments to the EU institutions on important policy issues.’).

  322. 322.

    Cf. Art 102(1) sentence 1 of the EEA Agreement. No results are shown for the Screening Directive in the EEA-Lex database.

  323. 323.

    The validity of an EU act may be affected by the incompatibility of that act with rules of international law, Judgment of the Court of 16 July 2015, ClientEarth v European Commission, C-612/13, ECLI:EU:C:2015:486, para. 34. While, again, a solution by the EU legislator is most preferable, one cannot exclude that the CJEU would also find an acceptable way of solving the issue. This solution must, however, take place at EU level and cannot be substituted by the interpretation of the EU Member States.

  324. 324.

    On Swiss membership and non-membership in international organisations, see Sprecher in Debus et al. (2011), pp. 256–258.

  325. 325.

    See for further details https://www.admin.ch/opc/de/classified-compilation/19600001/index.html.

  326. 326.

    A list of the agreements can be found at https://www.eda.admin.ch/dam/dea/de/documents/publikationen_dea/accords-liste_de.pdf and a register (listing the agreements by sector) at https://www.admin.ch/opc/de/european-union/international-agreements/index.html.

  327. 327.

    That is, the implementation of EU law into Swiss law by a sovereign decision of Switzerland without legal obligation to do so. On this autonomous adaption of EU law, see Sprecher in Debus et al. (2011), pp. 260–263, 273, 276.

  328. 328.

    For example, Art 4 of the AFMP in conjunction with Art 12 of Annex I to the AFMP.

  329. 329.

    Judgment of the Court of 12 November 2009, Christian Grimme v Deutsche Angestellten-Krankenkasse, C 351/08, ECLI:EU:C:2009:697, paras. 35, 39; Judgment of the Court of 11 February 2010, Fokus Invest AG v Finanzierungsberatung-Immobilientreuhand und Anlageberatung GmbH (FIAG), C 541/08, ECLI:EU:C:2010:74, para. 31.

  330. 330.

    Cf. above Sect. 5.4.3.3.

  331. 331.

    Notice concerning the entry into force of the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, OJ L 29, 31.1.2020, pp. 7–187.

  332. 332.

    Art 2(e), Art 126 of the WA. Pursuant to Art 132(1) WA, the Joint Committee may, before 1 July 2020, adopt a single decision extending the transition period for up to 1 or 2 years.

  333. 333.

    ‘UK’ in this context refers to the territorial scope as defined in Art 3(1) of the WA. This includes the United Kingdom and (with qualifications) Gibraltar, the Channel Islands and the Isle of Man, the Sovereign Base Areas of Akrotiri and Dhekelia in Cyprus, and the OCTs that have special relations with the United Kingdom (Anguilla, Bermuda, British Antarctic Territory, British Indian Ocean Territory, British Virgin Islands, Cayman Islands, Falkland Islands, Montserrat, Pitcairn, Saint Helena, Ascension and Tristan da Cunha, South Georgia and the South Sandwich Islands, and Turks and Caicos Islands); on the situation of these OCTs, see above Sect. 5.4.3.2.

  334. 334.

    The general rule of Art 4(1) first subpara of the WA shall be omitted in further citations for reasons of simplicity.

  335. 335.

    Art 17 second subpara.

  336. 336.

    Cf. Art 6(2) first subpara sentence 1.

  337. 337.

    The following remarks are based on the law applicable at the time this contribution was finished. This law may be superseded by the agreement(s) on the future relationship between the European Union and the United Kingdom.

  338. 338.

    Pursuant to Art 6(2) first subpara sentence 1.

  339. 339.

    Pursuant to Art 6(9) sentence 1 of the Screening Regulation in conjunction with Art 127(1) first subpara, (6) of the WA.

  340. 340.

    Art 17 subpara 2.

  341. 341.

    While the EU Member State is not obliged to do so, EU law would not prevent such due considerations if the EU Member State should wish to do so by an autonomous decision.

  342. 342.

    Cf. Art 98 of the WA: Administrative cooperation for customs; Art 99 of the WA: Administrative cooperation for matters related to indirect tax; Art 100 of the WA: Mutual assistance for the recovery of claims relating to taxes, duties and other measure.

  343. 343.

    Art 92(1) of the WA.

  344. 344.

    Above, the section “Third Country Direct Investments into an EU Member State That Could Affect the Security or Public Order of the UK”.

  345. 345.

    Obviously, the principles discussed here apply reciprocally in the case of EU investors acquiring a UK target.

  346. 346.

    Cf. Art 6(3) sentence 1.

  347. 347.

    Cf. Art 7(2) sentence 1.

  348. 348.

    See also Recital 7 sentence 1, which embraces the purpose of ‘legal certainty for Member States’ screening mechanisms’. This arguably includes the legal certainty for investors.

  349. 349.

    See only Judgment of the Court of 20 September 1990, Commission of the European Communities v Federal Republic of Germany, C-5/89, ECLI:EU:C:1990:320, para. 13.

  350. 350.

    Cf. The section “Third Country Direct Investments into an EU Member State That Could Affect the Security or Public Order of the UK” above.

  351. 351.

    Hindelang and Moberg (2020), p. 19 (forthcoming) (emphasis omitted).

  352. 352.

    German Monopolies Commission (2020) Chinese state capitalism: A challenge for the European market economy, Excerpt from Chapter I of the Biennial Report XXIII of 29 July 2020, pp. 98 ff.

  353. 353.

    See the (somewhat camouflaged) reference in German Federal Foreign Office (2020) Together for Europe’s recovery—Programme for Germany’s Presidency of the Council of the EU from 1 July to 31 December 2020, p. 6.

  354. 354.

    Cf. above Sect. 4.1.

  355. 355.

    Cf. German Federal Foreign Office (2020) Together for Europe’s recovery—Programme for Germany’s Presidency of the Council of the EU from 1 July to 31 December 2020, pp. 21–23.

  356. 356.

    Cf. above Sect. 4.2.2.

  357. 357.

    Competent German minister Mr Altmaier authorised the Miba/Zollern merger in August 2019 (see German Federal Ministry for Economic Affairs and Energy (2019a) Altmaier: Minister’s Authorisation in the Miba/Zollern Procedure. Press release of 19.8.2019). This authorisation was heavily criticised; see German Monopolies Commission (2019) Planned Merger of Miba AG and Zollern GmbH & Co. KG – Special Opinion 81, pp. 42–44; Konrad (2020), pp. 244–247.

  358. 358.

    Global Competition Review News (21 April 2020) Coronavirus will likely lead to more cartels, ex-DOJ official warns, available at https://globalcompetitionreview.com/coronavirus-will-likely-lead-more-cartels-ex-doj-official-warns.

  359. 359.

    The ‘our nation first’ approaches are a global phenomenon; cf. Japan’s subsidy to a Japanese company to shift production out of China as part of an effort to build more resilient supply chains (Nikkei Asian Review (21 April 2020) Japan preps first subsidy to company moving production out of China, available at https://asia.nikkei.com/Spotlight/Coronavirus/Japan-preps-first-subsidy-to-company-moving-production-out-of-China); cf. also the linking of state support and required commitments to investments in France by French Minister Mr Le Maire, see Heise (22 May 2020) Frankreichs Wirtschaftsminister nennt Bedingungen für Renaults Rettung, available at https://www.heise.de/news/Frankreichs-Wirtschaftsminister-nennt-Bedingungen-fuer-Renaults-Rettung-4726891.html.

  360. 360.

    EURACTIV/Reuters (18 May 2020) Europe should temporarily ban Chinese takeovers, Weber says, available at https://www.euractiv.com/section/economy-jobs/news/europe-should-temporarily-ban-chinese-takeovers-weber-says/.

  361. 361.

    For example, Chairman of the German Monopolies Commission Wambach, see Mannheimer Morgen (16 Juni 2020) ‘Beteiligung birgt potenzielle Gefahr’, available at https://www.morgenweb.de/mannheimer-morgen_artikel,-wirtschaft-beteiligung-birgt-potenzielle-gefahr-_arid,1650989.html.

  362. 362.

    German Bundestag Legislative Material 19/21251 of 24.7.2020, p. 2 (own translation); similar German Bundestag Legislative Material 19/21526 of 6.8.2020, p. 3. It must remain open whether or not the Trump administration intended to acquire CureVac; cf. German Bundestag Legislative Material 19/21251 of 24.7.2020, p. 2, and Bennhold K, Sanger DE (2020) U.S. Offered ‘Large Sum’ to German Company for Access to Coronavirus Vaccine Research, German Officials Say. The New York Times of 15 March 2020 (updated 2 April 2020).

  363. 363.

    German Federal Cartel Office, Decision of 27 April 2020, file no B4-115/19; see also German Federal Cartel Office (2020) Chinese company CRRC can acquire Vossloh’s shunter division. Press release of 27 April 2020. For an interpretation of this decision interplaying between merger control and FDI screening, see Covington Competition Post (28 April 2020) German Competition Authority Provides Guidance on the Interplay of Merger Control and FDI Screening, available at https://www.covcompetition.com/2020/04/german-competition-authority-provides-guidance-on-the-interplay-of-merger-control-and-fdi-screening/.

  364. 364.

    Cf. Hindelang and Moberg (2020), p. 19 (forthcoming).

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Otto, L.S. (2020). What Is a Foreign Direct Investment?. In: Hindelang, S., Moberg, A. (eds) YSEC Yearbook of Socio-Economic Constitutions 2020. YSEC Yearbook of Socio-Economic Constitutions, vol 2020. Springer, Cham. https://doi.org/10.1007/16495_2020_31

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