The Cooperation Agreement of 30 November 2022 establishing a foreign direct investment screening mechanism (‘FDI Regulation’) entered into force on 1 July 2023. Prior to its effective date, on 30 June 2023, the Interfederal Screening Commission (‘ISC’) published initial guidelines in the form of a Q&A on the application of the FDI Regulation.
After gaining several months of experience with screening foreign direct investments, the ISC released an updated version of these guidelines on 4 April 2024 (‘ISC Guidelines’). This article summarizes the additional guidelines introduced in the updated version of the ISC Guidelines.
General topics
The ISC emphasizes that obtaining a preliminary ‘ruling’ (#1 ISC Guidelines) or an individual exemption from the notification requirement is not possible (#50 ISC Guidelines). When in doubt about whether notification is required, it is advisable to proceed with caution and notify the investment.
The broad scope of the FDI Regulation (in many ways confirmed by the ISC Guidelines) means that many investments are at present subject to the required notification. For instance, the ISC clarifies that the FDI Regulation may apply to asset deals, provided they result in a change of control (#7 ISC Guidelines).
Clarification of the scope of the FDI Regulation
Definitions
The FDI Regulation applies to investments in both Belgian companies and ‘entities’. Whether a specific structure qualifies as an ‘entity’ will be assessed on a case-by-case basis (e.g., branches are generally considered entities – #9 ISC Guidelines). However, a mere physical presence without any legal structure does not suffice (#10 ISC Guidelines).
Companies with ultimate beneficial owners (hereafter ‘UBOs’) residing in a non-EU country are considered foreign investors. The ISC clarifies that when multiple persons jointly fulfil the UBO conditions under Belgian law, all persons (having joint control) qualify as UBOs under the FDI Regulation (#19 ISC Guidelines).
Specific situations: obtaining control or exceeding the threshold percentage of voting rights
Investments must be notified if the foreign investor (i) obtains control over or (ii) exceeds a threshold percentage of voting rights in the Belgian company as a result of the investment.
The ISC clarifies that control can be acquired passively. Even if it is not the parties’ declared intention or if the investor is passive, control may change due to third-party actions (e.g., inheritance of a shareholder or exit resulting in a change of control) (#20 ISC Guidelines). This clarification is important to note, in particular for foreign investors who invested in a Belgian company prior to 1 July 2023, but might obtain control passively at present.
The ISC further clarifies 2 situations which must be notified, notably (i) an investment where previously acquired control is extended (#31 ISC Guidelines) and (ii) an investment where veto rights are extended, even if the initial veto rights were already acquired before 1 July 2023 (#33 ISC Guidelines).
Important to note is that the ISC changed its opinion with regards to an investment whereby, when applying the 25% threshold, the investor already holds e.g. 30% of the voting rights in a Belgian company before 1 July 2023 and increases that holding to e.g. 40% after 1 July 2023. Under the present guidelines (#25 ISC Guidelines), such investment must in principle not be notified, whereas notification was required under the previous guidelines. While this clarification is useful, it illustrates that the ISC itself is still struggling with the correct interpretation of the FDI Regulation.
Internal restructurings
The FDI Regulation does not provide an exception for internal restructurings, however, the ISC clarifies the following principles:
- If an internal restructuring operation maintains the same UBO and results, within the framework of the same set-up, in several successive partial transactions taking place more or less simultaneously, each meeting the conditions for mandatory notification, one joint notification suffices (#40 ISC Guidelines).
- If an internal restructuring and an (external) investment are linked, and both are already established at the time of notification, it is possible to notify them together in the same notification (#41 ISC Guidelines).
Identity of the target’s customers and market share
The ISC emphasizes that only the identity and activities of the Belgian target itself are relevant in determining the notification requirement. Therefore, the identity (e.g., a government authority) and activities of the customers of the Belgian target are irrelevant. However, such information may be relevant to assess the risk to security, public order or strategic interests (#47 ISC Guidelines). Furthermore, having a government authority as a customer could imply access to sensitive information, potentially triggering a notification requirement (#48 ISC Guidelines).
In addition, the ISC clarifies that the market share of the Belgian target (in Belgium or elsewhere) in which the foreign investor wishes to invest does not impact the requirement to notify the investment (#17 ISC Guidelines).
Concept of ‘strategic interests’
The ISC states that the concept of ‘strategic interests’ does not create an additional assessment ground. National security, public order and strategic interests are all assessed based to the occurrence of the same three risks (#37 ISC Guidelines). However, this seems somewhat contradictory as the text of the FDI Regulation (notably Art. 11, par. 3) does mention that strategic interests will be assessed in addition to national security and public order. While all three are assessed of the basis of the occurrence of the same three risks, namely (i) compromising the continuity of vital processes, (ii) compromising the integrity and/or exclusivity of knowledge and information associated with vital processes, and (iii) the creation of strategic independence, an additional concept (i.e., strategic interests) is assessed.
Procedure
Lastly, the ISC touches on several procedural points such as:
- Language: an investment must be notified in Dutch or French (#51 ISC Guidelines);
- An ex-officio procedure can also be initiated for investments that are not subject to mandatory notification but may nevertheless affect national security, public order or strategic interests (#75 ISC Guidelines). As an ex-officio procedure can in principle only be initiated for investments subject to mandatory notification, we assume that this Guideline relates to investments concluded prior to 1 July 2023 which nevertheless meet the material criteria of the FDI Regulation (Art. 27 FDI Regulation).
- Non-Belgian parts of an investment can already be implemented during the Belgian stand-still period (#45 ISC Guidelines).
Regarding possible measures following an ex-officio procedure, the starting point is the situation as it exists at the time the measure is imposed, not the situation at the time of the investment. Therefore, dissolving the transaction with retroactive effect cannot be imposed, while an obligation to disinvest can (#76 ISC Guidelines).
Lastly, if the target provides incomplete or erroneous information in the context of a notification, the foreign investor can be penalised with an administrative fine (because the notification obligation falls on the investor and not the target). It is therefore recommended to address this risk in the investment agreement or in other transaction documents (#78 ISC Guidelines).
Conclusion
While the updated guidelines have introduced a couple of useful clarifications regarding the application of the FDI Regulation, many uncertainties remain. As the screening mechanism is still in its early stages, the ISC hesitates to provide detailed interpretations of scope of its application, leaving several aspects vague.
The future will reveal whether continued practical application of the mechanism leads to greater clarity and more precise guidelines. In the meantime, the prudent advice remains to notify investments when in doubt. Consulting the guidelines consistently, especially in less traditional investment scenarios, is recommended.
Melissa Maertens
Steven Callens
