In the last weeks of 2022, Parliamentary questions were presented to the Minister of Economic Affairs and Climate Policy (the Minister) regarding the acquisition of Delft-based chipmaker Nowi. The questions were related to the fact that the acquirer, Nexperia, is Chinese-owned. The Minister responded by stating that there is currently no legal basis on which to screen such acquisitions. That will be possible in the future, however, when the Wet Vifo (The Investments, Mergers and Acquisitions Security Screening Actv – "Vifo Act") is introduced. But tech and other companies are concerned that the low notification threshold might actually deter investors.
We earlier wrote about the scope of the Vifo Act and the low notification thresholds. In this blog, we address a number of points for attention. These are problems which we have noticed companies run into when dealing with Vifo Act issues. We also discuss the latest developments concerning the Vifo Act and our experiences with the Bureau Toetsing Investeringen (Bureau for Verification of Investments – BTI). Furthermore, we will discuss the new European Foreign Subsidies Regulation (“FSR”)
Background of the Vifo Act
The Vifo Act provides protection in the Netherlands in three areas: (i) the continuity of vital processes; (ii) the preservation of the integrity and exclusivity of knowledge; and (iii) information of critical or strategic importance. The Vifo Act affects investments in or acquisitions of companies based in the Netherlands that are considered vital providers, acquisitions of companies active in the field of sensitive technology, and acquisitions of operators of certain corporate campuses. See this blog for a further explanation of these three categories.
The Vifo Act was enacted on 17 May 2022, but has not yet entered into force. That is expected to happen in the first half of 2023. Importantly, the Vifo Act will have retroactive effect: transactions that have taken place since 8 September 2020 and that fall within the scope of the Vifo Act may be investigated by the BTI even now. This explains why the market and politicians are already paying attention to investments in certain (sensitive) sectors.
Latest developments
The Minister's draft Technical Rules Decree and Sensitive Technology Decree are currently pending before the Advisory Division of the Council of State. The moment those decrees are adopted, the Vifo Act can enter into force. As stated above, this is likely to be in the first half of 2023.
The Sensitive Technology Decree specifies the scope of the Vifo Act, since it designates an additional category of highly sensitive technologies to which a lower notification threshold applies (more than 10% of the votes at the general meeting). The Minister has stated that it will be reviewed every year whether this decree needs to be updated in light of new technological developments.
The Minister answered a series of Parliamentary questions on the Vifo Act in December 2022 relating to the low thresholds. The Minister acknowledged, for instance, that a 10% notification threshold is low. On the other hand, according to the Minister, the Vifo Act provides clarity to companies, particularly as to which companies, which acquisition activities and which technologies fall within its scope of application. The Minister furthermore stated that, for the time being, the Vifo Act will continue to apply to investors from all countries, including investors from within the European Union and even the Netherlands.
Informal contact with BTI
It can be difficult for companies to determine whether they fall within the scope of the Vifo Act now already, or whether the BTI will retrospectively screen the proposed transaction.
To address some of these concerns of companies, it is possible to contact the BTI on an informal basis. The BTI can be asked whether the target company falls within any of the three categories to which the Vifo Act applies. Earlier, we wrote about what is involved in the BTI’s assessment. That assessment takes several weeks. No fees are charged by the BTI.
Maverick Advocaten has gained considerable experience with the BTI screening. Our main findings are set out below:
- The BTI looks beyond just whether the company in question is active in the field of sensitive technology. It considers the entire chain within which the company in question operates. The BTI takes the activities of the chain into account in its assessment.
- The company need not actively operate in the field of sensitive technology: holding a sensitive patent alone may suffice for it to fall within the scope of the Vifo Act.
- Scientific knowledge and technology that require further development are also considered.
- It makes no difference to the operation of the Vifo Act whether the investor/acquirer is based in the Netherlands or abroad. Investors from the Netherlands fall within the scope of the Vifo Act in the same manner as investors from the European Union (EU). However, the BTI will most likely be easier inclined to approve acquisitions by EU companies than acquisitions by non-EU companies.
- No retroactive effect applies to transactions whereby the target company is active in the field of highly sensitive technology. This means that transactions completed between 8 September 2020 and the entry into force of the Vifo Act cannot be screened in retrospect by the BTI. In practice, this also means that it is not necessary to (informally) contact the BTI regarding such transactions before the Vifo Act enters into force. It is important in this regard that the parties involved are sure that the technology in question constitutes sensitive technology.
FSR
The FSR is a new European investment test designed to prevent foreign subsidies from distorting competition in the European Union's ("EU") Internal Market. According to the European Commission, the FSR thus fills an important gap in its enforcement toolkit, as these foreign subsidies have so far escaped its scrutiny. This is in contrast to subsidies from EU Member States, which are subject to strict EU state aid rules. Moreover, Foreign Direct Investment control, such as the Vifo Act, falls exclusively to EU member states.
The FSR entered into force on Jan. 12, 2023. This will mean that non-EU subsidies will be reviewed as of July 12, 2023, provided they exceed certain monetary thresholds. We will explain the functioning of the FSR in a more detailed blog.
Please do not hesitate to contact Martijn van de Hel, Diederik Schrijvershof, Adriaan Craita or Saskia Stolk if you have any questions about the Vifo Act, the FSR, or need advice on how to (informally) contact the BTI.
More information on the scope of the Vifo Act and the main points for attention is provided in our podcast via Spotify and Apple Podcasts.
More information on the Vifo Act and FDI-related questions can be found in this, this and this blog or at wetvifo.nl.
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