The Foreign Investment Regulation Review: Netherlands
Foreign direct investment (FDI) is considered a vital cornerstone of the Dutch economy. According to a 2020 UNCTAD study, in 2019, the Netherlands was the second largest foreign investor in the world, preceded only by the United States. As for inward foreign investment, the Netherlands ranked fifth after the United States, the United Kingdom, Hong Kong and China.2 An important factor in achieving strong levels of FDI is the attractive investment climate, with advantages such as the country's physical and digital infrastructure, educated labour force, stable government and policy, efficient labour market, and investments in innovation and technology. Against this backdrop, the Netherlands has long advocated the importance of free trade and its open market economy. Restrictive measures were long considered undesired and unnecessary, particularly as a large proportion of critical infrastructure in the Netherlands (such as railways, ports and energy-transmission networks) is state-owned. The (attempted) acquisitions of several Dutch corporate 'crown jewels' by foreign acquirers at the beginning of the century, such as ABN AMRO and several telecommunications and utilities companies, have led to a public debate about the need for legislative protection. Subsequently, the government acknowledged that several key pillars of the Dutch economy, for example as a result of globalisation and digitisation, have become prone to interference by foreign states and geopolitical tensions. In particular, in 2019, the government recognised that the shift in the financial-economic world order was one of 11 'dominant threats' to national security. In short, the government considered that the combination of technological progress and geopolitical shifts left the open economy more vulnerable for abuse by foreign actors.
Nonetheless, the foreign investment laws currently in place are relatively liberal and apply to specific sectors only. Furthermore, we are not aware of any precedents in which the government prohibited or imposed far-reaching remedies based on the sector-specific legislation. In 2012, the Dutch government enacted screening legislation that captured investments in liquefied natural gas (LNG) production facilities (the Gas Act) and electricity generation facilities with a nominal capacity of 250 megawatts (the Electricity Act). In 2014, screening legislation applicable to investments in healthcare providers was introduced (the Healthcare Market Regulation Act). In the 2017 cabinet coalition agreement, the government announced that it would introduce 'specific protection' for 'vital sectors' by means of a 'careful analysis of national security risks'. Since October 2020, the acquisition of 'predominant control' of 'telecommunications parties' has been subject to a notification to the Minister of Economic Affairs and Climate (the Minister) (the Telecommunications Act). These notification requirements apply regardless of the nationality of the investor.
More recently, in June 2021, the government announced the introduction of a broader national security investment screening policy covering investments (the National Security Investment Act) in 'vital infrastructure' (district heat providers, nuclear energy facilities, key facilities of Amsterdam airport and Rotterdam seaport, designated banks and trade platforms, and natural gas extraction) and 'sensitive technology' (notably military and dual-use goods). Although the regime has not yet entered into force and no notification requirement exists until entry into force, the Minister will have the power to retroactively review transactions taking effect after 8 September 2020. That notwithstanding, we expect that this power will rarely be used in practice. At this time, it is also unknown when the regime will enter into effect; likely no earlier than Q4 2021–Q1 2022.
Although there is no standard practice of foreign investment review based on legislative powers, the government has intervened in attempted acquisitions of Dutch companies using more informal powers. Recent examples include political opposition of the attempted acquisitions of PostNL by Bpost, Unilever by KraftHeinz and KPN by America Móvil. In June 2020, the government made a financial investment in SMART Photonics, a Dutch scale-up developer of photonic chips, to ensure that the company would not be controlled by foreign investors. As evidenced by the intervention, acquisitions involving companies of national interest can be subject to political scrutiny, beyond any formal legislative powers.
Year in review
To our knowledge, there have not been any notified and published transactions, investments or tenders that have resulted in an in-depth review, or prohibition or conditional clearance decisions during the past year. However, against the backdrop of the covid-19 pandemic and increasingly protective foreign investment measures globally, the Dutch government plans to introduce additional public interest and FDI screening mechanisms. This development forms part of a broader trend at the EU level, as well as in other EU Member States, where governments are opting for stricter investment review policies to protect national interests. In addition, the Minster of Economic Affairs established the Investment Screening Office to advise on jurisdictional and substantive questions, which can also be consulted by market participants.
i Implementation of EU FDI regulation
In March 2019, the European Council adopted the EU foreign direct investment (FDI) regulation. The regulation provides for an enabling framework for Member States to review FDI on grounds of security and public policy and to increase cooperation among Member States, as well as between Member States and the European Commission (the Commission). The framework regulation entered into force in October 2020.
The Dutch legislation for implementing the EU FDI regulation takes a minimalist approach and establishes the following:
- the legal basis for processing, collecting and providing information;
- the legal basis for imposing sanctions in case of non-compliance; and
- the appointment of the Minister as a contact point.
In practice, this means that in the event that a notification is made pursuant to the Gas Act, the Electricity Act, the Telecommunications Act or the (upcoming) National Security Investment Act, the Minister will notify the Commission and other EU Member States of the transaction. Interested Member States may submit comments and the Commission may submit an opinion on transactions undergoing screening in any Member State. Transactions that have been notified under domestic regimes prior to 11 October 2020 and have not yet been approved could also be subject to comments.
These submissions must be made within 35 calendar days from obtaining information on the investment from the Member State in which the investment takes place. There is an obligation to indicate an intention to make a submission within 15 calendar days following the receipt of the information on the investment. Fifteen calendar days is therefore the minimum time that the process under the cooperation mechanism could take in the event that no Member State or the Commission wants to make a submission. While a Member State must give due consideration to the submissions, the final word on whether to permit the investment remains with the Member State in which the transaction takes place. Completed transactions that have not been screened may be commented or opined on up to 15 months following completion. This rule applies retroactively, allowing investments completed after 10 July 2019 to be subject to 'intervention' through the cooperation mechanism as of 11 October 2020.
ii Establishment of the Investment Screening Office
The Minister recently announced the establishment of the Investment Screening Office, which will advise on notifications under the aforementioned legislation, except for healthcare-related notifications that are dealt with by the Dutch Healthcare Authority (NZa). The Investment Screening Office will act as coordinator of notifications, review notifications and advise the Minster on remedies and other measures to mitigate potential risks. It is envisaged that the Investment Screening Office will consist of three full-time equivalent employees.
iii Legislative developments
In October 2020, the government enacted the telecommunications investment screening regime. In September 2020, the Minister presented for consultation a draft act for the national security regime. Following critical remarks provided during the public consultation and by the Dutch Council of State, the government significantly amended the draft act, aiming to provide a greater degree of legal certainty for investors, especially with respect to critical infrastructures. This legislation will be described in more detail below.
Foreign investment regime
As outlined above, the Netherlands has historically taken a very liberal stance towards foreign investments, but its policy has become somewhat more stringent during recent years; as evidenced by the introduction of the aforementioned investment screening legislation.
Although the appraisal criteria differ under the various legislative instruments (as further described below), the government's assessment of foreign investment is based on the following principles:
- the appraisal focuses on the protection of national security and public interest only, that is, not any economic or competition concerns, which are monitored by the Dutch competition authority (ACM);
- the notification requirements apply regardless of the nationality of the acquirer or acquirers; that is, there are no exemptions for domestic or EU-based investors;
- the consequences for the investment climate must remain as limited as possible, namely minimum legal uncertainty, a clear and narrow scope of application, low administrative burdens and short decision periods; and
- the competent authorities should be held accountable for decisions, for example through judicial review and in Parliament.
ii Laws and regulations
Notifications made under the Healthcare Market Regulation Act are reviewed by the NZa, which is an autonomous administrative authority within the Dutch Ministry of Health, Welfare and Sport. Under this legislation, the NZa may consult the ACM for competition-law-related matters, for example whether a notified transaction constitutes a change of control within the meaning of Dutch and EU competition law. In addition, a legislative proposal is pending, which envisages the test currently performed by the NZa being transferred to the ACM (in addition to the standard merger control test that the ACM already performs). However, the legislative proposal has not yet been adopted by Parliament.
Notifications made under the telecommunications, energy and (upcoming) national security regimes are reviewed by the Minister, with assistance from the Investment Screening Office. The Minister may consult other governmental authorities (such as the intelligence services or the ACM) if necessary. As described above, the Commission and other EU Member States can be consulted under the EU FDI regulation. However, the substantive review of any notified transaction remains at the discretion of the Minister. Any decision is subject to judicial review.3
Under the Healthcare Market Regulation Act, the sole criterion in the jurisdictional test is that at least one healthcare provider, consisting of 50 or more directly or indirectly 'healthcare providing employees', is part of the concentration (target, acquirer or joint venture partner, including portfolio companies). 'Healthcare provider' is defined as undertakings directly involved in the treatment of patients whose services are covered under the Healthcare Insurance Act or the Long-Term Care Act. The law does not specify that the target needs to be active in the Netherlands or that the target needs to be a healthcare provider. The relevant act refers to the Dutch Competition Act for the definition of 'control', which is substantively similar to the concept of control prescribed by the EU Merger Regulation.
For the (separate) ACM filing notification under the Dutch Competition Act, lower thresholds apply to healthcare-related concentrations than to regular concentrations. The applicable ACM thresholds are as follows:
- the combined worldwide turnover of the undertakings concerned exceeds €55 million in the previous calendar year;
- the individual turnover in the Netherlands of each of at least two of the undertakings concerned was at least €10 million in the previous calendar year (i.e., it does not have to concern healthcare); and
- each of at least two of the undertakings concerned achieved an annual turnover of €5.5 million with the provisions of healthcare in the preceding calendar year.
Electricity and liquefied natural gas facilities
Under the Electricity Act, there must be a change in control of an electricity generation facility with a nominal electricity production capacity of 250 megawatts or an undertaking that manages such an installation. According to public sources, there are at least 35 of such installations in the Netherlands.
Under the Gas Act, there must be a change in control of a liquefied natural gas (LNG) installation or an undertaking that manages such an installation.
Both acts refer to the Dutch Competition Act for the definition of 'control', which is substantively similar to the concept of control prescribed by the EU Merger Regulation.
The Minister has jurisdiction where the acquirer is to acquire or hold 'predominant control' of a 'telecommunications party' that results in a 'relevant influence in the telecommunications sector'.
'Predominant control' exists in any of the following six situations:
- the acquisition of at least 30 per cent of the voting rights (solely or jointly). Although there is no formal guidance, this arguably does not include contractual veto rights;
- the ability to appoint or dismiss at least half of the executive or non-executive board members, or both;
- the ability to exercise control as a result of special shares stipulated in the articles of association, notably priority shares;
- where the target holds a branch (i.e., a non-Dutch-registered legal entity with permanent presence in the Netherlands) being a telecommunications party;
- if a partner becomes fully liable towards creditors for the debts of the company acting under its own name; and
- the acquiring or holding party owns a sole proprietorship.
'Telecommunications party' with a 'relevant influence in the telecommunications sector' is defined as an undertaking holding 'predominant control' of any of the below infrastructure or services:
- telephony or internet access services to more than:
- 50,000 consumer subscribers (fixed only) in the Netherlands;
- 12,500 business subscribers (fixed only) in the Netherlands; or
- 100,000 subscribers (mobile internet access services only) in the Netherlands; and
- electronic communications network used for the provision of telephony or internet access services to more than 100,000 end users in the Netherlands;
- internet exchange point (IXP) with more than 300 connected autonomous systems (IXP is a network facility that enables the interconnection of more than two independent autonomous systems, primarily for the purpose of facilitating the exchange of internet traffic);
- data-centre services with a power capacity of more than 50 megawatts;
- hosting services to more than 400,000 '.nl' domains;
- qualified trust services; and
- electronic communications network or services, data-centre services or trust services to any of the following customers:
- the Netherlands General Intelligence and Security Service (AIVD);
- the Netherlands Ministry of Defence;
- the Netherlands Military Intelligence and Security Service (MIVD);
- the National Coordinator for Security and Counterterrorism (NCTV); or
- the Netherlands National Police.
National Security Investment Act (not yet in force)
The National Security Investment Act introduces a mandatory notification requirement for 'acquisition activities' in 'target undertakings' that provide or operate 'vital processes' and 'sensitive technology' (see further below).
The target undertaking must be established in the Netherlands, meaning that either its policy is determined or economic activities are carried out in the Netherlands. The scope of the Act arguably also captures acquisitions of foreign parent companies that can exercise control or, in the case of sensitive technology only, exercise significant influence over such an undertaking established in the Netherlands. Legal form is irrelevant, as is where the registered office is located. Although there is no decisional practice yet, it cannot be excluded that the mere presence of turnover or assets, or both, in the Netherlands could be sufficient to trigger a notification. The same arguably applies to undertakings that are effectively managed from the Netherlands, but which do not have local turnover or assets, or both.
The regime will cover changes in control (within the meaning of the EU Merger Regulation) of operators of 'vital processes' or their 'essential assets' that, if disrupted, affected or removed, would result in serious social disruption in the Netherlands. The regime applies to target undertakings engaged in any of the following activities:
- district heating – transport of district heating;
- nuclear energy – either or both: (1) holder of an authorisation based on the Dutch Nuclear Energy Act; (2) any other undertaking subject to confidentiality obligations under the Dutch Nuclear Energy Act Confidentiality Decree;
- Amsterdam airport – (1) Royal Schiphol Group N.V. (the airport owner and management company), or any of its group companies; (2) air carrier holding one-third or more of available annual slots (currently KLM); and (3) fuel supply, storage and processing;
- Rotterdam seaport – Harbour Master's Division of the Port of Rotterdam Authority;
- credit institutions – banks with a corporate seat in the Netherlands that qualify as 'significant' in accordance with Article 6(4) of Regulation 1024/2013, namely that meets either of the following criteria: (1) the total value of its assets exceeds €30 billion; (2) the ratio of its total assets over the GDP of the Netherlands exceeds 20 per cent, unless the total value of its assets is below €5 billion; or (3) following a notification by its national competent authority that it considers such an institution of significant relevance with regard to the domestic economy, the European Central Bank (ECB) takes a decision confirming such significance following a comprehensive assessment by the ECB, including a balance sheet assessment, of that credit institution;
- trading facilities – operator of a trading facility in the Netherlands that accounts for 50 per cent or more of the nominal value of all securities traded in the Netherlands;
- financial market infrastructure – (1) central counterparties as defined in Article 2(1) of Directive 648/2012; (2) clearing house or financial institution that processes more than one billion domestic and cross-border transactions per year; (3) clearing and settlement institution; or (4) central institute with a seat in the Netherlands;
- natural gas extraction – holder of an authorisation of natural gas extraction at the Groningen gas field; and
- natural gas storage – holder of an authorisation for the storage of natural gas based on Article 9a of the Gas Act.
Notifiable transactions involving providers of sensitive technology or their 'essential assets' include a change of sole or joint control within the meaning of the EU Merger Regulation; or significant influence, that is, below the level of 'control'. The draft act applies different thresholds for the acquisition or increase of significant influence. These thresholds are 10 per cent, 20 per cent and 25 per cent of the votes in the shareholders' meeting of the target undertaking. Furthermore, the following can be considered as significant influence: (1) the contractual obligation of the target undertaking, for example laid down in an investment agreement, to ensure or promote the appointment or dismissal of one or more directors nominated by the acquirer; or (2) the agreement between shareholders that a shareholder can exercise significant influence. By delegated acts the Minister can determine deviating thresholds for significant influence for specific categories of target undertakings. Such rules have not yet been adopted.
'Sensitive technologies' is defined as follows:
- dual-use goods that are subject to export control under Article 3(1) of EU Regulation 428/2009, namely goods that can be used for both civilian and military use;
- military goods: this refers to the Dutch implementing regulation of Council Common Position 2008/944/CFSP of 8 December 2008 that defines common rules governing control of exports of military technology and equipment, and also concerns military or dual-use goods, or both; and
- further regulations potentially being enacted that could designate other goods or technology as 'sensitive technology', potentially including technology that is essential to:
- the functioning of the defence, police, intelligence and security services of the Netherlands;
- avoid unacceptable risks to the Netherlands (or its allies) in obtaining certain essential goods or products; and
- certain 'vital processes' and 'critical infrastructure' that relate to national security.
iv Voluntary screening
The aforementioned legislation prescribes mandatory notification obligations. In case of doubt whether an investment constitutes a notifiable transaction, parties can choose to voluntarily consult the NZa or the Investment Screening Office.
The NZa review period is four weeks, subject to suspension in case of information requests. This period can be extended by six months in case of an in-depth review, also subject to stop-the-clock provisions in case of information requests. Although there is no deadline for submitting a notification, the regime has suspensory effect, meaning that the transaction cannot be implemented prior to approval from the NZa.
As part of the notification, the healthcare provider must inter alia provide information on the transaction structure, activities of the parties concerned, the manner in which stakeholders (notably employees, clients and patients) were consulted and involved in the decision-making of the transaction, and the anticipated effects on the healthcare services. In the event that one of the parties is a provider of 'crucial care' such as ambulance services, the notification must be accompanied by an 'effects report'. The test performed by the NZa is mostly procedural and examines whether stakeholders were adequately consulted. Where crucial care is involved, the NZa will assess whether the concentration results in changes to the quality, accessibility and availability of healthcare services.
The notification must be made at least four months prior to the envisaged date of completion of the transaction. The notification does not have suspensory effect, meaning that the transaction can be implemented prior to a decision of the Minister. The decision period is also four months. However, the transaction would have to be unwound or remedies implemented with retroactive effect if the Minister were to decide to block the transaction or impose conditions.
The notification form should include information on the parties concerned, description of the energy installations, the acquirer's existing activities in the electricity and LNG industries, the manner in which the acquirer intends to finance the acquisition, and the acquirer's business plan and strategy. The Minister of Economic Affairs will assess whether the transaction results in risks for national security, continuity and reliability of the energy supply.
The notification under the telecommunications regime must be made at least eight weeks prior to the envisaged date of completion of the transaction or no later than at the date of the launch of a public offer. The review period is eight weeks, subject to suspension in case of information requests. This decision period can be extended by six months in the case of an in-depth review, also subject to stop-the-clock provisions in case of information requests. Similar to the energy regime, the notification does not have suspensory effect.
The notification form includes information on the telecommunications activities of the parties, financial status, track record of the acquirer and business strategy. The Minister will assess whether the acquirer poses a risk to the continuity, reliability and confidentiality of the telecommunications party. The regime is primarily aimed at protecting key telecommunications infrastructure against foreign interference that could pose a risk to national security. The Minister must prove that there are concrete suspicions that the identified risk can actually materialise. The standard of proof appears relatively high.
National security regime (not yet in force)
It is envisaged that the review period will be eight weeks, which can be extended by six months in case of in-depth review. The review period can be suspended in case of information requests. Although there is no deadline for making a notification, the regime has suspensory effect and standstill obligations apply until the Minister has (conditionally) cleared the transaction.
The notification form has not yet been published, but we understand that the information required is similar to that under the telecommunications regime. The focal point of the Minister's appraisal is national security, which pertains to the following:
- the continuity of the critical processes;
- the integrity and exclusivity of knowledge and information associated with vital processes and sensitive technology; or
- the creation of strategic dependencies.
The National Security Investment Act states various elements that the Minister may take into consideration in its appraisal, including factors that relate to the investor itself (e.g., its track record, financial stability, transparent ownership structures and motives) and its home state (e.g., sanctions adopted against the state, stability of the state or region, geopolitical programmes, and separation between civil and military R&D programmes).
vi Prohibition and mitigation
In the period from July 2019 to December 2020, the NZa reviewed and cleared 243 concentrations involving healthcare providers. In its annual report, the NZa noted an increasing involvement of foreign investors and private equity parties, with particular (apparent) focus on dental care providers. We are not aware of any cases during the past year in which the NZa prohibited or imposed remedies when clearing concentrations. The only case in which the NZa ever imposed remedies dates back to April 2019, when the authority imposed reporting obligations that related to the cooperation between two merged hospitals in the Rotterdam area.
Under the energy regime, in March 2020, the Minister unconditionally cleared the acquisition of Dutch utility company Eneco by a consortium of Mitsubishi Corporation and Chubu. We are not aware of any decisions under the telecommunications regime which has been in place since October 2020. As regards the national security regime, the Minister expects that approximately 30 transactions will be notifiable each year.
i Prohibited sectors
The Electricity Act and the Gas Act prescribe prohibitions on the privatisation of electricity and gas transmission system operators and distribution system operators. Private investors (both domestic and foreign) cannot acquire such companies.
ii Restricted sectors
As outlined above, sector-specific screening legislation applies to various sectors: healthcare, telecommunications, electricity and LNG. Details of this legislation and the competent authorities are described above. The government is in the process of preparing a legislative proposal that will apply to the defence industry. There are no sectors where foreign investment is subject to caps or other requirements, such as an obligation to team up with a local partner. For completeness, we note that the Mining Act provides that the Dutch state will be entitled to 40 per cent of the proceeds of any mining concession, potentially through a 40 per cent stake in the relevant entity.
Typical transactional structures
As outlined above, the notification obligations apply irrespective of the nationality of the acquirer or acquirers and there are no corporate law residency requirements. The way in which a transaction is structured (e.g., asset or share deal) typically does not affect the analysis, provided that (depending on the regime) control, significant influence or specified percentages of voting shares are acquired. The Minister will look through the corporate chain up to the ultimate entity or person. Investors based in sensitive jurisdictions can expect closer scrutiny from the Minister as part of the appraisal, potentially resulting in longer review periods and a higher likelihood of commitments to remedy any national security concerns.
Other strategic considerations
As described above, the national security regime will apply with retroactive effect. Although expected to be rarely used, the Minister will be able to retrospectively call in transactions that:
- close after 8 September 2020 and the date the national security regime enters into force;
- give rise to national security concerns; and
- have not been subject to a public interest intervention under the current sector-specific regimes.
If called in, transactions will have to be notified and will be subject to substantive review. Transactions that have not been completed by the time the new regime comes into force and satisfy the mandatory notification requirements will need to be notified and cleared before closing. If a deal subject to the mandatory regime has not closed before the regime has entered into effect, closing will not be permitted until clearance is received. Without such clearance, the deal will be legally void and subject to financial penalties. Investors must therefore self-assess whether deals may fall under the mandatory regime and build this process into any deal timetable. Investors currently negotiating deals that may not complete prior to the new regime coming into force should ensure that they include appropriate conditionality, risk-allocation measures and long-stop dates for a potential notification and review period.
It is expected that new legislation will enter into effect under which the ACM will take over the test currently performed by the NZa in relation to concentrations involving healthcare providers. The legislative proposal was amended at the beginning of 2020, following input from the NZa and the ACM. It is uncertain when this legislative proposal will be introduced.
As outlined above, the Dutch government is in the process of preparing a legislative proposal that will apply to the defence industry. The legislative proposal is expected later in 2021.
1 Paul van den Berg is a partner and Max Immerzeel is an associate at Freshfields Bruckhaus Deringer LLP in Amsterdam and Brussels, and in Amsterdam, respectively.
2 https://unctad.org/system/files/official-document/wir2020_en.pdf (excluding investments through special purpose entities).
3 Under the Financial Supervisory Act, the acquisition of a qualifying holding in a bank or insurance company may be subject to a declaration of no objection (DNO) notification to the Dutch Central Bank. This will not be further discussed in this chapter.