The new Austrian Investment Control Regime is not so new anymore: After 27 months it is time to write about it again
In Austria, the (new) Federal Investment Control Act (Investitionskontrollgesetz – ICA) came into force on 25 July 2020. While the new Austrian FDI regime has been in place for over two years, a number of aspects are still blurry. No information on FDI proceedings is published in Austria and the Federal Ministry for Labor and Economy (Bundesministerium für Arbeit und Wirtschaft – BMAW) as the competent FDI authority has so far not summarized their practical experience in a nicely crafted guidance document (except for very general FAQs on its website which have been around since the early days). The only official source of information is the BMAW’s annual report on investment control which contains aggregated data on case numbers, types of decisions taken and so on. The M&A world and their advisors are keen to catch the features of Austrian FDI rules and administrative practice in a 10-minute ride. So come on board and enjoy the view.
Having dealt with many (really many) cases over the last 27 months, here is our choice of most important developments and insights for you to consider:
Foreign investors
Austria is a nice place and therefore welcomes tourists, but also foreign direct investments throughout the year. No wonder that we opted for an FDI regime that only applies to investors from outside the EU, the EEA and Switzerland (foreign investor). It is quite Austrian that this principle is applied in a creative manner (albeit fully in line with and even warranted by the legislation):
- We do not (only) look at the parent company or the ultimate beneficial owner, but also at each entity in the acquisition structure individually.
Example: A German fund (A) acquires an Austrian business (B) via its 100% subsidiary located in the United Kingdom (B1). B1 is considered a foreign investor.
- We also apply this concept to intra-group transactions. Beautiful. Whenever an internal reorganization creates a new direct / indirect shareholder of an Austrian group company and such new shareholder has its seat in a non-privileged jurisdiction, you better talk to your legal advisors about Austrian FDI screening. Do not even think about arguing that the ultimate parent stays the same – you are caught.
- A topic of its own are publicly listed companies located in a privileged jurisdiction with a diversified shareholder structure and no shareholder owning voting shares reaching the trigger level (10% or 25%). Let us take the example of Italy.
Example: A company listed on the Milan stock exchange intends to acquire an Austrian business.
Based on a decision by the Austrian FDI authority that we know (but cannot share – sorry for that), we need not take into account the many foreign shareholders of such publicly listed “società per azioni” provided that such foreign shareholders do not play any active role whatsoever in the transaction, and have not entered into any kind of agreement on a shareholder level that points towards a joint acquisition of the Austrian target or a joint exercise of voting rights (directly or indirectly) over the Austrian target. This test is not always so easy, but pragmatic and very welcomed. One could even become enthusiastic if our FDI authority confirmed this approach in a formal way (FAQ style would already be fine). Until then, we recommend to stay cautious and look into the shareholder structure on a case-by-case basis (in particular, in case of shareholders reaching the 10% voting share benchmark).
Sensitive sectors
- FDI review aims at screening M&A transactions which have a potential for negatively affecting security and/or public order in a given jurisdiction (or in another EU member state). In its core, this is a substantive assessment performed during the FDI proceedings. However, on a more general level, it is also relevant to define the benchmark for a notifiability of a transaction.
- In merger control, the center of gravity is usually around turnover thresholds (leaving aside market share jurisdictions like Spain or alternative transaction value thresholds in Austria or Germany). In FDI, apart from the concept of (foreign) investors, the sensitivity of the target’s sector is used by states to distinguish notifiable transactions from non-notifiable transactions. This is particularly relevant in countries like Austria that do not grant call-in powers to its FDI authority outside notifiable transactions (the BMAW has no possibility to screen transactions that need not be notified in Austria). So you better phrase the trigger events for a notifiable transaction diligently. And if you want to be nice to the M&A world and its legal advisors, you do it in a “clear, precise and unconditional” manner.
- At that point in time, the Annex to the ICA enters the playground: Crafted in two parts, part I for particularly sensitive sectors (exhaustive list) and part II for merely sensitive sectors, it appears to enumerate a pretty straightforward list of sectors with an elevated degree of criticality compared to “normal” businesses below the radar of public relevance. But tragedy starts right there: Legal terms are open to multi-faceted interpretation. “Critical infrastructure”, to give an example, enshrines the term “critical” which is defined in part II quite prominently. However, the administrative practice of the BMAW only applies this definition of “critical” to sectors that are not explicitly listed in part II. This may come as a surprise to “critical” readers of the law and certainly violates the “Van Gend en Loos” trias (European Court of Justice, C-26/62). But it is one lawful way of interpreting our ICA and thus there is no point in mourning. The M&A world just needs to know that sensitive sectors as defined in part II of the ICA have nothing to do with criticality, public order or national security. Practically each and every M&A transaction is caught. That is, by the way, the reason why we have a flourishing FDI practice and can tell you so many fun things.
Micro-enterprise
A final word: Sometimes, you are lucky and your Austrian target business qualifies as a micro-enterprise. Then you are released from a filing obligation. The formula runs as follows: (FTEs <10) + [(turnover or balance sheet total) < EUR 2 mio)]. You need not be a quantum physicist (praise to our Austrian nobel prize winner Anton Zeilinger), even jurists can solve the problem as long as they do not apply the concept of “connected undertakings”. Here, it is all about “individualists” despite the fact that the legislative materials partly lean on the European Commission’s SME Recommendation 2003/361.
We better stop as our short ride has come to an end. But we would have loved to tell you more about voting share thresholds, the first FDI case in the defence sector, gun jumping, the proactive role of our BMAW and their struggle with fellow public stakeholders, the exemption for branch offices and so on.