Italy’s foreign investment regime: strong enforcement, in a constantly shifting landscape

In recent weeks, the Italian government has strengthened and partially re-shaped the Italian foreign investment screening mechanism (the “Golden Powers Regulation” (GPR)). It has done so by means of an emergency decree issued in response to the economic repercussions of Russia’s invasion of Ukraine. This development is yet another expression of how dynamic foreign investment regimes continue to be and how quickly such regimes are being adapted to current geopolitical and other circumstances, an effect that we have also previously observed in a range of other countries.

The Italian emergency decree has largely crystallised most of the emergency measures introduced in light of the Covid-19 pandemic, which were due to expire at the end of the year. For example, the government has maintained the reportability of minority, non-controlling investments by non-EU investors, with a minimum threshold of 10% of corporate capital or voting rights (with even lower thresholds applying in the defence and national security sectors, regardless of the nationality of the investor).

In parallel, significant new changes have also been included, such as the introduction (from 1 January 2023) of additional notification requirements – which already apply to foreign acquirers – for Italian investors acquiring a controlling stake in strategic companies active in the communications, energy, transport, health, agri-food, finance, credit and insurance industries. 

The decree also includes a number of further procedural changes. By way of example, the decree requires a joint notification by the acquirer and the target whenever possible, thus encouraging the participation of a strategic target company in the notification and review process. And a pre-notification procedure will also be introduced in a future decree to allow the parties – prior to the submission of a formal notification – to confirm the applicability of the GPR to their transaction and the likelihood of a clearance decision. 

Considering that almost 50% of the transactions notified in 2020 were found to fall outside of the scope of the GPR due to the lack of clarity in the legislation, this is welcome news – provided the pre-notification procedure is clear, fast, and not unnecessarily burdensome for companies and investors.

The decree also provides for the strengthening of the relevant bodies within the Italian government by establishing a strategic evaluation and analysis unit, consisting of ten members with specific expertise in legal and economic matters and international relations. The new unit will help scrutinise notifications. These have been increasing year-on-year and will undoubtedly remain high for the foreseeable future. In 2020, Italy reached a new record of 341 filings (see our previous post) and this rose to above 400 in 2021.

Recent enforcement 

Alongside these reforms, we continue to see an increased willingness by the Italian government to make use of its special powers under the GPR, in line with latest trends across the EU (including, for example, Germany and Austria).

Press reports indicate that, following ex-officio proceedings opened last year for a missed filing, the government recently annulled an acquisition from 2018, in which two Chinese investors acquired a 75% stake in an Italian manufacturer of military drones. It also appears that the government issued (or is considering issuing, depending on the press report) monetary fines for this missed filing. This new case builds on the three vetoes imposed by the government in 2021 against acquisitions by Chinese-based entities and confirms that investments from China are in the government’s crosshairs. This high standard may now apply to investments from Russia too.

The fact that an ex officio case has ultimately resulted in a veto – and therefore unwinding proceedings – is certainly a novel development in Europe. It is also something that other European regulators are doubtless watching very closely – we are aware of very considerable market screening activities by many European FI regulators. In addition, many regimes provide for a long call-in period (e.g. in Germany up to five years from signing) and it is, therefore, just a matter of time before a comparable case arises in another EU Member State.

As this is the first annulment of a transaction following the opening of proceedings for missing a filing (the other two known cases of missed filings in Italy were targeted only with heavy fines), it will be interesting to monitor the consequences it will have also from a civil law perspective.