Austria’s revamped foreign investment regime, one year on: Where do we stand?

The last two years have seen many countries in Europe introduce foreign investment screening regimes, and Austria was no exception. Its revamped rules entered into force in July 2020, considerably expanding the reach of Austrian foreign investment review.

Under the old regime, about 25 transactions were reviewed over a period of eight years. By comparison, in the first year of the new regime, there have already been 70 transactions reviewed and 50 concluded proceedings, according to the recently published first annual report of the Austrian Federal Ministry of Digital and Economic Affairs.

Most of the concluded proceedings concerned transactions in the healthcare, data processing and storage, information technology and finance sectors, while investors were most commonly from the USA, the UK, Japan and Singapore.

But what other patterns have emerged, and what have we learnt in the first year?

If all roads lead to Rome, which roads lead to Vienna?

In principle, there are three main routes for a transaction to be reviewed: (i) the parties may decide to pro-actively notify the Ministry; (ii) the Ministry may encourage the parties to notify; and (iii) the Ministry may decide to initiate the review ex officio.

All 50 concluded foreign investment review proceedings in the first year of the new regime were initiated by means of a notification. In 4 cases the Ministry encouraged the parties to notify and – since the parties ultimately agreed to do this – the Ministry was not required to initiate an ex officio review. These 4 cases stemmed from a pool of 23 transactions which the Ministry became aware of by means other than notification (e.g. through the EU cooperation mechanism). For all of these transactions, the Ministry considered whether they fell within the scope of the Austrian foreign investment rules.

Although less than a quarter of these 23 cases resulted in a foreign investment review, the approach shows that the Ministry does not shy away from scrutinising and “calling in” transactions that parties view as not notifiable in Austria. Parties should bear this in mind, especially in relation to transactions with an Austrian nexus that the Ministry is likely to find out about, e.g. via the EU cooperation mechanism. A precautionary contact with the Ministry early in the process can help avoid delays further down the line in borderline cases.

Should you ask for confirmation that a filing is necessary... or always notify?

Under the new regime, instead of notifying a transaction for review and clearance, the parties may opt to seek confirmation from the Ministry that the transaction does not trigger a filing requirement in the first place. 13 such applications were made to the Ministry in the first year of applying the new rules, of which 5 were found to be reportable (and were therefore examined by the Ministry). In 4 out of these 5 cases, the Ministry attributed the activities of the respective target to one of the sensitive sectors. However, in the one case where the target’s activities could not be assigned to any of the sensitive sectors, the Ministry considered that the target’s activities relating to security services pertained to an area that could still, give rise to a threat to public safety and security.

The Ministry’s strategy shows that it is willing to stretch the boundaries of the revamped foreign investment rules to claim jurisdiction over transactions with an Austrian nexus. As a result, applying for confirmation that a transaction does not trigger a filing requirement in borderline cases is not always the most efficient route. Considering the Ministry’s track record, it might make sense to notify for review and clearance upfront, even if the filing requirement appears somewhat far-fetched.

In terms of final outcomes, the Report highlights that, out of the 50 concluded foreign investment review proceedings, 31 were cleared in Phase I without remedies, 2 in Phase II without remedies, and 2 in Phase II with remedies – so there were no prohibitions. In 8 cases, the Ministry confirmed the lack of a filing requirement. In 3 cases, the Ministry dismissed the notification for lack of a filing requirement and in 4 cases the parties withdrew their notification.

Outlook

In this first year of applying the new rules, the number of reviewed transactions is notably higher than under the previous regime – with this figure likely to increase further. And from what we’ve seen, the Ministry appears to be an active enforcer, following up regularly on transactions with an Austrian nexus that come to its attention other than by means of a notification. 

In particular, the Ministry closely monitors the transactions reported via the EU cooperation mechanism (see our last post on this) and often responds with information requests to further probe its jurisdiction – this happened in as many as 21 cases. The Ministry is also one of the EU authorities with the highest track record in reporting transactions within the EU cooperation mechanism.

Further, in a recent development, the Austrian Federal Competition Authority is now required to forward all merger control notifications to the Ministry. Investors would be well advised to consider closely the foreign investment filing requirement for transactions with an Austrian nexus, to avoid unwanted surprises further down the line.