Evaluation of the Danish FDI regime points towards a clearer and more targeted screening regime
Background
In 2021, the Danish Investment Screening Act introduced a mandatory prior authorisation requirement for certain foreign investments and special financial agreements involving Danish companies active in particularly sensitive sectors. Since its introduction, the regime has raised a number of practical questions concerning its scope, the application of key concepts and the handling of filings. The evaluation addresses several of these issues and sets out potential areas for improvement.
Key issues addressed in the evaluation
Clarifying the concept of "equivalent control by other means"
Under the current regime, prior authorisation may be required where a foreign investor directly or indirectly acquires less than 10% of the shares or voting rights in a Danish company active within a particularly sensitive sector, if the foreign investor obtains rights conferring equivalent control by other means. The Danish Business Authority acknowledges the need to clarify how such rights are assessed, noting that even the right to appoint only one board member may suffice. This underlines that determining whether prior authorisation is required cannot be based on ownership and voting rights alone. Investors must also consider governance rights and other arrangements that may give them influence over the Danish company. The forthcoming clarifications could provide investors with a more reliable basis for assessing when such rights trigger an authorisation requirement.
Exempting more intra-group restructurings
The current regime provides for a narrow exemption for certain intra-group restructurings, but this is rarely applicable in practice. Instead, intra-group restructurings are broadly caught by the regime, even where the ultimate ownership remains unchanged. The Danish Business Authority will review whether a wider range of intra-group restructurings should be exempted from the prior authorisation requirement. In doing so, the Danish Business Authority will also consider the approach taken under the new EU FDI Screening Regulation under which intra-group restructurings are generally exempt unless a new legal entity established in a third country, which is not already part of the ownership chain, is inserted into the target undertaking's ownership chain. From a practical perspective, a broader exemption would be a welcome development, as it could avoid unnecessary filings and delays in transactions that do not result in a substantive change in ownership or control.
Bringing certain Danish branches within scope
Danish branches of foreign companies currently fall outside the scope of the regime, despite some branches carrying out activities comparable to those of Danish companies. The Danish Business Authority will examine whether certain branches should be brought within the scope of the regime where their activities may give rise to security risks. This could close a gap in the current framework and ensure a more consistent approach to activities that may raise national security concerns, regardless of the legal structure through which they are carried out. However, clearly defining which branches should be covered will be important to ensure that any extension is proportionate and does not unnecessarily broaden the scope of the regime.
Clarifying the scope of critical technology and critical infrastructure
The Danish Business Authority acknowledges that there is uncertainty about which activities fall within the sectors of critical technology and critical infrastructure and will explore the possibility of providing clearer definitions and examples. This is particularly relevant in practice, as determining whether a Danish target carries out activities within a covered sector is often the first – and one of the most challenging – steps in an FDI assessment. Uncertainty at this stage can make it difficult for investors to determine at an early point in the transaction process whether a filing is required. Greater clarity could therefore help investors identify potential screening requirements earlier and assess the regulatory implications of a transaction with greater certainty.
Making the rules on special financial agreements more workable
In addition to investments, the Danish FDI rules also cover special financial agreements, which include certain joint venture, supplier, operation, and service agreements that give a foreign investor control or decisive influence over a Danish company active within a particularly sensitive sector. The current definition of "control or significant influence" is complex and difficult to apply in practice. The Danish Business Authority will consider whether the current definition can be replaced by clearer and more workable criteria. The Danish Business Authority will also examine how screening can be better coordinated with public procurement procedures to avoid unnecessary delays, for example by introducing screening at an earlier stage of the procurement procedure. Both initiatives address situations where uncertainty about the application and timing of screening can create practical challenges for businesses and transaction planning.
Improving the filing process
The introduction of a phase-based review process has helped reduce processing times. Current statistics show that approval is granted on average 25 days after a filing is declared complete with most cases being cleared in Phase 1. Nevertheless, the Danish Business Authority has identified further opportunities to improve the filing process, including through a more efficient assessment of whether a filing is complete. This is an important consideration for transaction planning. Investors should bear in mind that the formal review period only starts once the filing has been declared complete. The time required for the initial completeness assessment must therefore also be factored into transaction timetables. A more efficient process could help reduce uncertainty and make it easier for parties to plan for and manage the FDI review as part of the overall transaction process.
What does this mean for investors?
Overall, the evaluation is a welcome step towards a clearer and more targeted screening regime. The proposed initiatives address several practical challenges under the current regime and could help reduce unnecessary filings, clarify the scope of the regime and improve the efficiency of the screening process. However, the practical impact will depend on how the proposed initiatives are translated into concrete legislative changes and implemented in practice. The development is therefore worth following closely, particularly for investors involved in transactions with a Danish nexus. In the meantime, investors should continue to assess FDI requirements at an early stage and factor the current rules and potential review timelines into their transaction planning.
Want to know more?
Plesner monitors developments and the upcoming legislative process closely. If you have any questions about the implications of the Danish FDI regime for your transaction, please contact Plesner's FDI team.