Foreign direct investments in Italy: the revised golden power regime

Overview

The foreign direct investments regime in Italy, the so-called “Golden Power” regime, allows the Italian Government to scrutinize transactions that concern “strategic” industrial sectors and grants it the power to apply conditions to such transactions or even veto them in the case of threat to the national economy or security. The regime was introduced in 2012 by means of the Golden Power Decree and was recently reinforced in order to cope with possible threats arising from the pandemic.

The Decree provides, inter alia, for the following amendments to the Golden Power Decree:

1. the extension of the number of industrial sectors deemed to be strategic for the national economy, especially in relation to the 5G and cloud services sectors;
2. the modification of the notification procedures set out by the Golden Power Decree; and
3. the confirmation (with some specifications) of the once-extraordinary regime introduced in 2020 in the context of the COVID-19 pandemic (by Law Decree No. 23/2020 – Decreto Liquidità) that was supposed to expire on 31 December 2022.

Defense and National Security

The Decree:

a. specifies that transactions that may affect the ownership, control and availability of strategic assets and the creation of securities over assets in the field of defence and national security must be notified to the Government. Before the enactment of the Decree, the notification duty in the defence sector was triggered only in the case of changes in the corporate structure (mergers, demergers, etc) and acquisition of shareholdings; and
b. extends the sanctions originally placed on the purchaser to the target company for failing to comply with possible conditions imposed by the Government on a certain transaction (up to twice the value of the transaction and, in any case, not less than 1% of the turnover of the purchaser).

Energy, Telecommunications and Transports

The Decree:

a. confirmed the Decreto Liquidità provisions, which were originally supposed to expire on 31 December 2022. By virtue of this extension, the Government must be notified in the event that a foreign, non-EU purchaser acquires the 10% of the target company, whenever the value of the investment is higher than EUR1 million. Also, acquisitions that exceed the 15%, 20%, 25% and 50% thresholds must be reported;bank

b. specified that the Government must also be notified in the case of acquisitions by EU entities (including persons with Italian residence) of companies operating in the sectors of communications, energy, transport, health, food and finance (including the insurance and credit sectors), provided that such transactions entail the stable establishment of such entities in Italy by virtue of the acquisition of control over the target company; and
c. extended the sanctions originally placed on the purchaser to the target company for failing to comply with possible conditions imposed by the Government on a certain transaction (up to twice the value of the transaction and, in any case, not less than 1% of the turnover of the purchaser).

Procedural modifications

The Decree:

a. simplifies the notification procedures. An implementation decree by the President of the Council of Ministries will have to specify simplified fulfilments and procedural terms for cases in which the Office of the Presidency of the Council of Ministries assesses that the exercise of golden powers is not necessary in relation to the notified transaction. In this case, the notifying parties – as well as the public administration – may, in any event, request that the Council of Ministries makes a decision regarding the notification;

b. provides for an implementation decree by the President of the Council of Ministries in order to regulate a pre-notification filing, to receive a preliminary assessment on the applicability of the Golden Power Decree to the transaction, and [to determine] the possibility of obtaining a clearance directly by the Coordination Group established within the Office of the Presidency of the Council of Ministries; and

c. introduces a preference for joint notifications of all the parties involved in a certain transaction (including the target company). If the joint notification is not possible, the purchaser shall inform the target company and the other parties involved in the transaction (providing evidence of the occurred notification) so that they can submit briefs and documents to the Office of Presidency of the Council of Ministers within the following 15 days.

5G Technology and Cloud services

The Decree:

a. extends the scope of Art. 1-bis of the Golden Power Decree, in relation to broadband electronic communications based on 5G technology and cloud services, to additional strategic assets, relationships and technologies in connection with cybersecurity, by virtue of one or more decrees by the President of the Council of Ministers becoming adopted. These activities are classified as “strategic for the national defence and security.”; and

b. provides for a prior notification duty to the Office of the Presidency of the Council of Ministries in the case of the acquisition of goods or services related to the design, realisation, maintenance and management of the relevant activities. Such notification shall include an annual plan (to be updated on a quarterly basis) containing a detailed description – inter alia – of the transaction, the assets and parties involved, the agreements in place and the business plan concerning 5G networks. The annual plan is approved (possibly with prescriptions) or rejected within the following 30 days from the date of notification; and

c. provides for an enforcement of the sanctioning regime. In particular:

1. Should any agreement be executed before the approval of the plan above, the Government may order the subject having the duty to notify to re-instate the previous situation at its own expenses, within a certain term.
2. Failure to notify, or violation of the prescriptions imposed by the Office of the Presidency of the Council of Ministries, may attract sanctions of up to 3% of the turnover of the entity having the duty to notify.
3. Agreements executed in violation of the prescriptions above are null and void. The Government may also order the subject having the duty to notify to re-instate the previous situation at its own expenses, within a certain term. Delays in complying with such an order may also attract sanctions of up to 1/12 of the applicable sanction per month of delay.

Export of critical raw materials

Other provisions concerning foreign transactions include export measures. Until 31 July 2022, Italian companies or companies established in Italy must notify the direct or indirect export of critical raw materials (including ferrous scraps), at least ten days before completing the relevant transaction, to the Ministry of Economic Development and the Ministry of Foreign Affairs. An implementing decree of the President of the Council of Ministries shall identify what type of export transactions involving the supply of raw materials may jeopardise the national interest.

Failure to notify such exports may entail the application of administrative pecuniary fines equal to 30% of the value of the transaction and, in any case, not less than EUR30,000 for each transaction.

Conclusions

By virtue of the Decree, the Government has further expanded its powers in relation to transactions and assets deemed strategic in order to avoid hostile takeovers in light of the critical political and economic scenario that Italy (and the world) is facing. The Government has deeply reconsidered the strategic nature of certain industries and assets and has decided to extend the golden powers in certain sectors (no longer providing as a deadline the conclusion of the pandemic emergency) and in respect of any type of investors (regardless of their nationality).

The Government has tried to simplify the notification procedures and has shown favour towards joint notifications with a view of reducing the amount of filings received by the Office of the Presidency of the Council of Ministries, noting that in the last year the number of notifications received reached 496. Notwithstanding the above, the expansion of the perimeter of assets and transactions falling within the Golden Power Decree is destined to increase the number of such filings for the years to come.