This article has been also published on the EACCNY website on March 8, 2021.
At the end of 2020, important regulatory measures regarding Italian foreign investment control regulations (known as the Golden Powers) were enacted: (i) a revised list and definition of critical and strategic assets in sectors relevant for the purposes of these regulations entered into force with effect from January 14, 2021, and (ii) the COVID-19 emergency rules providing for a temporary broadening of the scope of notification duties (which, among other things, also involve intra-EU transactions) have been extended through June 30, 2021.
Due to (i) the expanded scope of application; (ii) the recent inclusion of new sectors, such as the health, media, and AI/tech sectors, in addition to the traditional ones (defense, energy, and communications); and (iii) a vague definition of relevant assets falling under the foreign investment control rules, foreign investors should carefully assess whether the proposed investments and acquisitions will trigger notification duties and the underlying risk that the Italian government may exercise its powers.
1. Legal background
Since 2012, Italy has adopted foreign investment control regulations establishing the Italian government’s power to veto or impose conditions on acquisitions of, or other corporate transactions involving, Italian targets operating in certain strategic sectors. Although initially the regulations were limited to a very restricted number of areas connected to defense, national security, energy, transportation, and communications, over time the Italian legislator has vastly expanded the perimeter of Italian foreign investment control regulations in terms of both parties/sectors involved and transaction characteristics.
In particular, with the aim of protecting national economy and interests during the COVID-19 pandemic, the Italian government (as pointed out in one of our previous articles on the matter) in April 2020 approved:
- a set of foreign investment control measures aimed specifically at hindering the COVID-19 pandemic (the “Emergency Rules”);
- the extension of notification duties to all sectors indicated in Section 4 of EU Regulation No. 452/2019 (the “EU Regulation”) on a temporary basis (i.e., until the issuance of relevant implementing decrees by the Italian government) (the “Temporary Regime”).
Such rules have been subsequently amended (please refer our previous articles published in June 2020 and in July 2020) and, at the end of 2020, the following further changes/measures have been approved/issued.
2. The extension of emergency rules
The Emergency Rules (which were originally set to expire on December 31, 2020) have been extended until June 30, 2021.
Consequently, for the entire extended term notification duties under foreign control regulations will continue to be mandatory, including with regard to (i) acquisitions of controlling stakes by EU investors and (ii) acquisitions of minority stakes by non-EU investors in Italian companies operating in the strategic sectors of energy, transportation, and communications and in those originally listed in Section 4 of the EU Regulation and now replaced under the newly issued implementing decree (please refer to paragraph 3 below).
However, though the term of effectiveness has been extended, the perimeter of the Emergency Rules seems to have shrunk somewhat: while all other provisions under the Emergency Rules have been extended until June 30, 2021, there is no reference to the rule that allowed the Italian government to exercise veto powers to protect maintenance of employment levels and national productivity in the agri-food and steel sectors; hence, that rule seems to have elapsed on December 31, 2020.
3. A new list of assets and sectors falling under foreign investment control regulations
The second important update is that on December 30, 2020, the Italian government issued two decrees (which entered into force on January 14, 2021) for the purpose of:
• updating the previous list of assets falling under the foreign investment control regulations in the energy, transportation, and communications sectors (Decree No. 180/2020).
• identifying assets and relationships falling under the foreign investment control regulations, which were previously identified under the Temporary Regime by cross-referencing the sectors mentioned under Article 4 of EU Regulation No. 452/2019 (Decree No. 179/2020) and which are the following:
- sensitive data and information;
- electoral infrastructure;
- finance and insurance;
- artificial intelligence and other technologies;
- aerospace infrastructure;
- agri-food and steel;
- dual-use products;
- freedom and pluralism of media.
3.1. Focus: The Health Sector
With specific reference to the health sector, the new list of assets and relationships identified under Decree No. 179/2020 are the following:
a) critical technologies (which, for the purposes of the decree, are defined as technologies that are essential for society, health, safety, economic, and social welfare, and technological progress) for the supply of health services, including provision of services by remote access;
b) critical technologies for the analysis of data and the use of biological know-how for health, diagnostics, prognostics, therapy, and relevant follow-up purposes;
c) critical bioengineering technologies and nanotechnologies used in pharmaceutical and medical devices, diagnostics, and the prognostic and therapy sectors, as well as in the chemical and agri-food sectors;
d) activities of strategic importance carried out in the health sector (including those relating to supply of drugs, medical equipment and devices, and relevant R&D activities) (i) involving the use of the technologies listed above or (ii) by entities with an annual net turnover of at least EUR300,000,000 and an average annual number of employees of at least 250.
The definition of “critical technologies” seems to be extremely broad, and a wide range of technologies used in the health sector could fall under that definition, especially because they refer to areas now widely used by both start-ups and large companies (such as data analysis for diagnostic purposes, the provision of remote health services, and so on).
Furthermore, the materiality threshold (net turnover of at least EUR300,000,000 and an average annual number of employees of at least 250) doesn’t seem to add much clarity. In particular, it seems that:
- transactions involving companies operating in the health sector that meet the materiality criteria should be notified. There is a degree of uncertainty, since the decree doesn’t provide a definition of “health sector”;
- transactions involving companies that use the above listed critical technologies (or that carry out activities of strategic importance in the health sector involving the use of said technologies) but do not meet the materiality threshold should be notified also if the materiality threshold is not met, even if they are emerging companies or small or medium-size companies.
Finally, it should be noted that, compared to the language used under the Temporary Regime (please see our article of June 2020), in the above list there is no specific mention of activities consisting of “production, importation, and wholesale distribution of medical/surgical devices and personal protective devices.” Hence, such activities now seem to fall under the scope of the foreign control regulations only if the materiality criteria mentioned above are met.
Although the purpose of the implementing regulation is to narrow and clarify the scope of foreign investment control legislation, in most cases the new list of assets and the relevant language are still very broad and vague and raise several interpretative doubts. In addition, considering the extension to June 30, 2021 of the emergency regulation that broadens the Golder Powers so that they extend to minority investment by non-EU players and majority investment by EU players in a wide range of sectors, such as health, media, and AI/tech, it would be advisable to carry out assessments on a case-by-case basis to understand whether a transaction should be notified according to foreign investment control regulations, even if said transaction has a low value or involves small or medium-size companies, including emerging companies that have developed critical technology. We expect, in fact, that for the sake of being prudent, as in the past, it will remain advisable to perform prior notification for a number of dubious situations, also considering the extension of the notification duties regarding intra-EU transactions.
 Article 10-ter of Law No. 176 of December 18, 2020.
 For a more detailed analysis of the Emergency Rules in the context of foreign control investment regulation please refer to our April 2020 article.
 Decree of the Prime Minister No. 179/2020 and Decree of the Prime Minister No. 180/2020.
 That list was contained in Presidential Decree No. 85/2014.
 That list was previously identified under the Temporary Regime by cross-referencing sectors mentioned under Article 4 of EU Regulation No. 452/2019.