Foreign investment regime
As a general rule, investments in Italian companies active in the fields of defence and national security (including, more recently, broadband electronic communication services based on 5G technologies), energy, transport, communications, or high-tech are subject to a prior review procedure, as a result of which the government may exercise certain special powers that, depending on the target, may be more or less stringent.
The Law identifies the general categories of assets and activities with respect to which the government may exercise its special powers; however, it is for the government to determine periodically, in detail, which assets are subject to the investment regime set forth in the Law. The following are the categories of assets and activities contemplated by the Law:
- activities deemed strategic for the defence and national security system (strategic security activities);
- networks, plants, assets and relationships deemed strategic for the national interest in the fields of energy, transportation and communications (strategic assets); and
- assets in the high-tech sector in respect of which there could be a danger to security and public policy (high-tech assets).
The government may exercise its special powers under the Law exclusively with respect to companies performing any strategic security activities or holding any strategic or high-tech assets.
Accordingly, in principle, foreign investments in any other sector are not subject to any further general limitation or prior review apart from the general reciprocity rules (see Section II.v) and any applicable antitrust clearance. However, certain sector-specific regulatory authorisations may be necessary (see Section II.vi).i Defence and national security
The review procedure and the government's special powers relating to investments in a company performing a strategic security activity are particularly strict and apply to investments made by any person, regardless of nationality (including EEA persons or entities).
Strategic security activities, currently identified by Prime Ministerial Decree No. 108 of 6 June 2014 (the 2014 Decree), include activities falling within the remit of the Ministry of Defence and the Ministry of Interior.
With respect to companies performing any such strategic security activity (or holding any such asset), in the event of a threat of serious prejudice to fundamental interests of national defence or security, the government may:
- impose specific conditions (relating to the security of procurement and information, the transfer of technologies and export controls) on the purchase of an interest in any such company;
- veto the purchase by any person (whether directly or indirectly, individually or jointly), other than the Italian state or state-controlled entities, of an interest in the voting share capital of any such company that, given its size, may jeopardise defence or national security interests; or
- veto the adoption of resolutions by the company's shareholders or board of directors relating to certain extraordinary transactions (such as merger, demerger, asset disposal, winding up and amendments concerning the corporate purpose or equity ownership caps in the by-laws of certain state-controlled companies, or relating to the transfer of ownership or other rights on assets or the creation of encumbrances on assets).
As mentioned above, growing concerns on national security related to the introduction and utilisation of 5G technologies have resulted globally in an enhanced scrutiny of the governments on foreign investments (and alleged interference) in this crucial field. In the wake of this international trend, on 25 March 2019 the Italian government adopted Decree Law No. 22 (which Parliament ratified with amendments through Law No. 41 of 20 May 2019; the First 2019 Decree), which expanded the scope of the Law to include broadband electronic communication services based on 5G technologies among the strategic security activities in the fields of defence and national security. Subsequently, on 11 July 2019, the government also adopted Decree Law No. 64 (the Second 2019 Decree and, together with the First 2019 Decree, the 2019 Decrees), which further amended the Law to, among other things, enhance the procedural rules applicable to foreign investments in 5G technologies.
In particular, pursuant to the amendments introduced by the 2019 Decrees, the Law now requires any Italian company acquiring 5G-based assets or services to notify the government about the execution of agreements with non-EEA entities concerning:
- the purchase of assets or services regarding the design, manufacturing, maintenance and management of networks relating to broadband electronic communication services based on 5G technologies; and
- the purchase of high-tech components instrumental to the building or operation of networks relating to broadband electronic communication services based on 5G technologies.
In particular, in the event of a threat of serious prejudice to the fundamental interests of national defence or security, the Italian government may veto, or impose specific conditions to, the signing and performance of such agreements, substantially as provided with respect to foreign investments in strategic assets in the fields of defence and national security (of which, as mentioned, 5G technologies are deemed part). The government may also order the parties to the agreement, at their expenses, to reinstate the situation preceding the entry into and performance of the agreement.
As noted above, pursuant to the amendments brought about by the 2019 Decrees, the government may exercise its special powers only in relation to agreements entered into with non-EEA entities. This is a significant departure from the general rule applicable to the fields of defence and national security, where instead the government may exercise its powers regardless of the nationality of the investor.
As regards the notion of 'non-EEA entity', the Law already set forth a specific definition, although this applied only to investments regarding the energy, transport and communication sectors (Section II.iii). The original definition, however, was always deemed not entirely clear and the government has used the 2019 Decrees to introduce a new definition of 'non-EEA entity'. In particular:
- The original definition covered any individual or entity that is not resident or domiciled and does not have its registered office, headquarters or centre of main interest in any Member State of the European Economic Area, nor is it established therein. Based on this definition, it was unclear whether the government could consider also the ultimate parent company or should limit its review to the entity making the investment.
- By contrast, the definition introduced by the 2019 Decrees expressly extends the status of 'non-EEA entity' to: (1) any entity whose registered office, headquarters or centre of main interest is in a Member State of the European Economic Area or however is established therein but is controlled, directly or indirectly, by any individual or entity that is not resident or domiciled or does not have its registered office, headquarters or centre of main interest in any Member State of the European Economic Area, nor is it established therein; and (2) any individual or entity that is resident or domiciled, or has its registered office, headquarters or centre of main interest in a Member State of the European Economic Area, or however is established therein, for the purpose of circumventing the application of the Law.
This new definition also applies to investments in the fields of energy, transport and communications.iii Energy, transport and communications
The investment regime relating to strategic assets in these fields is less burdensome than that applicable to defence and national security. Not only is the scope of the government's special powers more limited and subject to more significant conditions, but, according to the Law, the overall regime applies only to investments made by non-EEA persons.
The government identified these strategic assets by means of Prime Ministerial Decree No. 85 of 25 March 2014 (the 2014 Regulation). This Regulation identifies certain energy, transport and communications infrastructures (such as the national electricity grid, the telecommunications fixed-line and gas transport networks), but not the relevant service providers (i.e., those entities authorised to provide the related services).
Transactions relating to a strategic asset are subject to prior review by the government, which as a result may:
- veto any resolution or transaction by a company holding any strategic asset that would result in a change of ownership or control of the asset, provided that the change of ownership or control could cause an exceptional situation whereby the public interest relating to the safety and operation of any strategic asset could be materially jeopardised, and the exceptional situation is not addressed by any relevant domestic or European legal provision; and
- make the purchase by any non-EEA person of a controlling interest (whether individually or jointly) in a company holding any strategic asset conditional upon the investor undertaking certain commitments aimed at protecting the above-mentioned public interests. The government may even veto such transactions in the event that the acquisition raises an exceptional threat of a material prejudice to the public interests (which cannot be addressed by commitments undertaken by the investor).
Based on government regulation No. 86 dated 25 March 2014, which governs the review process in the fields of energy, transport and communications (the Review Regulation), the government could exercise its special powers under point (a) above (i.e., in respect of a relevant resolution adopted or a transaction carried out by an Italian company holding a strategic asset) regardless of the nationality of the investor, provided that the resolution or transaction results in a change of ownership or control of the strategic asset. By contrast, an investment consisting of the acquisition of a controlling interest in the share capital of the company holding the strategic asset would be subject to the government's special powers only when the investor is a non-EEA person.
However, the Review Regulation would appear not to be consistent with the overall regime applicable to the field of energy, transport and communications – where the government's intervention must be more limited in light of EU law principles – and would unreasonably discriminate against an investor acquiring ownership or control of a strategic asset through a corporate resolution of the target company or a transaction carried out by an Italian company, as opposed to an investor acquiring a controlling equity interest in a company owning a strategic asset. Not surprisingly, the exercise of the government's special powers in the context of the Vivendi/TIM case (see Section VII.iii) is currently being litigated in court on the basis of this discrepancy.
Similarly, the practice followed by investors (and the government) to date suggests that notification of the relevant transactions or resolutions in the fields of energy, transport and communications has often been made even if the investor did not qualify as a non-EEA entity. The reason for this approach perhaps may be explained by the noted inconsistency between the Law and the Review Regulation, which may have led the investors or the corporate bodies of the relevant companies to take a more cautious approach and proceed with the notification even if either the letter of the Law or the principles of EU law would justify avoiding notification.iv High-tech
In 2017, the government adopted Decree Law No. 148 of 16 October 2017, which Parliament ratified and amended through Law No. 172 of 4 December 2017 (the 2017 Decree), which has expanded the scope of the Law to include certain categories of high-tech assets. In particular, the 2017 Decree identified the following sectors:
- critical or sensitive infrastructures, including data storage and management and financial infrastructures;
- critical technologies, including artificial intelligence, robotics, semiconductors, technologies with potential dual-use applications, web security and space or nuclear technologies;
- security of critical input procurement; and
- access to, or ability to control, sensitive information.
As for the strategic security activities and strategic assets, in order for the government to exercise its special powers it would first need to identify the specific assets and activities falling within the mentioned categories, to the extent that the assets are exposed to a threat to security and public policy. The identification must be made through a government regulation that has not yet been adopted; accordingly, the government cannot yet exercise its special powers with respect to high-tech assets. Once the relevant high-tech assets are identified, the government's special powers in this field will be subject to the same provisions, conditions and limitations outlined above with respect to strategic assets in the fields of energy, transport and communications (see Section II.iii).v Reciprocity
Pursuant to a general principle of Italian law, foreign persons (whether individuals or entities) are allowed to exercise any civil law right exclusively insofar as the reciprocity principle is complied with. In other words, in the event that an Italian citizen is prevented from exercising a specific right in the country of origin of the relevant foreign person, Italian law in turn prevents that foreign person from exercising the same right in Italy. Although the scope of this principle is very wide, in the context of foreign investments it seems to have been applied, in practice, exclusively to the purchase of real estate or the incorporation of a company, but not to the acquisition of an equity interest in an existing company.
The reciprocity principle is specifically restated in the Law, resulting in a significant limitation of the scope of the government's powers: the purchase by a non-EEA person of an interest in a company exercising any strategic security activity or holding any strategic asset is permitted exclusively on the basis of reciprocity conditions. This implies that, in the event that the government ascertains that there is a lack of reciprocity between Italy and the country of origin of the prospective investor, implementation of the transaction may not be permitted, regardless of any further consideration (including the economic desirability of the foreign investment and the absence of any significant prejudice to strategic interests). This provision can be contrasted with Article 25, Paragraph 2 of the Italian Antitrust Act, pursuant to which the Prime Minister, on grounds of essential national economic importance, may veto any concentration transaction notified to the Antitrust Authority by a company from a country that does not protect the independence of companies through legal provisions equivalent to the Italian Antitrust Act, or applies discriminatory rules or imposes conditions resulting in the same effects on acquisitions by Italian investors.
Finally, a reciprocity principle also applies to takeover bids on Italian companies whose voting shares are listed on an Italian regulated exchange. Generally, the passivity rule and breakthrough rule apply to prevent pre-bid or post-bid defences from undermining the success of a tender offer. However, in the event that the bidder would not be subject to equivalent limitations, the target company (or its shareholders) may apply the relevant defences. In other words, should the foreign bidder, in its capacity as target of a tender offer, be permitted by its domestic law to frustrate a tender offer, the Italian target (or its shareholders) may apply any pre-bid or post-bid defence provided under the target's by-laws or shareholders' agreements.vi Sector-specific authorisations
As previously mentioned, depending on the investment target, foreign investments may be subject to specific additional review or authorisation processes conducted by sector-specific regulators.
The sectors in which such authorisations may be required include:
- banking, insurance and investment services;
- gas networks; and
- electricity networks.
Moreover, in certain fields the law sets limits on the acquisition of controlling interests by non-EU persons (for instance, as regards airline companies and television broadcasters).