Foreign Direct Investment Regime in The Netherlands - Further clarification on the scope of sensitive technology

In our previous article we discussed the object and scope of the Investments, Mergers and Acquisitions Security Test Act (WetVeiligheidstoets investeringen, fusies en overnames, Security Test Act). With this legislation (which has not yet entered into force), the Dutch legislator intends to make investments in certain sectors or industries subject to governmental screening. One of the crucial terms of the Security Test Act is the term “sensitive technology”.

The Security Test Act defines sensitive technology as

1. dual-use products as included in inter alia the Wassenaar Arrangement and
2. military products as referred in the EU Common Military List.

Further categories or exceptions of sensitive technology can be determined by means of (governmental) decrees.

In November 2022, the draft Decree on the Scope of Application of Sensitive Technology (Decree) has been filed by the Dutch Minister of Economic Affairs and Climate. In this article we will deepen on what should be understood under sensitive technology following the draft Decree and what the impact is on the screening system with the Bureau for Investment Screening (Bureau Toetsing Investeringen, BTI).

Scope of sensitive technology
The Security Test Act specifies which criteria are relevant to determine whether the relevant technology should be designated as sensitive technology. A technology is “sensitive” if it meets one or more of the following criteria:

• the technology is essential for the purposes of defense, investigation, intelligence and security services;
• the availability and presence of the technology are nationally essential in order to avoid the risks of losing essential products or facilities; or
• the technology is broadly applicable to various vital processes or processes affecting the national security.

In addition to the above criteria which stem from the Security Test Act, by means of the Decree, the Dutch Minister of Economic Affairs and Climate proposes to define the following four categories of technologies as “sensitive technology”:
 

• Quantum technology - makes it possible to calculate, communicate and measure in new ways. Because of quantum technologies, computers are able to perform many processes simultaneously. This category of technology also includes quantum computing, quantum communication and quantum sensing;
• Photonics technology - focuses on the generation, transport and detection of light waves and light particles. The technology is used in many “high tech” products and in specific military products including night-vision goggles;
• Semiconductor technology - develops and manufactures integrated circuits, microchips and/or computer chips. Semiconductor technology includes companies with specific expertise in manufacture, industrial machinery and design software in relation to chips;
• High Assurance technology - security products to protect the confidentiality, integrity and availability of sensitive information of the Dutch government. High Assurance products focus on information protection following the highest security standards in order to resist attacks from third states and other advanced persistent threats (APTs).

Scope of highly sensitive technology
The Decree further specifies when sensitive technology shall be considered as ‘highly sensitive’. The following criteria need to be taken into account:

• to what extent the entire technology industry depends on the sensitive technology;
• how unique the sensitive technology is and how difficult it is to reproduce the sensitive technology;
• the extent for which the sensitive technology is directly applicable to military or security purposes;
• the existence of international standards with respect to protection of the sensitive technology;
• to what extent the technology is secured.

The Decree includes a list of highly sensitive technology products, e.g. the new four categories (see above), cryptanalytic systems (hacking), velocity interferometers (laser reflection) and nuclear technology.

Reporting obligation
In the event that vital providers, sensitive technology companies and managers of corporate campuses (enterprises which manage terrains with companies being active in public-private technological cooperation and having economic and strategic importance to The Netherlands) are involved in either i) acquisition of control in target company, ii) merger between companies, iii) joint venture or iv) acquisition of essential assets, the parties involved are obliged to report the related transaction to the BTI.

In case of highly sensitive technologies, the notification to the BTI is required to occur if ‘significant influence’ will be obtained. Significant influence is presumed in case of an acquisition or increase to 10% of the voting rights in relation to the general meeting of the target company. Transactions leading to a further increase to either 20% or 25% in the voting rights of the target company’s general meeting also requires mandatory reporting to the BTI.

Conclusion
Although the Decree still requires approval by the Dutch parliament, it is useful to have a better understanding of what technology could in the future be considered as sensitive technology in FDI in particular when entering into new Corporate M&A deals in The Netherlands. The expectation is that both the Security Test Act and the Decree will come into effect as per July 2023.

If you have any questions regarding the sensitive technology as included in the Decree and the Security Test Act, please contact Friederike Henke, Susanna Tang or another BUREN corporate specialists.