Court of Justice Sets Lightning Rod for EU Foreign Direct Investment Screening

On 13 July 2023, the Court of Justice of the European Union (CJEU) handed down its first ruling on the European Union Foreign Direct Investment Screening Regulation, which entered into force in October 2020. In short, the CJEU clarified in Xella Magyarország that the regulation does not apply to acquisitions by EU-based buyers, regardless of whether they are ultimately controlled by non-EU shareholders. Cross-border acquisitions by EU-based buyers are subject to EU law on the freedom of establishment. While EU Member States are free to decide – and pursue in investment screening – their own public policy and public security goals, investment screening measures cannot restrict fundamental EU freedoms unless the measures are justified by a genuine and sufficiently serious threat to a fundamental interest of society. No such threat existed in the case before the CJEU. The judgment has important implications for companies, EU Member States, EU Institutions and especially the European Commission (EC).

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