How are "special financial agreements" defined in the Investment Screening Act?

As envisaged when the Investment Screening Act was passed, the Danish Business Authority will issue executive orders to clarify the specific scope of the Act. The draft Application Order which has just been circulated for consultation contains several provisions intended to define which "special financial agreements" with non-EU/EFTA-based investors are subject to authorisation under the new Act.

Special financial agreements

"Special financial agreements" entered into between non-EU/EFTA-based investors and Danish companies may be subject to the either the mandatory sectoral authorisation regime or the voluntary notification regime, if the Danish company does not operate in a particularly sensitive sector. The Act defines special financial agreements as joint ventures or operating, supply or service agreements whereby the foreign investor gains control or significant influence over the Danish business. Part 5 in the Application Order seeks to define the special financial agreements in more detail as follows:

Rules proposed in Part 5 of the Application Order on special financial agreements
Provision in the Application Order	S. 12	S. 13	S. 14	S. 15	S. 16	S. 17
Nature of the rule	Specification of joint venture agreements	Specification of supply agreements	Specification of operating and service agreements	Exemption for commonly used standard agreements	Exemption for special financial agreements between consolidated enterprises	Exemption for special financial agreements with newly established businesses

Joint venture agreements

According to the Application Order, joint venture agreements are subject to the Act only if they involve R&D activities and only if an investor based in a non-EU/EFTA country gains "control or significant influence over the Danish business". It is proposed to qualify the required degree of control to include agreements involving "a significant part of the R&D activities" and to make it a condition that the agreement includes one of the following terms:

a) The foreign investor can decide to launch the relevant R&D activities.
b) The foreign investor can veto decisions to launch the relevant R&D activities.
c) The foreign investor is guaranteed the same influence over R&D decisions as the Danish business.
d) The foreign investor can decide to expand a joint venture to include other areas than initially agreed.
e) The foreign investor is guaranteed a right to exploit the results of the R&D activities.

The proposed qualification of joint venture agreements clarifies the scope, making it clear that only R&D joint ventures will fall within the Act and only if they include one of the above terms.

Supply agreements

It is proposed in the Application Order to make supply agreements subject to screening only if the non-EU/EFTA-based supplier is to deliver "raw materials, products, plant or semi-manufacture and components, including software" to a Danish company, thereby gaining control or significant influence over the Danish company. It is further stated that the non-EU/EFTA-based supplier will gain such influence only if the supply agreement covers "all or a significant part of the activities in the Danish company" and if:

a) The supply agreement is entered into for a period of more than 24 months or is non-terminable for a period of more than 12 months.
b) The supply agreement provides a right for the foreign investor to decide on the use of the raw materials, products, plan or semi-manufacture and components, including software, or unsupervised access to the relevant buildings, facilities, installations or systems of a business or entity under section 3(1) and (3)(2).
c) The foreign supplier is not easily replaceable.

The proposed qualification of supply agreements contributes - like the proposed qualification of joint venture agreements - to clarifying the scope of the Investment Screening Act.

Operating and service agreements

In line with the above qualifications, it is proposed to make operating and service agreements subject to the Investment Screening Act only if the foreign operator will be "responsible for running or maintaining buildings, facilities, installations or systems" in a Danish company or will "make such buildings, facilities, installations or systems available" to the Danish company, and the non-EU/EFTA-based operator thereby gains control or significant influence over the Danish company. For this purpose, the non-EU/EFTA-based operator is deemed to gain such control only if the buildings etc. covered by the agreement "are related to all or a significant part of the activities of the Danish company", and one of the following requirements is met:

a) The operating and service agreement is entered into for a period of more than 24 months or is non-terminable for a period of more than 12 months.
b) The agreement gives the foreign investor control of the use of, or unsupervised access to, the relevant buildings, facilities, installations or systems of a business or entity under section 3(1) and (3)(2).
c) The foreign supplier is not easily replaceable.

Exemption for certain special financial agreements

It is proposed to exempt all "commonly used standard agreements", whether they are joint venture agreements, supply agreements or operating and service agreements, from the Investment Screening Act. The Business Authority will publish a list on its website, specifying which agreements will be considered as "commonly used standard agreements" and, as such, exempt from the Act.

It is also proposed to exempt agreements between consolidated companies (as defined in International Accounting Standard (IAS) 27). It should be noted that only special financial agreements entered into with non-EU/EFTA-based companies will fall within the Investment Screening Act. Therefore, the only effect of the proposal is that intercompany agreements between a Danish company and e.g. a parent company based in a non-EU/EFTA country will also be exempt. If, for instance, a Danish subsidiary enters into an agreement for supply of raw materials with its Japanese parent company, which thereby gains control or significant influence over the subsidiary, then the agreement will not be notifiable.

As a last exemption, it is proposed in the Application Order to exempt all types of special financial agreements entered into with newly established businesses from the Act.

Consultation period

In addition to the Application Order, the Ministry of Industry, Business and Financial Affairs has also circulated a draft "order on procedures, etc. in connection with application for authorisation for or notification of certain foreign direct investments or special financial agreements in Denmark" (the Procedural Order) and a draft "order on disclosure of confidential information on certain foreign direct investments, etc. in Denmark to other authorities" (the Confidentiality Order) for consultation.

The deadline for commenting on the three draft orders is 15 June 2021.