Published on 8 September 2022, the French Guidelines on the Control of Foreign Investment in France sadly are an unfinished work.  While investors could hope to rely on these Guidelines to easily determine whether the activity object of their future investment is eligible for the control of foreign investments in France, it is not since the Guidelines deal with the question in a synthetic way, not to say obscure.

1. The awaited French Guidelines relating to the Control of Foreign Investments in France were published by the French General Directorate of the Treasury on 8 September 2022.  This document was drafted following a public consultation in which the author of this communication participated through the ad hoc working group set up by the Association Française d’Etude de la Concurrence.  With it, the French General Directorate of the Treasury intends to “continue […] the dynamic towards greater transparency and predictability of the control of foreign investments in France” (press release of the French General Directorate of the Treasury of 8 September 2022, Publication of the French Guidelines relating to the Control of Foreign Investments in France).

2. The control of foreign investments in France results from Articles L. 151-1 and R. 151-1 of the French Monetary and Financial Code (Code monétaire et financier) as well as from the Order (arrêté) of 31 December 2019 relating to foreign investments in France.  These provisions provide that certain types of direct investment by investors qualified as “foreign” in certain industries considered to be “sensitive” may only be carried out once authorized, possibly subject to conditions, by the French Minister in charge of economic affairs.

3. Three of the developments in the Guidelines relating to the Control of Foreign Investments in France stand out from the others.

4. Firstly, these Guidelines confirm that the establishment of entities in France by a foreign investor to develop a new activity, known as a “greenfield” investment or project, does fall within the scope of application of the control of foreign investments in France.  On the other hand, investments made subsequently by these new entities could be subject to this control.

5. Secondly, said Guidelines repeat the practice developed by the French Minister for economic affairs according to which when an investment is made by an entity within a chain of control, each member of this chain is an investor within the meaning of the control of foreign investments in France.  Therefore, if one of them is foreign, the investment is eligible for the control.

6. Consequently, a planned investment in France by a French investor ultimately controlled by a natural person of French nationality domiciled on the French territory or a legal person governed by French law could fall within the scope of application of the control of foreign investments in France on the grounds that the one of the entities in the chain of control is foreign.  Therefore, the arrangements selected for an investment in France by a French individual or group, for tax optimization purposes, must be developed considering this administrative constraint.

7. Thirdly and lastly, the provisions of the Guidelines relating to the Control of Foreign Investments in France on sensitive activities falling under the control of foreign investments are unsatisfactory.  While 31 activities are classified as such by Article R. 151-3 of the French Monetary and Financial Code as well as the Order of 31 December 2019 relating to foreign investments in France, these Guidelines deal with the question in… 2 pages.

8. In addition, the Guidelines specify that an activity may be eligible for foreign investment control in France because qualified as sensitive in three respects:

(i) objective eligibility: the activity is eligible by nature because it corresponds to the activities set out in Article R. 151-3(I) of the French Monetary and Financial Code;

(ii) eligibility established on the basis of a set of factors: to determine whether it corresponds to one of the activities referred to in Article R. 151-3(II) of the French Monetary and Financial Code, the activity is subject to a “sensitivity test” to demonstrate its sensitivity, which includes several factors, including the target’s clients, the nature, specificity and applications of the products and/or services provided and the know-how , the substitutability of activities or their dangerousness;

(iii) eligibility relating to research and development activities: mentioned in Article R. 151-3(III) of the French Monetary and Financial Code and in the Order of 31 December 2019 relating to foreign investments in France, these activities relating to critical technologies or dual-use goods and technologies fall within the scope of foreign investment control when they are likely to be used in one of the activities mentioned in (i) and (ii) above; the idea is to target research and development activities at an early stage, i.e. before the industrialization phase, on the basis of future and possible applications of these activities.

9. An explanation of the provisions of Article R. 151-3 of the French Monetary and Financial Code as well as the Order of 31 December 2019 relating to foreign investments in France, activity by activity, making it possible to understand from when an activity is considered sensitive and becomes eligible for control would have been more appreciable to respond to the dynamic of predictability touted when said Guidelines were published.  Due to the refusal of the French General Directorate of the Treasury to publish a non-confidential version of the Decisions of the French Minister for economic affairs regarding the control of foreign investments in France, investors cannot even refer to the decisional practice to determine whether the activity concerned is eligible.

Jérémy BERNARD

Partner - Competition law
Attorney at the Paris Bar, Jérémy Bernard is a partner of Delcade Avocats & Solicitors.

He has developed a practice covering EU and French competition and distribution law as well as the regulation of liberalized sectors, litigation and arbitration.

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