EU Commission calls on Member States to evaluate outbound investments

The Commission considers these three technology areas to be of strategic importance and the highest risk to the EU’s economic security. The study will cover both ongoing and past transactions and Member States have been given a period of 15 months to complete their evaluations.  EU investors who have engaged in outbound investments since 2021 should be prepared to receive questions about their transactions.

The Commission’s recommendation builds on the EU’s White Paper on Outbound Investments, published in January 2024, and subsequent public consultation, which confirmed the need to assess potential risks to the EU's security related to outbound investments. The Commission is concerned that when EU companies invest in non-EU countries, sensitive technologies and know-how could end up in the wrong hands and could be used to strengthen military and intelligence capabilities risking EU security. The outcome of the evaluation exercise will inform a decision on whether further action is required, at EU and/or national levels, to address any identified risks; the recommendation itself does not provide a basis for the Commission and/or the Member States to take any action in relation to transactions that may be identified as being a risk to the EU’s security. There is still a long way to go before the EU may introduce an outbound investment regime akin to those that already exist in China, Japan and the US.

What is the scope of the evaluation exercise?

Scope of technologies

In October 2023, the Commission identified ten technology areas for further risk assessment with Member States in its recommendation on critical technology areas. However, as Member States do not systematically gather data on individual outbound investment transactions and do not review such investments in a way that could allow the identification or assessment of security risks, the evaluation exercise has been limited to three technologies - semiconductors, AI and quantum technologies – to reduce the administrative burden on Member States. These areas are similar to the sectors covered under President Biden’s Executive Order on restricting outbound investments from the US to certain countries of concern, issued in August 2023. 

Scope of transactions

The types of transactions covered by the evaluation exercise are broad and cover acquisitions, mergers, asset transfers (both tangible and intangible), greenfield investments, joint ventures and venture capital. Indirect investments made through third-country entities used as investment vehicles or existing subsidiaries are also included, as well as gradual asset transfers made during the relevant period and investments aimed at circumventing security-related trade and investment controls. However, non-controlling investments aimed solely at financial returns are excluded.

The evaluation exercise will cover new and ongoing transactions, and transactions completed since 1 January 2021. It may, however, also cover activities prior to that date if Member States identify transactions of particular concern.

Geographic coverage

The recommendation states that the geographic coverage of the review should be ‘country-neutral’. However, Member States can prioritise their review activities based on the risk profiles of individual countries in coordination with other Member States and the Commission. They can, for example, consider the past behaviour of the country concerned, including any violations of the UN Charter.

Next steps

Member States are expected to establish an adequate system to evaluate outbound investments which fall within the scope of the recommendation. This could result in Member States sending EU investors and companies voluntary or mandatory information requests for information on their transactions covering:

Parties Involved: Details of the parties to the transaction, including their place of incorporation, ultimate owners and country of origin.

Investment Details: Type and approximate value of the investment, including equity stake, voting, and decision-making rights.

Products and Technologies: Information on the products, services and technologies involved in the investment.

Contractual Arrangements: Details of any research and development contracts, intellectual property licensing and key personnel movement.

Completion Date: The planned or actual completion date of the investment.

Previous Transactions: Information on previous and announced transactions by the parties involved.

Public Funding: Information on public funding provided to the investing entity by the EU or a Member State related to the relevant technology areas.

For each transaction under review, Member States, with the support of the Commission, will conduct a risk assessment to identify risks to economic security identifying risks and vulnerabilities, particularly regarding technology leakage and any geopolitical factors, such as historical patterns of technology acquisition. Factors they will consider include: the context of the transaction; the maturity level of the technology; the availability of the technology in the target country; the value chain and supply chain of the technology; the evolution of risks and technological developments; global interconnectivity of the technology ecosystem, including research activities, and participation in EU projects or programs, if relevant.

The Commission expects Member States to provide it with an update on the progress of their work by 15 July 2025, and to submit a comprehensive report to the Commission and other Member States on the outcome of their evaluation  and risk assessment by 30 June 2026.

Comment

The Commission's recommendation for Member States to evaluate outbound investments marks a significant next step, following the EU’s Foreign Direct Investment Regulation, towards safeguarding the EU's economic security in an increasingly complex global landscape. By focusing on critical technologies such as semiconductors, AI and quantum technologies, the Commission aims to identify risks associated with technology leakage and geopolitical threats. Businesses active in these sectors should proactively prepare for potential requests from Member States. Depending on the Member States’ participation and outcome of the evaluation exercise, the Commission will decide whether further action is needed to protect the EU against outbound investment risks in these areas.

Further reading

European Commission reinforces FDI screening regulation

M&A Report 2024 - Navigating a complex global regulatory environment to deliver successful transactions

The long-awaited US outbound investment program – what’s proposed and what’s the scope and effect