Germany’s draft Investment Screening Act: Implications for cross-border transactions explained

A key area of changes deals with the question of what level of influence on German companies is significant enough to become notifiable – including a readjustment of voting rights thresholds, and expansions of the catch-all concepts of “atypical influence” and circumvention. Another change affects all situations in which a company holds shares on account of someone else. These changes are intended to close alleged “gaps” in the Ministry’s screening net.

Tailored voting thresholds

Standard initial screening triggers remain at 10% (for defence and critical infrastructure) and 25% (for other sensitive sectors). Subsequent acquisitions will trigger reviews at 50%, 75%, and a new 100% threshold, which captures full buyouts from existing majority control. The intermediate 20% and 40% thresholds will be abolished. This removes unnecessary regulatory friction and simplifies incremental stake-building in private companies. For publicly traded companies, the draft introduces dedicated thresholds of 15% and 30%. The 30% threshold is inspired by German takeover law and the 15% threshold captures anchor stakes that often confer de facto influence due to low attendance at annual general meetings. Furthermore, the Ministry is empowered to establish, by statutory ordinance, differing or additional screening thresholds.

The draft also introduces a new 100% threshold. This is unprecedented; under current law, the highest statutory threshold is 75%. This provision would be applicable to all companies, not just listed companies. From a corporate governance and security perspective, this new threshold appears to make little sense. Once an investor holds 75% of the voting rights, any blocking minority under German corporate law is already eliminated. The shareholder already exercises complete strategic control. For listed companies with an initial 15% threshold, an 85% threshold would mirror the loss of a 15% blocking stake. Pushing the threshold all the way to 100%, however, appears to lack substantive justification. Instead, it creates an unnecessary regulatory hurdle for routine corporate clean-ups, minority buyouts, and statutory squeeze-outs where no additional control is gained.

Atypical influence decoupled from voting stakes

Atypical influence is a concept that allows the Ministry to treat board seats, veto rights, or information rights like voting shares if they grant comparable influence.

The draft sensibly renames ‘atypical control’ to ‘atypical influence’, appropriately reflecting that these cases by no means involve an acquisition of corporate control. The current test requires the acquisition of at least some voting rights alongside additional influence. The draft expands this so that securing board seats, strategic veto rights, or sensitive information access can trigger review even without acquiring any voting rights. In the view of the Ministry this closes a loophole which, according to the Ministry, was previously used to avoid review. But by triggering screening without any share purchase, the draft removes investment control from the M&A process. Instead of screening transactions, it effectively creates a permanent, ongoing review of routine corporate governance.

Asset deals and IP licensing

The Draft IPG clarifies the perimeter of covered asset transactions, confirming that the acquisition of essential business assets “in whole or in substantial part” or significant domestic real estate triggers review. 

Crucially for the tech sector, the draft refrains from introducing a general, standalone screening trigger for licence agreements. Commercial licences will not be caught. Licensing arrangements will only face screening if the licensed intellectual property constitutes the target’s essential operational assets or if the structure serves to circumvent the rules.

Expansive ‘object or effect’ anti-circumvention rule 

The anti-circumvention rule has long been a key priority for the Ministry, which has grown increasingly frustrated with deal structures designed to sit just below statutory thresholds for purported tax or commercial reasons. While the Ministry previously had to prove that parties acted with a deliberate intent to evade investment screening, the Draft IPG now introduces an objective “object and effect test”. Going forward, the Ministry will no longer need to demonstrate that the parties acted with the deliberate intent to avoid review; it will be sufficient that the transaction structure objectively results in evading review. 

Read literally, the new provision could have an extremely broad scope of application as many – completely legitimate transaction structures – could have as their “effect” that German investment screening law is not applicable. The draft offers little guidance on where the line will be drawn. Although the Ministry drew inspiration from European antitrust law, competition case law will be of limited help in practice, as the standard is applied here in an entirely different context. 

Transactions most likely to attract scrutiny under this rule include the divergence of capital and voting rights and synthetic control structures. Dealmakers can no longer take comfort simply from staying under the percentage triggers if the deal effectively bypasses screening in practice.

Holding voting rights “on account” of someone else

Under the draft IPG, the investment screening regime would also cover situations in which a person holds voting rights “on account” of someone else. According to the draft’s explanatory memorandum, voting rights are attributed to whoever bears the “economic risk” of the investment, presuming that economic exposure translates into actual voting influence. The memorandum explicitly confirms that this covers both trustee arrangements and fund structures. Phrased so broadly, this may trigger mandatory filings for passive financial capital, which should not be in the Ministry’s own interest. Beyond these expressly cited examples, the exact scope of this provision is not clear in practice It remains open how this rule will be applied to capital market instruments such as depositary receipts, total return swaps, or synthetic equity, where investors bear economic risk without holding governance or voting rights.