On 13 July 2023, in Case C-106/22, the European Court of Justice (ECJ) delivered its decision in relation to a preliminary reference submitted by the Budapest High Court.

In the context of companies that often have a cross-border ownership structure extending outside of the EU, the ECJ concluded that the fact that a parent company registered in a third country has a majority control over an EU-based investor does not mean that the EU FDI Screening Regulation (EU FDI Regulation) applies.

Amid growing criticism of foreign investment regimes in the EU, the ECJ also confirmed that national screening mechanisms must also respect EU internal market rules, in this case the right of establishment.

The current decision can therefore be seen as a helpful judgment in understanding the application of the EU FDI Regulation and for companies in the EU already feeling negatively affected by the proliferation of differing national foreign investment regimes in the EU and ever-increasing scope and discretion under national legislation.


This judgment relates to the acquisition of “Janes és Társa” Szállítmányozó, Kereskedelmi és Vendéglátó” (Janes), a Hungarian company that owns a quarry in Lázi (Hungary), by, Xella Magyarország Építőanyagipari Kft. (Xella), a Hungarian concrete-production company (which is owned indirectly by a parent company established in Bermuda). On 29 October 2020, Xella concluded a sales agreement for the purpose of acquiring 100% of Janes’ shares, which was, however, prohibited on 30 December 2020 under the Hungarian FDI law on the grounds of “national interest” as described in the legislation.

In particular, the Hungarian Government considered that the future indirect ownership of Janes with a market share of 20.77% of supply of raw materials in the region by a parent company established in Bermuda would pose a longer-term risk to the security of supply of raw materials to the construction sector, particularly in the region where Janes is located. In addition, the acquisition of a strategic company by a foreign owner would reduce the proportion of domestic-owned companies, which could be detrimental to the ‘national interest’ in the broad sense.

Xella challenged the decision before the Budapest High Court, and argued that the prohibition was arbitrary discrimination or a disguised restriction on the free movement of capital as established under EU law. It argued that the only reason the acquisition was prohibited was the “non-national” nature of its ownership structure. Xella also argued that the lack of clarity in the concept of ‘national interest’ could violate the fundamental principle of the rule of law.

Decision of the ECJ (13 July 2023)

The final decision of the ECJ, reached the following conclusions:

First, the ECJ held that, in principle, the EU FDI Regulation only applies to investments in the EU by companies from third countries. The fact that a company registered in a third country (in this case Bermuda) has a majority control over an EU-based investor does not mean that the regulation applies. Such an indirect ownership structure with a parent company in a third country would only be relevant to the EU FDI Regulation if there is evidence of circumvention of the foreign investment screening mechanism, which the ECJ did not find any indication of in the current case.

Second, the ECJ held that the foreign investment mechanism needs to be examined in the light of the freedom of establishment (although the Hungarian High Court had referred under the freedom of capital instead), and that there was a foreign element given Xella’s cross-border ownership structure. This is in accordance with the conclusion of Advocate General (AG) Capeta, who delivered her opinion on the preliminary reference on 30 March 2023. She concluded that “legitimate aim” and “proportionality” under EU internal market rules are the main elements to be assessed in relation to restrictive measures. AG Capeta concluded that the individual restrictive measures (such as prohibitions or conditional approvals), adopted under EU Member States national FDI laws, should undergo an assessment of legitimate justification and a proportionality review.The ECJ found that there was a “particularly serious restriction” on the freedom of establishment and that current restriction was not justified. In particular, ensuring security of supply in the construction sector (especially at local level) was not considered to be a “fundamental interest of society” as defined in EU case law.

The ECJ also doubted whether the acquisition would lead to a “genuine and sufficiently serious threat to a fundamental interest of society”, since Janes already sold 90% of its products to Xella. As AG Capeta noted in its opinion prior to the decision, Janes also represents only 0.52% of Hungarian national production. Moreover, as raw materials by their nature have a relatively low market value, especially compared to their transport costs, the risk that a significant part of the basic raw materials extracted from this quarry would be exported rather than sold on the local market seemed unlikely or even non-existent.

 Key points to note

  • The judgment of the ECJ provides useful clarification for global companies on how their cross-border ownership may trigger the application of the EU FDI Regulation. Except in cases of circumvention, such ownership of an EU-based company by a parent company in a third country is not a relevant factor and will not lead to the application of the regulation.
  • The judgment also provides a useful counterweight to the increasing scope and powers of national foreign investment screening mechanisms adopted by Member States in the EU, with recent examples in Belgium and the Netherlands. The judgment can be used as a reference by EU companies facing difficulties in getting their transaction approved or facing unreasonable commitments. In particular, governments that restrict EU companies’ right of establishment under their foreign screening regime will have to look more critically at their justification and whether the transaction would lead to a “genuine and sufficiently serious threat to a fundamental interest of society”.


Paul Johnson is a partner in Baker McKenzie Brussels' European & Competition Law Practice. He is an English qualified solicitor and has been practicing in Brussels and the UK for almost 15 years. Paul regularly represents clients on competition matters before the European Commission and has provided competition law advice with respect to over 100 jurisdictions around the world. Paul has extensive experience in all areas of EU competition law, including multi-jurisdictional and EU merger control (notifications and third party complaints), foreign investment review, joint ventures, cartels, abuse of dominance, distribution and other commercial relationships.


Beau is an Associate in the Antitrust and Competition Practice in Belgium.


Pavlo is a Junior Associate in the Antitrust and Competition Practice in Ukraine.