On 13th March 2019, the EU institutions reached an agreement on new regulations concerning cross-border company relocations in the EU. In this context, a necessary step has also been taken to combat tax avoidance and to safeguard the co-determination rights of employees.
The starting position for the EU Commission’s Company Law Package was very difficult: in the ”Polbud” ruling from autumn 2017, the ECJ declared a move of a registered office as allowed in principle, even if it takes place without any economic activity in the destination country. Hence, it was clear that without relevant regulations at EU level the door for ”regime shopping” with all its negative consequences would be opened wide. There was an urgent need to act since the ECJ’s ruling at the latest to ensure that against the background of European freedom of establishment co-determination rights would not be left behind.
The so-called Company Law Package consists of two law initiatives, which should provide simplifications for companies in the European Union. The Directive on digital tools and process in company law obliges Member States to bindingly enable the online establishment of companies. The second part of the Package concerns the Directive on cross-border conversions, mergers and divisions of companies, where agreement has now been reached in the negotiations between European Commission, Council and Parliament. It is the objective of this Directive to promote and further develop corporate mobility in the EU.
However, to avoid any abusive use and to close open loopholes, in the negotiations with Council and Commission, in particular the European Parliament has supported the fight against tax avoidance and the preservation of workers’ rights. The Social Democrat chief negotiator in the EU Parliament, Evelyn Regner, said in a closing conference that one had succeeded for the first time to agree on a Company Law, which based on harmonised proceedings at EU level, would declare war on letterbox companies and tax avoidance structures. She also emphasised that these harmonised rules would for the first time create consultation and co-determination rights for affected employees in Company Law.
Workers’ rights had to be safeguarded in future
Employees now have a comprehensive right to information and consultation when the company moves to another country. Employees must in particular be provided with a detailed report on the effects that cross-border company relocation would have on their employment. This also includes all measures to secure their employment and all financial effects. Subsequent, employees will have the right to submit opinions and statements regarding the report, which the company has to answer with reasons. The Directive guarantees that existing co-determination rights will be safeguard in the course of relocations. The AK’s demand that significant changes following the establishment - for example achieving certain threshold values, which would trigger co-determination - would be taken into account regarding the issue of co-determination, were not included in the Directive.
Future authorisation required
The authority of the country, from which the company wants to relocate to another country, has to make a decision concerning the authorisation of the company relocation. A number of indicators were determined for the proceedings, which are to establish whether the company relocates or divides the business for abusive reasons. What is known so far is that the investigation will also include the report to employees, including all comments and opinions. However, the investigating authority will also have the opportunity to involve other authorities in the proceedings and to demand additional information from companies, if it regards this as necessary.
Against the background of the ECJ ruling, the result is, from the AK’s point of view, a good compromise, even if key demands of the AK are not included in the Directive. Once applied in practice it will become clear how the anti abuse clause will be executed by the responsible authorities in the Member States and whether one will succeed in effectively combat letterbox companies with the intended catalogue of measures. However, the agreement on the new regulations has yet to be confirmed by EU Parliament and Member States.