A Europe-wide reform of “national proliferation” in Company Law is necessary - so the consensus of the panelists from social partnership and science at this week’s conference “Ensuring Fair Mo-bility of Companies”. However, how the Company Law package, which had been presented at the end of April 2018, could be made socially fair, had yet to be debated. Within the framework of two Directives, the package aims at digitising and harmonising respectively the division, conver-sion and fusion of and between different national Company Law structures of the Member States. Meanwhile, labour representatives fear that important co-determination rights might be weak-ened, making it easier for companies to bypass these by adopting foreign legal structures.

In her opening address, Evelyn Regner (S&D), rapporteur of the package's Mobility Directive, juxtaposed the necessity of the Company Law reform with the possibilities of circumventing national social standards, which would open up the uncontrolled use of foreign legal structures. In spite of the general meaningfulness of the Commission proposal, more consideration had to be given to employees - in particular with regard to the co-determination right. The Company Law package shall make setting up letterbox companies more difficult and not easier. Jyte Gutteland (S&D), shadow rapporteur of the Digitisation Directive included in the package, pointed out that systematic tax avoidance would swallow up billions each year. Both Gutteland and Regner intend to support a fair package in the EU Parliament’s Tax Committee (TAXE).

Salla Saastamoinen, Director for Civil and Commercial Justice, DG Justice and Consumers, presented the package from the point of view of the EU Commission. The objective was to digitalise and connect the conversion regime in national Company Law based on common European criteria; however, it was not about aligning the legal regimes themselves. She underlined that the co-determination rights of employees in the package would comply with the EU’ “legal acquis”; she admitted however, that the Commission at this time did not intend to recommend relevant Europe-wide rules in this regard. She justified this with the balance between the interests of the social partners.

Afterwards, the social partners had their say. Wolfgang Kowalsky, Senior Policy Advisor of the European Trade Union Confederation (ETUC) rated the package as overall too business-friendly. Hence, Kowalsky made two suggestions for improvements: firstly, the co-determination rights of employees had to be harmonised upwards throughout the EU, whilst a regulatory race to the bottom had to be avoided; secondly, the expert review to identify letterbox companies, which has been planned in case of legal conversion, has to be extended to small and micro-enterprises.

Joëlle Simon, Vice-Chair of the Legal Affairs Committee, Business Europe, praised the planned cutting of red tape and the digitisation of corporate mobility. In spite of this, she criticised the proposal as yet too complex and cost intensive. Apart from that, the package would show the business world in a bad light, as it would put it under the general suspicion of tax avoidance. Even though she acknowledged that companies would use better legal structures abroad as “part of business”, she appealed to differentiate between fraud and legal use of more advantageous legal regimes.

Mijke Houwerzij, Professor of Labour Law at Tilburg University, called the exemption of small enterprises from expert reviews as the biggest flaw since a large part of the ”black sheep in high-risk sectors”, where social dumping is taking place most often, are such small enterprises — for example in agriculture, the transport and the construction sector. These would also use foreign legal structures most frequently. Edoardo Traversa, Professor of Belgian, European and International Tax law at UC Louvain took the view that the proposal would facilitate social fraud insofar as relocating the company seat shall be permitted without taking up real-economic activities in the destination country.

As had already been determined in an initial overview of AK EUROPA, the Commission proposals are currently by no means sufficient to halt the trend to escape stronger co-determination rights. From the Chamber of Labour’s point of view, this would require a “real seat principle”, for example as already outlined by ETUC. In that case, the company seat would be linked to the location of the main value added. This would automatically stop “regime shopping” of lower social standards and cheaper legal structures abroad.

Further links:

AK EUROPA: Cautious departure from corporate mobility at any price?

European Commission: Company Law package

ETUC Position paper on Company Law

Hans Böckler Foundation: Co-determination withdrawn - corporations with foreign legal structure

AW-Blog: Fight against pseudo companies