EU To Harmonise Online Incorporation And M&A Activities

The EU Commission proposed new company law rules, aiming at digitalising the incorporation procedure and harmonising the merger, division and re-establishment of an enterprise within the Single Market. The new proposal is expected to curb abuse for undue tax benefit and protect legitimate interests of the interested parties, including employees, shareholders and creditors.

The New Rule

Two draft laws are included in the Proposal, one on adapting company law to the digital age and the other on the cross-border mobility of companies. Under the proposal, companies will be able to move their seat from one Member State to another following a simplified procedure. Currently, only 17 out of 28 Member States are providing a fully online procedure for registering companies. The law makes it possible to create a company fully online, including across borders, and to move, merge or divide a company across national borders within the EU without incurring unnecessary burdens and costs.

Anti-Abuse Concerns

Member State of departure of the company will have to prohibit operations that constitute an artificial arrangement aimed at obtaining undue tax advantages or undermining the legal or contractual rights of employees, creditors or shareholders. Should this happen, the operation will be stopped by the Member State of departure even before the move can take place.

In medium and large companies where this analysis may be more complex, an independent expert will be involved in providing the factual elements for the assessment by the authority of the Member State of departure. When drafting the report, the expert is supposed to consider the characteristics of the establishment in the destination Member State, including

  • the intent
  • the sector
  • the investment
  • the net turnover and profit or loss
  • number of employees
  • the composition of the balance sheet
  • the tax residence
  • the assets and their location
  • the habitual place of work of the employees and of specific groups of employees
  • the place where social contributions are due, and
  • the commercial risks assumed by the converted company in both destination Member State and departure Member State.

Sources: EU Commission, Reuters

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