The so-called 2019 Company Law Package is meant to regulate cross-border restructuring processes. Part of it is the Directive on Digital Tools and Processes in Company Law. The directive enables the fully online foundation of companies in by anyone in the EU within 5 business days without being physically present at a notary, court or company registry. The danger that this Directive will increase corporate abuse is great, particularly by making it easier to found letterbox companies across borders to avoid taxes, labour standards (e.g. through fake posted labour) and social security, or to launder money and finance terrorism. However, the Directive includes a number of safeguards which, if properly implemented, may discourage corporate abuse.
The ETUC has issued transposition guidelines for the Digital Tools Directive how to implement the safeguards.
Ever since the European Commission published its proposal 14 months earlier, the ETUC pushed for adequate safeguards against letterbox companies and more information, consultation and participation rights for European workers. Although the excellent report of the European Parliament introduced substantial improvements, the final agreement fell short of the necessary amendments.
The current corporate governance system prioritises shareholders’ interests and imposes the costs on workers: loss of employment, loss of income, skills, opportunities & often health, etc. The ETUC calls for corporate governance with stakeholder participation and a long-term vision for sustainability. Such a corporate governance model can generate growth through high productivity and high-quality jobs.
A proposal for a Corporate Sustainability Reporting Directive (CSRD) was published in 2021 by the European Commission and is now being considered by the European Parliament and the European Council. The draft Directive is significantly better in a number of ways than the 2014 Non-financial Reporting Directive (NFRD), which defines current reporting requirements for certain types of large companies on social and environmental matters. Nevertheless, the proposal does not contain some key demands made by the European trade union movement.
The CSRD might pre-empt and set key features of the Human Rights Due Diligence initiative, without proper democratic debate and consultation. Especially the role of EFRAG, an ad hoc European Financial Reporting Advisory Group established by the Commission, to develop and propose standards, to be adopted by delegated acts is not in line with democratic principles. Furthermore, there are several weaknesses, including the lack of involvement for trade unions in the reporting process. It will certainly have to be avoided that any management tools and CSRD systems are established/used based on a logic of “ticking the boxes” rather than a logic that is focused on preventing and/or mitigating impacts on human, trade union and worker’s rights violations.
The ETUC Action Programme 2019-2023 includes the objective of combating letterbox companies and artificial arrangements.
The ETUC actively engaged in the 2018-2019 negotiations on the Company Mobility Law Package with the European institutions. The aim was to introduce effective measures against letterbox companies to avoid the use of company mobility for the circumvention of companies’ social and fiscal obligations. The later agreement between the European Commission, the European Parliament (EP) and the European Council constitutes a step forward compared to the unregulated status quo..
The ETUC will be further active in pushing for an ambitious and effective transposition of the directives related to the Company Mobility Law Package.
Letterbox companies are artificial business constructions with the main objective to minimize tax liability. They are domiciliated in a tax friendly country, while performing commercial activities in other countries. Such arrangements are expanding throughout the Union and they have become of major concern for the European trade union movement. Not only do they endanger public finances, they’re also directly threatening social Europe leading to social dumping and the exploitation of workers.
Full employment and social progress in Europe can only be achieved when our social market economy model is protected. It is therefore a responsibility of EU decision makers to introduce effective measures against artificial arrangements and letterbox companies.
Check the ETUC Resolution on Fair Labour Mobility and Migration for our demands on cross-border social fraud and letterbox companies. Find further evidence how European and national legal frameworks still fail to regulate and effectively tackle letterbox companies.
Since the 1990s EU company law has been progressively deregulated. Its intrinsic purpose is to expand the economic freedoms of the internal market enabling businesses to carry out operations anywhere in the EU. This development came along with the
- protection for shareholders,
- purpose to make businesses more competitive,
- incentives to encourage businesses’ cross-border activities.
Nowadays, European company law rules cover corporate issues such as
- formation, capital and disclosure requirements,
- cross-border operations (take-overs, mergers, and divisions).
The deregulation of company law fueled the growth of artificial legal corporate entities. Letterbox companies often serve as intermediaries, with no or only symbolic activities in the country of registration. They facilitate outsourcing, cross-border recruitment, and avoidance of regulation under the flag of the free provision of services.