Pekka Ristelä

Head of International Affairs, SAK

One of the European Union’s core objectives from the very beginning has been the creation of the internal market. The aim has been to enable European companies to operate throughout the Union as seamlessly as American companies operate across the United States. This has been believed to promote economic growth and improve employment.

In recent years, the internal market has also increasingly become a geopolitical issue. European companies have been given better conditions to grow within the EU so that they can also gain market share globally. This is also a question of sovereignty and security: a strong position in industrial production, digital networks and innovation provides the power to advance one’s own objectives and resist pressure from other actors.

All of this is relatively uncontroversial. By contrast, there are differing views on how the internal market and competitiveness should be promoted. This also applies to the European Commission’s proposal made in March on a new European company form, known as EU Inc.

A fast-track for setting up a company

The objective of the Commission’s proposal is to create an EU-level company form as an alternative to existing national company forms. Establishing such a company is intended to be as quick and simple as possible and to take place under the same rules and procedures in all Member States. It would also be possible for an existing company to convert into an EU Inc.

An EU Inc. company could be registered fully digitally in any Member State without minimum share capital. Registration would cost no more than 200 euros and could be completed within 48 hours. Only limited information could be requested at the time of registration, and information would need to be provided only once, after which authorities across Europe would be expected to share the information among themselves.

Enabling the weakening of workers’ protection

At first glance, the Commission’s proposal may appear to make it easier to establish and operate new businesses in the internal market. At the same time, however, it involves significant risks both for workers and for society more broadly.

From a working life perspective, the problems of the proposal boil down to the fact that companies would be free to choose their country of registration, which opens new opportunities to circumvent workers’ rights. For example, rights related to information, consultation and board-level representation would be determined by the country of registration. By choosing a country with weaker regulations than the country where the work is carried out, a company could bypass its employees’ rights. The same risk may also apply more broadly to workers’ rights.

The importance of oversight and enforcement is underestimated

Further risks in the proposal relate to making the establishment of companies extremely fast while restricting oversight. If oversight is weakened, it will be more difficult to intervene in irregularities related to workers’ rights, taxation and employer social contributions.

The long-recognised problem of letterbox companies could therefore explode on an entirely new scale. Companies that evade obligations and avoid oversight would gain market share at the expense of responsible companies.

The risks associated with the proposed company form are therefore substantial. For this reason, the regulation proposed by the Commission should not be taken forward, at least not without fundamental changes.

Nevertheless, the Commission is seeking to secure approval from the European Parliament and the Council on an accelerated timetable. The aim is to complete the entire legislative process within this year, meaning that work in the Parliament and the Council is already advancing before the summer break.

Now is therefore the right time to influence the handling of the EU Inc. proposal. If you do not want more unfair competition and circumvention of workers’ rights in the internal market, make your concerns known to decision-makers – MEPs, MPs and ministers. The dangerous proposal can still be stopped.