1. Letterbox companies – draft legislation
By Dilyana Chirpanlieva

2. General Information Letterbox companies – what is it ?
Company Law Package and legislative procedure /0114(COD): Amending the Cross-border conversions, mergers and divisions – Status: Awaiting Council 1st reading position / budgetary conciliation convocation

3. ECJ Case law
- The Polbud case - “the fact that either the registered office or real head office of a company was established in accordance with the legislation of a member state for the purpose of enjoying the benefit of more favorable legislation does not, in itself, constitute abuse.”
- Cadbury Schweppes - allows MS to restrict freedom of establishment on a case-by-case basis to prevent the use of EU rights to create ‘wholly artificial arrangements which do not reflect economic reality, with a view to escaping the tax normally due on the profits generated by activities carried out on national territory’

4. What problems are the proposed Directive addressing?
Facilitate cross-border operations + protecting the rights of employees, shareholders and creditors (and preventing tax evasion)
MS - entitled to block cross-border restructuring processes where they amount to artificial arrangements:
Departure and destination Member State) are involved in the cross-border operation

5. Main Elements: 1. Fight Against letterbox companies
- Definition of artificial agreements: “an arrangement aiming at or leading to the evasion, avoidance or circumvention of companies’ obligations arising from Union and national law, including the legal and contractual rights of employees, creditors and members, or the avoidance of financial obligations, through, for example, a fictitious or provisional establishment not carrying out genuine economic activity in the destination Member State. “
- 86c, m, n – no authorization, not issuing pre-conversion certificate when serious concerns for AA, in-depth assessment
- genuine economic activity
- The Council has watered down the Commission proposal on this area.
No definition, lighter text
The freedom of movement could be jeopardized by non-proportionate restrictions, if these hindered or discouraged not only fraudulent, but also legitimate operations.

6. Compromises
No references in the operative part to artificial arrangement nor to genuine economic activity.
A light language – “if it is determined in compliance with national law that a cross-border conversion is set-up for abusive or fraudulent purposes leading or aimed to lead to evasion or circumvention of national or EU law, or for criminal purposes.”
EU countries will be able to block companies or impose conditions and restrictions on company movements within the single market. .

7. Main elements: Workers’ information, consultation and participation rights
Rights to information and consultation are respected in relation to the cross-border conversion:
- Draft terms – information and comments by the employees (86d, 86h)
- Report of the management or administrative organ to the members and the employees - explaining implications, material changes etc.
Right to participation (86l)
- Different views (Parliament and Council) – Compromise : threshold of 4/5 of employees – negotiations; Board-level representation rights protected for 4 years ;

8. Thank you for your attention 