Cross-border reorganisations – implementation of the EU Mobility Directive
In implementation of the EU Mobility Directive (Directive 2019/2121, EU Mobility Directive), the Austrian draft law on the EU Reorganisation Act (EU-UmgrG) and the Company Law Mobility Act (GesMobG) were recently published. According to these laws, the cross-border transfer of registered offices as well as the merging and splitting of limited liability companies across borders are to be simplified.
The aim of the EU Mobility Directive is to increase the mobility of corporations in the EU/EEA area and cross-border restructuring. Companies operating across borders should thus be enabled to adapt structures to changed market conditions and framework conditions.
Up to now, corporations have only been able to carry out cross-border mergers on the basis of the EU Merger Act and relocations of registered offices on the basis of ECJ case law. In practice, however, the latter in particular frequently encountered obstacles at the registry courts.
The implementation of the EU Mobility Directive is intended to create additional regulations and a more secure legal basis for
- cross-border mergers,
- cross-border conversions (transfers of registered offices) and
- cross-border divisions
within the EU/EEA area.
An innovation in all exit cases is the obligatory “abuse control”. According to the materials, an examination on the basis of the individual case is required, whereby abuse is to be present in particular if the reorganisation is used to circumvent the rights of employees, social security payments, tax obligations, claims of other creditors or for criminal purposes.
Cross-border mergers were already possible on the basis of the EU Merger Act (EU-VerschG). The regulations are now being revised and their content adjusted, whereby the current EU Merger Act is to be replaced by the EU Merger Act, which will in future regulate all three types of reorganisation.
With regard to cross-border mergers, there will be significant simplifications for joint ventures, i.e. mergers between companies owned by different persons. Another new feature is that in future a distinction will be made between “outward mergers” and “inward mergers” (section 27 (4) and (5) EU Reorganisation Act).
Cross-border conversion enables a capital company that was founded under the law of a (departure) Member State or is subject to its law and has its registered office, head office or principal place of business in a Member State to be converted into a capital company subject to the law of another (arrival) Member State while retaining its legal personality (section 7 ff EU UmgrG).
This process – unlike the conversion under Art II of the Reorganisation Tax Act (Umgründungssteuergesetz – UmgrStG) – is known as a transfer of registered office or change of legal form and has already been permissible on the basis of ECJ case law. In practice, this has regularly been accompanied by significant administrative challenges and uncertainties. When planning future reorganisations, the extension of the creditor protection period to three months will have to be taken into account, as was already possible in the case of cross-border mergers.
The draft of the EU Transformation Act now distinguishes between the “outward transformation” (Austrian corporation moves to another EU/EEA country) and the “inward transformation” (EU corporation moves to Austria).
Finally, the (direct) cross-border division of corporations is to be possible for the first time. In implementation of the EU Mobility Directive, the cross-border division of corporations within the EU/EEA area is now to be generally provided for (section 46 ff EU Transformation Act).
However, the draft law – like the EU Mobility Directive – is limited to demergers for the purpose of establishing a new company; the demerger must therefore result in the formation of a new company. According to the EU Reorganisation Act, an already existing corporation cannot be the acquiring company in the course of the demerger.
In the case of cross-border demergers, the practice has so far been to carry out a domestic demerger in a first step and then to transfer the registered office or merge the demerged company across the border. Since the draft law does not provide for a demerger for the purpose of incorporation, it can be assumed that the previous practice will continue to apply.
In the case of the demerger, a distinction is also made between the “outward demerger” and the “inward demerger”.
The legal regulations are expected to come into force in the first half of 2023 and thus enable considerable new structuring potential for European corporations.
There will thus also be a need for regulation from a tax perspective. In this respect, the draft of the accompanying tax measures in the Reorganisation Tax Act (Umgründungssteuergesetz, UmgrStG) can be expected with anticipation. Finally, it will be interesting to see how the “abuse control” will be implemented from a tax perspective.
For the choice of the appropriate structuring measure, a careful examination of the framework conditions under company and tax law in both the country of relocation and the country of departure is indispensable. This will undoubtedly also apply in the future.