The European Commission has been attempting to make it easier for small business within the EU to set up operations in other member states, without red tape and costs getting in the way. It proposed the so-called SUP Directive, aimed at encouraging Small and Medium-sized Enterprises (SMEs), including individual entrepreneurs, to carry out their activities in other Member States.
At present, many SMEs face obstacles trying to do so. The Commission said they find it in particular "costly and difficult to be active outside their own country and as a result, only around 2% of SMEs take up activities abroad (in the form of a subsidiary, branch or joint venture)".
However, MEPs in the parliament's internal market committee voted against the Commission proposals citing "serious concerns" that the directive could be misused by large companies to circumvent national laws and undermine genuine small businesses.
Marlene Mizzi MEP, Socialists & Democrats Rapporteur for the report said:
"Small businesses form the backbone of the European economy and we are in favour of measures that make it easier for them to trade across national borders. Unfortunately, that is not what this legislation would do."
"There is nothing in this text to prevent large enterprises using the mechanism to create 'letter-box' companies to avoid taxation, circumvent national labour market rules and works against the interest of all stakeholders. This would deepen unfair competition in the internal market and would undermine genuine small companies who play by the rules," she said.
Lack of Transparency
MEPs argued that the directive would allow unscrupulous people to exploit a lack of transparency under the proposed system. They say there is no explanation in the text of how the owner's identity would be verified. This combined with the requirement of only 1 euro minimum capital, lack of obligation to build up reserves and the possibility to split the company seat could lead to the legislation's misuse, they believe.
@ektrit EU concerned about lack of SME loans in many countries & wants to "fix" this with shadow banking, not with healthy kind of banking.
— Stefanie Schulte (@schulte_stef) July 17, 2015
"We must avoid rules that make the creation of shell companies easier — this would benefit only tax-avoiders, money launders and those involved in organised crime," Mizzi said.
"We call on the Commission to put forward new legislation that helps hardworking small businesses to trade across Europe, not a text that benefits only large multinationals, tax cheats and encourages abuse."
.@EuropeDirectWxm yes but due to #EU rules an SME is defined as up to 250 staff and 50 million turnover! https://t.co/slta78LTSa
— Dancing Palace Guard (@DancerGuard) July 17, 2015
The proposed legislation has already been voted on in the Parliament Employment Committee where it was rejected by a large majority. It will now be voted on in the Legal Affairs Committee.
