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EU law to act against fraudulent cross-border undertakings not sufficient

Published: 14th February 2020 Last updated: 14th February 2020

European company law and social policy as it stands are not sufficient to act effectively and thoroughly against non-genuine undertakings operating in a cross-border context of free provision of services. That is the conclusion of a new research report by Jan Cremers (Tilburg Law School) on company law, artificial corporate entities and social policy.

The ETUC published the research report EU Company Law, artificial corporate entities and social policy that spans a broad field of intertwined disciplines. The emphasis is on the phenomenon of (artificial) corporate entities operating in a cross-border context of free provision of services. The starting point is an analysis of the EU-parts of the regulatory frame for the internal market, followed by a general review of adjacent EU-social policies. 

Company law, in the strict sense, seems hardly to be affected by the developments related to fraud and regulatory arbitrage. The terms ‘genuine’ or ‘non-genuine’ undertaking do not figure in the EU acquis and the legislation of Member States uses only sparsely this notion. The information in national registries necessary to determine whether a company is a genuine undertaking is incomplete and superficial, and commercial databases are inconsistent and easy to manipulate. 

As far as national instruments are used to tackle fraudulent practices with corporate legal entities in the context of cross-border services, these instruments stem neither from regulations enshrined in company law nor from the (implemented) safety-of-services related legislation. 

Limited efforts are made to tackle these practices based on secondary legislation in adjacent policy areas (i.e. labor inspectorate, social security offices). These compliance offices however lack the competence to act effectively and thoroughly against non-genuine entities.