An SE can be set up in four ways:

• by formation of a subsidiary by two or more companies,

• by transformation (conversion) of an existing public limited-liability company by merger of two or more existing public limited-liability companies,

• by formation of a holding company

• by two or more public or private limited-liability companies,

All types of formation share a cross-border element: they must always involve companies from at least two different EU member states. In the case of a transformation, the company must have had a subsidiary in another member state for at least two years.

The SE must be registered in the same member state in which the administrative head office is located.

SE is the abbreviation for Societas Europeae which is the (formal) Latin name for “European Company”. Every company established under the European Company Statute must be preceded or followed by the abbreviation “SE”.

A European Company (SE) is a public limited-liability company which is governed by Community law directly applicable in all member states.

It may only be set up within the territory of the European Community. The conditions for this are laid down in two pieces of legislation: The Regulation on the Statute for a European Company (SE) (EC 2157/2001) and the Directive supplementing the Statute for a European Company with regard to the involvement of employees (2001/86/EC). Both were adopted by the Council in October 2001.

It is not an obligation for companies to establish an SE but an option.

SE is the abbreviation for Societas Europeae which is the (formal) Latin name for “European Company”. Every company established under the European Company Statute must be preceded or followed by the abbreviation “SE”.

The SE Regulation entered into force on 8 October 2004. By that time EU member states were required to have transposed the Directive into national law. Since that day companies may establish an SE.

In principle, European as well as national legal forms of business organisation are subject to the same national, European and international laws of taxation without differences. However, a different tax treatment of an SE is possible according to its specific legal structure and/or in the case of a transfer of its seat across borders.

Because of the legal and economic advantages of an SE as such, the different possibilities to use an SE on a European level and the different tax treatment of an SE according to its specific legal structure across borders, the SE Statute makes Europe a much more attractive location for foreign direct investments from overseas.

In general, the SE Statute does not contain any provisions on tax law, although the different proposals for an SE Statute in 1970, 1975, 1989 and 1991 contained various or at least one fiscal provision on the tax treatment of an SE. According to a Study by Deloitte in 2004, no discriminatory legislative tax laws should be adopted to improve the fiscal status of an SE compared to similar national legal forms of business organisation. However, a suitable tax framework is needed to solve existing cross-border problems of an SE. Therefore, the Council Directive 2005/19/EC of 17 February 2005 amending the Merger Directive (Amendment Directive) contains a provision with regard to the tax treatment of a cross-border transfer of the corporate seat of an SE – or a Societas Cooperativa Europaea (SCE) – from one EU member state to another.

The SE is the European Model and Basis for all future Directives on company law (European compromise). It comprises cross-border aspects, aspects of Corporate Governance and aspects of co-determination. Therefore, one may say that European Company Law is SE Law.

The aim of the SE is the completion of the European Internal Market. The introduction of the SE therefore increases the cross-border mobility and flexibility of companies and groups within the EU and the EEA, tax competition within the EU and the EEA, the tax attractiveness of EU and EEA member states and the tax competitiveness of EU and EEA member states.

As mentioned before, the SE Statute does not contain any provisions on tax law. With regard to the intention of the “SE being tax neutral”, this means that there should be no discrimination between European and national legal forms of business organisation. Furthermore, according to the provisions of the Merger Directive and the Amendment Directive, an SE gives European companies and groups the possibility of a tax neutral formation across borders and a tax neutral transfer of its corporate seat throughout the EU.

Example 1:

A German company with more than 2000 employees (50% participation in the supervisory board) merges with a Swedish company (one-third participation in the one-tier administrative board). The registered office of the new company is in Sweden. The German company employs more than one-third of the employees.

Outcome: The SE regulation (negotiations with the SNB) must be applied (Art. 16 II, a and b Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If the parties cannot reach agreement in time, the standard rules will apply (Art. 16 III Mergers Directive). If there is a limitation on participation in Sweden to one-third of the board, which is allowed in the directive, the new board will contain only one-third employee representatives.

Example 2:

A German company with more than 2000 employees (50% participation in the supervisory board) merges with a British company (no participation). The German company employs 25% of the employees. The registered office of the company resulting from the merger is in Germany.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If the parties cannot reach agreement in time, the SE standard rules will not apply automatically because the one-third threshold has not been reached. If there is no SNB decision to apply the standard rules, German law shall apply, which in this case provides for 50% representation in the management organ (Art. 16 I Mergers Directive).

Example 3:

A German company with more than 2000 employees (50% participation in the supervisory board) merges with a Swedish company (one-third participation in the one-tier administrative board). The registered office of the new company is in Germany. The German company employs more than one-third of the employees.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If they cannot reach agreement in time, the standard rules will apply automatically (Art. 16 III e and h Mergers Directive), in this case 50% participation.

Example 4:

A German company with more than 2000 employees (50% participation in the supervisory board) merges with an Austrian company (one-third participation in the supervisory board). The German company employs more than one-third of the employees. The registered office of the company resulting from the merger is in Austria.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II Mergers Directive). The management decides to adopt the standard rules to prevent long negotiations (Art.16 IV lit. a Mergers Directive). In this case the company resulting from the merger will have 50% participation in the supervisory board. In the absence of such a decision on the part of the management, the standard rules would apply automatically after the negotiation period, which means 50% participation.

Example 5:

A Dutch company (one-third of the supervisory board members are nominated by the works council) merges with a British one (no participation). The registered office of the new company is in the Netherlands. The Dutch company employs more than one-third of the employees.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II, and b Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If there is no agreement the standard rules will apply automatically (Art. 16 III e and h). This means that one-third of the supervisory board members will be nominated by the works council.

Example 6:

A Dutch company (one-third of the supervisory board are nominated by the works council) merges with a British one (no participation). The registered office of the new company is the UK. The Dutch company employs 25% of the workforce and more than 500 employees.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If the parties cannot reach agreement in time, the standard rules will not apply automatically because the threshold of one-third of the employees has not been met (Art. 16 III e and h Mergers Directive). If the company resulting from the merger was an SE the standard rules would apply because of the lower threshold. However, the SNB could decide to apply the standard rules anyway (Art. 16 III e Mergers Directive and Art. 7 II b SE Directive).

Example 7:

An Italian company merges with a Spanish company. The registered office of the company is in Spain. There is no participation in either Italy or Spain.

Outcome: There will be no participation in the company resulting from the merger.

Example 8:

A Hungarian Company (one-third participation in the supervisory board) merges with an Austrian one (one-third participation in the supervisory board). The registered office of the new company is in Hungary. The Hungarian company employs more than one-third of the employees. Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II b Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If the parties cannot reach agreement in time, the standard rules will apply automatically, which means one-third of the supervisory board will consist of employees. On the other hand, the SNB could decide to apply the participation rules of Hungary (Art. 16 IV b Mergers Directive)

Example 9:

A Czech company (one-third participation in the supervisory board) merges with a British company (no participation). The registered office of the company is in the Czech Republic. The Czech company employs more than one-third of the employees.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II b Mergers Directive). An exception is the case in which the relevant organs of the merging companies decide to adopt the standard rules without prior negotiations. If the parties cannot reach agreement in time, the standard rules will apply automatically, which means the employees will have one-third participation in the supervisory board.

Example 10:

A Spanish company (no participation) merges with a German company (one-third participation in the supervisory board). The registered office of the company resulting from the merger is in Germany. The German company employs less than one-third of the employees.

Outcome: The SE regulation (negotiations with the SNB) is applied (Art. 16 II, and b Mergers Directive). If the parties fail to reach agreement the standard rules will not apply automatically. However, the SNB can decide that they should apply. In addition, the SNB can decide by a qualified majority to adopt the participation rules in force in Germany (Art. 16 IV b Mergers Directive), namely one-third participation in the supervisory board of the company resulting from the merger.

Because of the legal and economic advantages of an SE as such, the different possibilities to use an SE on a European level and the different tax treatment of an SE according to its specific legal structure across borders, the SE Statute makes Europe a much more attractive location for foreign direct investments from overseas.

The tax issues regarding the running of an SE are the determination and taxation of income and capital gains of an SE, the taxation of profits of foreign Permanent Establishments of an SE, the taxation of dividends, interests and royalties of an SE Group, transfer pricing issues of an SE Group and the cross-border balancing of profits and losses of an SE entity or Group. Further tax issues are the tax consolidation of an SE Group, thin capitalisation issues within an SE Group, the application of Controlled Foreign Companies Legislation regarding non-active subsidiaries of an SE and the taxation of the shareholders of an SE.

In accordance with the Amendment Directive, the transfer of seat of an SE across borders (including its shareholders) is treated tax neutrally. In this case there is no taxation at all, either in the outbound state or in the inbound state. However, it is necessary that a Permanent Establishment of the transferring SE remains and is subject to tax in the outbound state.

An SE may be used for tax planning purposes because of several tax advantages with regard to its specific legal structure and/or its ability to transfer its corporate seat across borders. One of the tax advantages is the use of a more comprehensive network of tax treaties and the use of the credit versus exemption system to prevent international double taxation. Furthermore, an SE may contain the possibility to offset losses of foreign Permanent Establishments or Subsidiaries from domestic profits in the state of residence of the respective SE. Other tax planning aspects result from the avoidance of 5% add-backs on received dividends from foreign or domestic subsidiaries and of withholding taxes on dividends, interest and/or royalty payments within an SE Group. An SE may also be used for tax neutral transfer of assets across borders between different Permanent Establishments of an SE. Furthermore, the SE is an appropriate instrument for the avoidance or the use of more generous thin capitalization provisions. Other tax advantages are the reduction of the tax burden of future income and capital gains and the avoidance of Controlled Foreign Companies legislation.

The cross-border formation of a Merger SE is treated tax neutrally, on the level of the foundation companies (if a Permanent Establishment remains in the respective outbound states), on the level of their shareholders and on the level of the SE. An SE may also be formed tax neutrally as a Holding SE; at the level of the shareholders of the foundation companies and at the level of the SE the formation is treated tax neutrally. With regard to the Subsidiary SE there are also no taxation issues concerning the level of the foundation companies and the level of the SE. Furthermore, in the case of a Transformation SE formation takes place tax neutrally at the level of the converting company, the SE and at the level of the shareholders.

The relevant EU Directives concerning taxation respected by an SE are the EC Parent–Subsidiary Directive (including Amendments), the EC Merger Directive (including Amendments), the EC Interest-Royalties Directive (including Amendments) and the EC Mutual Assistance Directive (including Amendments).

In the eyes of the Commission, the European Company Statute (ECS) “will mean in practice, that companies established in more than one Member State will be able to merge and operate throughout the EU on the basis of a single set of rules and a unified management and reporting system. They will therefore avoid the need to set up a financially costly and administratively time-consuming complex network of subsidiaries governed by different national laws. In particular, there will be advantages in terms of significant reductions in administrative and legal costs, a single legal structure and unified management and reporting systems.” The Ciampi report estimates that savings in terms of administrative costs may be up to €30 billion per year.

Moreover, this new business form may have a value in publicity terms, as it indicates that this company is a “real European undertaking” thereby possibly removing e.g. psychological barriers.

However, this optimistic view is not shared by everyone. Indeed, the attractiveness of the ECS might be reduced because it de facto does not provide for one uniform European corporate form. In all matters that are not regulated by the Regulation, the SE will be governed by the company law provisions of the member state in which the SE is registered. Consequently, there will not be a single SE law but 30 SE laws which may diverge significantly from each other

As the title already suggests, the directive represents a supplement to the ECS with regard to the involvement of employees. No SE with employees can be set up without an arrangement for involvement of the employees.

Yes. The twelve new member states (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, Slovenia, Bulgaria and Romania) which joined the EU in 2004 and 2007 had to transpose the Directive, just like the other member states.

Companies coming from the (non-EU) countries of the European Economic Area – i.e. Iceland, Liechtenstein and Norway – have the right to establish SEs. Therefore, these states had to adjust their national legislation as well.

The Directive understands involvement of employees as “any mechanism, including information, consultation and participation, through which employees’ representatives may exercise an influence on decisions to be taken within the company” (Art. 2 Dir). Information stands for the informing of the employees’ representatives on matters which concern the SE (or which concern one of its subsidiaries in another member state or which exceed the powers of the decision-making organs in a single member state). The timing of the information and the manner in which it is supplied must be appropriate and its content adequate.

Consultation signifies the right of the employees’ representatives to express their opinion on measures planned by the SE. The timing, manner and content of this consultation must be such as to ensure that the opinion can be taken into account in the decision-making process.

Participation means the right to elect or appoint some of the members of the SE’s supervisory board (in two-tier systems) or administrative body (in one-tier systems). It may also signify the right to recommend or oppose the appointment of some or all members of these company boards.

The procedure is similar to that for which provision is contained in the European Works Council (EWC) Directive. Instead of prescribing detailed provisions on how employees have to be involved, the Directive provides for an agreement negotiated between the participating companies and a special negotiating body (SNB) representing the employees . Additionally, it provides for obligatory standard rules in cases where the negotiating partners fail to reach an agreement.

There is one major difference with the EWC procedure: No initiative by the employees is needed. In fact, it is the management or administrative bodies of the participating companies which have to take the necessary steps to start – as soon as possible – negotiations with the representatives of the companies’ employees on arrangements for the involvement of employees in the SE.

(> time frame for the negotiations)

The SNB represents the employees in negotiations with the managements of the companies involved in the merger in order to reach a written agreement on employee participation in the company resulting from the merger. In principle, the SNB should be established if one of the three exceptional cases under Art. 16 II Mergers Directive applies. Timewise, the SNB must be established as soon as the enterprise managements have made known their intention to merge. The SNB can request that experts of its choice assist it in its work. In this context, the Directive explicitly mentions the possibility of calling in representatives of Community-level trade union organisations (Art. 16 III lit. a Mergers Directive in conjunction with Art. 3 IV SE Directive).

According to Art. 3 II of the Directive, the seats are allocated proportionally among the member states in which the participating companies have employees: for every 10% (or fraction thereof) of the total number of employees of the future SE/SE group, the country has the right to send one member to the SNB. Thereby, all countries concerned will have at least one representative on the SNB.

In the case of a merger, there are additional seats (but not more than 20% of the total number) to ensure that – if possible – all involved companies are represented in the SNB.

It was up to the member states to decide how their SNB members are elected or appointed. Furthermore, the member states could provide in their national transposition law that representatives of trade unions are allowed to become SNB members even if they are not employees of the company (Art. 3V Dir).

The standard rules regulate information, consultation and participation. The member states must lay down standard rules which are in line with the standard provisions defined in the Directive’s Annex. The standard rules of the country in which the SE is to be headquartered will be applied.

The Directive contains general provisions on the standard rules (thereby limiting the options of the member states):

• Part I: composition of the representative body (RB)

• Part II: information and consultation

• Part III : (board level) participation

Overview of the main provisions:

(Part I) An RB is created for information and consultation. Its members are appointed or elected in accordance with the national legislation and practice. For every 10% of the total number of employees (or fraction thereof), a member state has the right to send one member to the RB. Thus, all countries concerned will have at least one representative in the RB. The RB is to form a select committee from among its members. After four years, the RB examines whether negotiations on an agreement (Art. 4) are to be opened or whether the standard rules should stay in force.

(Part II) The standard rules foresee the right to be informed and consulted on the basis of regular reports drawn up by the competent organ on the progress of the SE’s business and its prospects. The RB receives the agenda of the Supervisory Board or Board of Directors' meetings and a copy of all documents submitted to the general meeting of its shareholders. There must be at least one annual meeting with the competent organ. In exceptional circumstances (e.g. in the case of relocations, transfers, collective redundancies), the RB can demand an extraordinary meeting. If the competent organ thereafter decides not to act in line with the RB’s recommendations, the latter may request a further meeting in order to seek an agreement.

The workers' representation is entitled to a preparatory meeting prior to each meeting with SE management.

The RB has the right to ask for support through experts of its choice. These costs (which can be limited by the member states to one expert) and the general costs of the RB are borne by the SE. Many member states have limited the funding obligation of the company to a single expert. The members of the RB have the right to time off for training without loss of wages.

(Part III) Participation: in the case of an SE established by transformation, all prior participation rules remain applicable to the SE. In all other cases, the employees are entitled to elect or appoint some board members. Their number is equal to the highest proportion existing before in one of the companies. Their selection is made by the RB (according to the proportion of the SE’s employees in each member state). However, the member states could determine the allocation procedure for the seats on the administrative or supervisory board given to employee representatives from their country. The board members appointed by the employees must have the same rights and duties as those that are appointed by the shareholders.

(> application of the standard rules)

The RB is the information and consultation body of the SE and is the discussion partner of the competent SE organ (an “SE Works Council”). It is composed solely of employees of the SE. Its composition, rights and financial resources are defined either in the between the special negotiating body (SNB) and the participating companies or in the standard rules. If the SNB decides not to open or to abort the negotiations, there can be a European Works Council instead of a RB (> possible results of negotiations).

The two parties have a considerable autonomy with regard to the content of the agreement. Nevertheless, the Directive (Art. 4 II) lays down some minimum requirements like

• the scope of the agreement,

• the composition, number of members and allocation of seats on the representative body (RB)

• the functions and the procedure for the information and consultation of the RB,

• the financial and material resources of the RB

• the date of entry into force and the duration of the agreement.

If the parties have decided to establish board-level participation, the agreement must define the number of employee board members, the procedure for their election or nomination and their rights.

Consequently, the parties can agree to raise or to reduce existing participation rights (> voting majorities). In the case of a transformation alone, the agreement must ensure at least the same level of all elements of employee involvement as before (Art. 4 IV Dir).

The standard rules regulate information, consultation and participation. The member states must lay down standard rules which are in line with the standard provisions defined in the Directive’s Annex. The standard rules of the country in which the SE is to be headquartered will be applied.

The Directive contains general provisions on the standard rules (thereby limiting the options of the member states):

• Part I: composition of the representative body (RB)

• Part II: information and consultation

• Part III : (board level) participation

Overview of the main provisions:

(Part I) An RB is created for information and consultation. Its members are appointed or elected in accordance with the national legislation and practice. For every 10% of the total number of employees (or fraction thereof), a member state has the right to send one member to the RB. Thus, all countries concerned will have at least one representative in the RB. The RB is to form a select committee from among its members. After four years, the RB examines whether negotiations on an agreement (Art. 4) are to be opened or whether the standard rules should stay in force.

(Part II) The standard rules foresee the right to be informed and consulted on the basis of regular reports drawn up by the competent organ on the progress of the SE’s business and its prospects. The RB receives the agenda of the Supervisory Board or Board of Directors' meetings and a copy of all documents submitted to the general meeting of its shareholders. There must be at least one annual meeting with the competent organ. In exceptional circumstances (e.g. in the case of relocations, transfers, collective redundancies), the RB can demand an extraordinary meeting. If the competent organ thereafter decides not to act in line with the RB’s recommendations, the latter may request a further meeting in order to seek an agreement.

The workers' representation is entitled to a preparatory meeting prior to each meeting with SE management.

The RB has the right to ask for support through experts of its choice. These costs (which can be limited by the member states to one expert) and the general costs of the RB are borne by the SE. Many member states have limited the funding obligation of the company to a single expert. The members of the RB have the right to time off for training without loss of wages.

(Part III) Participation: in the case of an SE established by transformation, all prior participation rules remain applicable to the SE. In all other cases, the employees are entitled to elect or appoint some board members. Their number is equal to the highest proportion existing before in one of the companies. Their selection is made by the RB (according to the proportion of the SE’s employees in each member state). However, the member states could determine the allocation procedure for the seats on the administrative or supervisory board given to employee representatives from their country. The board members appointed by the employees must have the same rights and duties as those that are appointed by the shareholders.

(> application of the standard rules)

Costs of both these bodies have to be borne by the SE. With regard to the SNB’s and the RB’s right to request experts to assist them with their work, most member states limited funding to one expert.

The SE Directive does not touch on national information and consultation rights. The “SE Works Council” (representative body) does not replace an existing national works council or trade union representation. Instead it creates an additional level of transnational information and consultation rights. In general, this is also the case for board-level participation rights.

If, for example, an SE is set up in the form of a newly founded holding SE on top of the national subsidiaries the board representation in the national subsidiaries remains untouched. However, if a national subsidiary ceases to exist as a legal entity the board-level participation ceases as well. In this case national information and consultation rights might be affected, for example, if a central or group works council had existed previously. The member states had the option to lay down a provision in their transposition laws that these representation structures be maintained after the registration of the SE.

Another exception is the transformation of a national public limited company into an SE. Here the participation scheme on the SE board replaces the former national representation scheme.

The Directive tries to ensure that the establishment of an SE is not misused to evade participation or other involvement rights. The Directive states that the “member states shall take appropriate measures with a view to preventing the misuse of the European Company for depriving employees of rights to employee involvement or withholding such rights”. Most member states have included wording along these lines in their national SE law.

Moreover, an SE set up by transformation must ensure at least the same level of all elements of employee involvement as before (Art. 4 IV Dir).

In the other cases, there are three scenarios where participation rights might be lost or reduced:

1. If the SNB decides not to open or to terminate negotiations.

2. If, in the agreement, the SNB agrees not to introduce or to reduce existing participation rights,

3. If, in the case of application of the standard rules, the SNB decides not to include, or to reduce, existing participation rights.

However, the Directive is not very clear with regard to what happens once the SE has been established. Consequently, there might be a danger that participation rights could be lost at a later time - e.g. if an SE without board-level participation were to acquire another company having participation. Some countries have included a time period (generally one year) within which an SE must prove, on the introduction of substantial structural changes, that the intention was not to deprive employees of their rights (see also the question on structural changes).

Some companies have tried to register themselves as an SE without having any employees at the time of foundation and therefore with no need to set up an SNB. The problem is that at a later stage employees might be transferred into this “shell (employee-free) company” without the need to start negotiations. Besides the fact that this would be considered in many cases as a misuse of the Directive (with the corresponding legal consequences) there are also strong legal concerns about whether the registration of employee-free SEs is in accordance with the provisions laid down in the SE statute. The Regulation clearly states that an SE may not be registered unless an agreement on employee involvement has been concluded (or unless the SNB decides not to start or to abort the negotiations). In any case, an SNB needs to be established. An SE cannot be set up without any negotiations taking place simply because there were no employees. This is also the conclusion of a legal opinion commissioned by the German Hans Böckler Foundation. In Germany, a district court for this reason recently refused to allow the entry of an employee-free SE in the register of companies.

This is a crucial question, particularly, for example, if an SE without board-level participation later on acquires a company which does have employee representation on its board. The Directive prescribes that the agreement concluded between SNB and management must describe the cases in which the agreement should be renegotiated and the procedure for its renegotiation (Art. 4 I h Dir). Therefore the SNB should pay attention to this point in order to be able to react to important structural changes. In addition, some of the member states have inserted rules in their national transposition laws that explicitly state that the employee side can ask for a renegotiation of the agreement if there are substantial structural changes after the creation of the SE which have had a considerable effect on employee involvement.