From the Brussels office: the European Commission is still seeking to improve the internal market, and practitioners have an opportunity to influence plans for a Capital Markets Union

At times it may seem as though the EU is constantly bound up with responding to crises, such as migration, the Eurozone and the terror attacks in Paris. However, the institutional cogs are still turning and the Commission continues to focus on making the internal market work better for businesses and consumers.

The free movement of capital in particular has been singled out, and this year the Commission has outlined plans for a Capital Markets Union (CMU). A green paper in February was followed by numerous consultations, and an action plan issued by the Commission in September.

The fundamental aims of the CMU are simple: to bring down barriers preventing access to capital markets and financing for European businesses, and to diversify the sources of investment. Achieving these goals would give European companies, particularly SMEs, wider funding options, reducing their reliance on bank debt.

Building on this foundation, the Commission proposes an extensive list of actions over the next four years incorporating financial markets regulation, insolvency, taxation and company law. Those requiring a mid- to long-term approach will naturally be dependent on early inroads or successes.

Immediate actions: financial services

One of the first steps towards the CMU will be the streamlining of financial services regulation. The Commission submitted new proposals on securitisation in September, and a proposal for a revised prospectus regime is expected by December.

Furthermore, a call for evidence on the regulation framework is underway; the key aim is to assess the cumulative impact of the more than 40 legal instruments and 200 secondary rules put in place since the financial crisis and how they interact. These rules aimed to improve financial stability and public confidence in financial markets, but the Commission is concerned that the current framework creates unnecessary burdens and barriers, stifling innovation and preventing new market entrants. Evidence is sought to identify any “duplications, inconsistencies, regulatory gaps and/or loopholes and/or lack of proper enforcement at national level”.

This consultation is likely to feed into further proposals for recalibrating and streamlining regulation, in the hope of reducing the amount of regulation in place.

Medium term: insolvency and corporate taxation

In the fields of insolvency and taxation, the Commission hopes for a more ambitious development of common rules.

On insolvency, EU legislation to date has largely consisted of private international law solutions: for example, ensuring respect for decisions made in primary proceedings of the member state where a business has its main centre of interest, so that further proceedings cannot be commenced independently elsewhere. Going forward, the Commission is interested in delving deeper into substantive insolvency law. In particular, it is keen to explore ways in which insolvency law can support enterprises and entrepreneurs in distress by allowing a second chance for honest but failed entrepreneurs.

New proposals are expected by early 2016. It is likely, however, given the member states’ political disagreement concerning insolvency law, that the Commission will opt for a step-by-step approach, introducing simple proposals initially while consulting in order to work towards more
far-reaching changes.

A step-by-step approach will also be adopted in the field of corporate taxation. The 2011 Common Consolidated Corporate Tax Base (CCCTB) proposal was overly ambitious and encountered difficulties in the Council because member states could not reach agreement on tax consolidation.

The Commission is looking into reviving the CCCTB by initially proposing a simple Common Corporate Tax Base, to be followed by loss offset measures, and only then, if this makes it easier for member states to accept CCCTB, will it propose full consolidation. The Commission is in the process of gauging support for the staged approach and offset measures through a further consultation, with new proposals expected early in 2016.

Long term: company law

The longer-term objectives, listed at the end of the green paper and the action plan, are more vague. The Commission wishes to investigate obstacles arising from divergences in member states’ company law, although it is not yet clear how this will be achieved. However, it may also target company law from a taxation angle. According to its March communication on tax transparency, the Commission is looking into a common definition for permanent establishment.

Law Society responses

The CMU is an ambitious project and, as already mentioned, the Commission will consult extensively to see where the obstacles are and where potential solutions may lie. It is operating in highly political areas, and stakeholder views enable it to untangle political knots. This is where the Law Societies come into play. Given our significant expertise in the areas mentioned, we plan to respond to these consultations and share our experiences with the decision-makers. To facilitate this, a joint working group on the CMU is currently being set up. This will discuss the Commission’s plans, propose solutions and provide an interface between practitioners and decision-makers. Any interested practitioners are welcome to join.

The Author
Helena Raulus is Internal Market adviser at the joint Brussels Office of the UK Law Societies Peter Finney is a trainee seconded to the Brussels office
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