Whilst the European Single Market provides businesses access to a market with enormous potential, these same businesses must navigate an ever changing economic, legislative and regulatory environment as well as increased competition. This is particularly challenging for small or medium sized enterprises which are unable to apply economies of scale but which nevertheless make up more than ninety nine percent of all European businesses.
Cooperation is therefore a natural response, allowing enterprises to pool resources, access new customers, capital and markets as well as share in the risks. Since the introduction of the European Economic Interest Grouping (EEIG), businesses operating in Europe have had a legal instrument of European cooperation through Council Regulation (EEC) No 2137 /85 and certain unique feature means that interest is on the rise.
The grouping exists solely to support the economic activities of its members, has a separate legal personality and can operate in any EU Member State. Formation has only two requirements: a contract of formation and registration at the designated authority of the desired Member State. Whilst certain formal requirements are applicable, the contract usually comprises of no more than a few pages capable of suitably expressing the members' wishes. Furthermore, registration does not require the deposit of share capital.
From a tax point of view, the EEIG is similar to a partnership. Article 40 of the Regulation sets out the principle of fiscal transparency in that the grouping itself is not subject to tax as net income is subject to taxation at member level. As such, national tax laws apply and members need only concern themselves with the tax rules applicable in their place of domicile or establishment.
Members also have the ability to adjust to changing economic and regulatory circumstances. Unlike the efforts associated with re-domiciliation, the EEIG simply submits a transfer proposal with the competent authority and waits for the lapse of two months. In practice this means that an EEIG can cut legislative ties and move to a more favourable jurisdiction within a relatively short time period and at minimal cost. And whilst the fact that the members of a grouping have "unlimited joint and several liability for its debts and other liabilities..." may be initially discouraging, this can be easily overcome by placing a vehicle such as a limited liability company between the grouping and the...