It would be easy to imagine that navigating the seas of business regulation in Brussels is a straightforward bet for US corporates. After all, the European Union and the United States enjoy the most integrated global economic relationship, which has forged the world’s largest bilateral trade relationship. Total US investment in the EU is three times higher than in all of Asia.
These figures, however, hide difficult waters. The EU business landscape is an entirely different ecology to that of Washington; in process, but also in the European style of policy making and enforcement. US firms are consistently taken aback by the minutiae of competition regulation, the opacity of the Brussels infrastructure, and the infamous EU red tape.
US firms would be well-advised to do their political and regulatory homework on the lie of the land before they embark on major M&A in the EU. Brussels is a complicated place – but that does not mean it is impenetrable with the right guide. This brief addresses the key challenges facing US corporations stepping into EU waters – namely the European approach to merger control, shifts in corporate taxation, and appetite for data protection.
Policy on anticompetitive behaviour in the EU is similar in objective to the US, but in its basic design and operation, the systems are anything but parallel. Unlike the US, participating EU regulators stem either through the national regulators of different Member States, or, if the merger is sufficiently large, through the European Commission as a sole investigator and enforcer.
Despite the complication of the 28 member states, beyond this threshold, EU Merger Control is far more centralised than the US system, where enforcement of provisions is undertaken by both State and Federal agencies, overlapped by other regulatory agencies reviewing from a public interest stand point. The European Commission is effectively a one-stop-shop for merger control, with very limited influence from other bodies.
US firms, however, would be shrewd not to conflate this centralisation with simplicity. The concentration of investigatory and decision making powers in one agency is mitigated by a plethora of procedural rights for participators, based on numerous formal procedures at frequent stages over the course of the process. This hoop-jumping diverges from the comparatively informal, administrative-like procedures in the US, which are disciplined largely by the threat of independent court action - a challenging adjustment for US companies to make.
So too is the political imperviousness of decision making in EU merger control, in which the legislative body, the European Parliament, takes a far less engaged role than that of the US Congress, which is represented at enforcement level by the Federal Trade Commission. Firms would be well-advised to take heed of the resulting inflexibility of EU merger control, governed almost solely through the European Commission, to political influence.
Corporate tax policy
It is crucial too, that US firms looking to do business in the EU keep an ear to the ground in following the evolving mood for corporate tax policy from the Brussels elite. Last summer saw a sharp refocus on corporate tax paid by international companies – culminating in the sensational finding in August by the European Commission that Ireland illegally granted Apple up to €13 billion in undue state aid. Under EU Law, member states cannot give companies selective tax treatment.
The move clearly marks a shift in the trajectory for corporate tax policy in Brussels. Irrespective of the prevailing feeling among the former US administration that the Commission is targeting US companies in particular – an accusation it has denied – prominent US companies have been caught unprepared to respond to the renewed scrutiny among EU policy-makers. Firms must be equipped to understand this trajectory ahead of time, and before they are impacted by shifts in the political discourse.
For example, in October, the Commission announced a proposed new corporate tax reform package featuring three proposals to facilitate a fairer tax system for business, to close loopholes between EU and non-EU states, and to provide new rules around dispute resolution.
The headline proposal for a Common Consolidated Corporate Tax Base (CCCTB) would streamline the rules determining taxable income for cross-border companies to comply with one, single EU system, allowing companies to file one tax return for all EU activities, and offset losses in one Member State against profits in another. A second reform aims to extend last June’s Anti-Tax Avoidance Directive to tackle loopholes and mismatches within the EU, against hybrid mismatches involving non-EU countries. Staying ahead of the game in understanding the enthusiasm for such evolving corporate tax policy in Brussels is key.
A well-known stumbling block for US corporates, the appetite and approach to data protection in Brussels diverges from that across the Atlantic. On balance, data protection in the EU is stronger, and more restrictive on corporates than that of the US. Changes in this area are afoot in Brussels - it is vital that companies stay on top of these developments.
Replacing the old Safe Harbour framework, which was ruled invalid by the European Court of Justice, the new EU-US Privacy Shield, which came into force last year, imposes stronger obligations on US companies to protect the personal data of Europeans, as well as robust enforcement and greater cooperation with European Data Protection Authorities. American firms must now comply with greater transparency and tightened conditions for onward transfers if they are to avoid tough sanctions or exclusion.
Companies should also closely follow developments in Brussels
around the strategy for a Digital Single Market, which aims to remove
market barriers between the member states in the online space. While
the process will by no means be unhelpful to many firms trading in the
EU, US firms should be careful to stay in step with the evolving
approach taken by the Commission, including the inquiry of its
Directorate-General for Competition on the e-commerce of goods and
digital content. The final report, which will summarise the main
findings of the inquiry, is due in the coming months, and its
outcomes for enforcement will have real implications for distribution
in or into Europe.