One of the most controversial – and quietly overlooked – interpretations of the EUDR FAQs

Aug 19
One of the most relevant clarifications in the new EUDR FAQs (3.13) concerns how the Regulation applies to company groups.

Consider this scenario: a downstream operator in Germany has a net turnover of EUR 50 million and more than 250 employees. Under Directive 2013/34/EU, we would assume it qualifies as a large company, with the obligation to ascertain that due diligence was properly exercised and to submit a due diligence statement.

But what happens if the same company operates a small part of its business through a legal entity in France? Let’s say the German entity has a net turnover of EUR 48 million and 240 employees, and its French entity EUR 2 million and 10 employees.

The Commission has now confirmed that size thresholds are measured at the level of each individual legal entity, not the company group as a whole.

The thresholds apply to each legal entity separately

This is highly significant. Most large businesses operate through different legal entities across the EU. Many are now asking: as a group, am I a large operator, or do I actually consist of multiple SME operators? Following the example above, the company would be an SME in both legal entities, and not a non-SME as a group.

In practice, this means that many companies will now be considered SME operators. Remember that downstream SME operators only need to ensure traceability and pass on DDS reference numbers, but they are not required to verify whether due diligence was correctly exercised.

What are the consequences of this interpretation? Last year, there was a proposal to remove obligations for downstream companies altogether, which the EU rejected, since it would undermine the spirit of the EUDR. Unlike the EUTR, large downstream companies were expected to play the role of an additional enforcement layer, ensuring that first operators complied. The system relied on large companies’ leverage to make compliance effective. This now seems to have shifted.

Is the Commission’s interpretation a way of silently reducing the obligations of downstream companies without open controversy? And how many individual legal entities in practice will meet the thresholds to still be considered large?

First Operators

It is worth stressing that this discussion only affects downstream operators. For first operators (importers or producers), company size is irrelevant: they always have to exercise due diligence and submit a DDS.

However, what if the legal entity is micro or small? Do the extra six months of the transitional period apply? We will explore the practical implications of this for companies in our Expertise course, where we guide operators through real-world scenarios!