EU CSDDDScope Test

EU CSDDD (Directive (EU) 2024/1760) Applicability test

A decision ready scope test for legal, finance, ESG, and procurement teams.

Use one memo to lock thresholds, group structure, non-EU nexus, and the right application wave before you launch implementation.

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Author

Sorena AI

Published

Feb 21, 2026

Updated

Feb 21, 2026

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Structured answer sets in this page tree.

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Cited legal and guidance references.

Publication metadata

Sorena AI

Published Feb 21, 2026

Updated Feb 21, 2026

Overview

The first CSDDD control is a defensible scope position. You need a record that explains which entity is in scope, why the thresholds are met or not met, whether a group parent can perform duties on behalf of subsidiaries, and when the obligation starts under the amended Article 37 timing.

Section 1

Step 1: test the main EU company threshold

Article 2 brings EU formed companies into scope when they had more than 1000 employees on average and net worldwide turnover above EUR 450 million in the last financial year for which annual financial statements have been or should have been adopted.

Do not treat this as a one line finance check. Preserve the employee methodology, the turnover source, and the legal entity perimeter used for the decision because supervisory questions usually start there.

Keep the average employee calculation and the period used.
Retain the annual financial statements and the turnover reconciliation used for the test.
Record whether the entity is an operating company or an ultimate parent company.

Section 2

Step 2: test the franchising and licensing route separately

The Directive also captures companies and groups that operate through franchising or licensing models in return for royalties where the agreements create a common identity, a common business concept, and uniform business methods.

That route applies when royalties are above EUR 22.5 million and turnover is above EUR 80 million. This catches models that may miss the general threshold but still exert strong control over how the network operates.

Royalty trigger: more than EUR 22.5 million.
Turnover trigger: more than EUR 80 million.
Document the contracts, royalty calculations, and network model used for the analysis.

Section 3

Step 3: test non-EU companies with EU turnover

Third-country companies come into scope based on net turnover generated in the Union rather than employee count. The main threshold is more than EUR 450 million in Union turnover in the financial year preceding the last financial year.

Where the non-EU company operates in a Member State, Article 23 also requires an authorized representative established or domiciled in a Member State where the company operates.

No employee threshold applies to third-country companies for the scope test.
Keep the Union turnover calculation and the Member State allocation logic.
Prepare authorized representative details early if the company is in scope.

Section 4

Step 4: decide who performs the duties in a group

The Directive allows parent companies to fulfil Articles 7 to 11 and Article 22 on behalf of in-scope subsidiaries if this ensures effective compliance. That does not eliminate the subsidiary from the enforcement map or from civil liability exposure where the conditions are met.

An ultimate parent that mainly holds shares and does not take management, operational, or financial decisions may be exempted, but only if a Union established operational subsidiary is designated and given the means and legal authority to perform the duties.

Write down whether duties are handled centrally or entity by entity.
Document the designated subsidiary arrangement if a holding parent relies on the exemption route.
Do not confuse group performance of duties with immunity from subsidiary supervision or civil liability.

Section 5

Step 5: assign the right application wave

Directive (EU) 2025/794 changed the original rollout. Member States now transpose by 26 July 2027. The first wave applies from 26 July 2028 for the largest companies, and broader application follows from 26 July 2029.

Use the amended timing, not outdated 2026 and 2027 summaries. If your internal roadmap still assumes the original first wave, it is already wrong.

26 July 2028: EU companies with more than 5000 employees and more than EUR 1.5 billion turnover, and non-EU companies with more than EUR 1.5 billion Union turnover.
26 July 2029: all other in-scope companies, including the EUR 450 million threshold cohort and qualifying franchising or licensing groups.
Record the exact article basis for the chosen wave in the scoping memo.

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