CSDDD Article 2 franchising and licensing scope

For EU companies, Article 2(1)(c) applies where the company, or the ultimate parent company of a group, has entered into franchising or licensing agreements in the Union with independent third-party companies. The agreements must be in return for royalties, must ensure a common identity, a common business concept, and uniform business methods, and the royalty and turnover thresholds must be met.

The monetary test is two-part. Royalties from those franchise or licensing agreements must amount to more than EUR 22.5 million in the last financial year for which annual financial statements have been or should have been adopted. The company, or group headed by the ultimate parent, must also have net worldwide turnover of more than EUR 80 million in that same financial year.

This is a separate scope route. A company can be outside the general Article 2(1)(a) route for companies with more than 1,000 employees and more than EUR 450 million net worldwide turnover, yet still need to test the franchise or licensing route if its brand network facts meet Article 2(1)(c).

Article 2 does not treat a bare trademark permission as enough. The franchise or licensing agreements must ensure all three network features: common identity, common business concept, and uniform business methods.

In practice, review the contract package and operating model together. Common identity points to shared brand, trade name, visual identity, store concept, platform identity, or customer-facing presentation. Common business concept points to a replicated commercial model, product or service proposition, customer journey, or network format. Uniform business methods point to required operating manuals, quality standards, sourcing rules, technology stack, training, audit rights, or mandatory service processes.

The safer review position is to record the evidence for each of the three Article 2 features separately. If one feature is missing, explain why the agreement is ordinary IP licensing, distribution, agency, or supply rather than the CSDDD franchise/licensing scope route.

The franchise/licensing route exists for both EU companies and third-country companies, but the turnover geography differs. For EU companies, Article 2(1)(c) uses net worldwide turnover above EUR 80 million. For third-country companies, Article 2(2)(c) uses net turnover of more than EUR 80 million in the Union.

The royalty geography also differs. EU companies test whether royalties from qualifying franchising or licensing agreements amounted to more than EUR 22.5 million in the last financial year for which annual financial statements have been or should have been adopted. Third-country companies test whether those royalties amounted to more than EUR 22.5 million in the Union in the financial year preceding the last financial year.

For third-country companies, the CSDDD does not add an employee threshold. The Directive explains that the employee threshold is not used for third-country scope because the relevant worker concept is based on Union law and would create legal uncertainty outside the Union.

The grounded material shows Directive (EU) 2025/794 as an amendment to Directive (EU) 2024/1760 and shows the Article 37 timing changes in the consolidated text. It does not show a change to the Article 2 franchise/licensing thresholds or the three network features.

For this FAQ, the practical consequence is simple: use current Article 37 timing when planning implementation waves, but do not change the Article 2 franchise/licensing scope test unless the consolidated legal text changes the scope wording itself.

The consolidated Article 37 text reflected in the grounding material sets Member State transposition by 26 July 2027 and application from 26 July 2028 for the first listed company cohorts, with all other listed Article 2 cohorts, including Article 2(1)(c) and Article 2(2)(c), from 26 July 2029.

Keep evidence that lets a reviewer recalculate Article 2 without interviewing the original deal team. The file should connect legal agreements, royalty accounting, turnover data, group structure, and the operational features of the network.

The evidence should also show who owns follow-up if the business changes. Scope can change when a licensing programme adds operating manuals, a brand network expands in the Union, royalty lines are reclassified, a parent company changes, or turnover crosses the threshold for two consecutive financial years.

The most common mistake is treating every licence as in scope or every licence as out of scope. Article 2 asks a narrower factual question: does the agreement create the kind of controlled network described by common identity, common business concept, and uniform business methods, and are the royalty and turnover thresholds met?

A second mistake is mixing EU and non-EU calculations. EU companies test worldwide turnover for the EUR 80 million franchise/licensing route; third-country companies test Union turnover. The royalty calculation is also Union-specific for third-country companies.

A third mistake is using the general EUR 450 million turnover threshold as if it replaced the franchise/licensing route. Article 2 contains both routes. A brand owner below the general scope threshold may still need a franchise/licensing analysis if royalties and turnover meet Article 2(1)(c) or Article 2(2)(c).