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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(80)203 final
Brussels -29thApril1980
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PROPOSAL FOR^COUNCIL DIRECTIVE
ONTHECOMMON SYSTEM OFTAXATION APPLICABLE TO
MERGERS,DIVISIONS ANDCONTRIBUTIONS OFASSETS OCCURRING
BETWEEN COMPANIES OFDIFFERENT MEMBER STATES
(Communication bytheCommission totheCouncil )
C0MC80)203final

Subject:ProposalforaCouncildirectiveonthecommonsystemof.taxation
applicabletomergers,divisionsandcontributions ofassets
occurringbetweencompaniesofdifferentMemberStates
Theaboveproposal(1)waslaidbeforetheCouncilaslongagoas1969.•
Itsmainpurposeistodeferthetaxationthatwouldotherwiseoccurwhen
twocompaniesfromdifferentMemberStatesengageinamergerorsimilar
operation.TheproposalisofcrucialimportancetoCommunityindustrial ■
policy,sinceitremovessomeofthetaxobstaclestoco-operation across
frontiersbetweenenterprises wishingtoconcentrate ordispersetheir
activities . /
Theproposalmustalsobeseeninitspoliticalcontextasparallelto
theworkontheStatuteforEuropeanCompanies (2)andontheDraft
Convention onInternational Mergers(3).Howevertheproposalcouldbeof
immediatepracticaluseforcertainformsofcross-frontier co-operation,
irrespective ofdevelopments inthesetwootherareas-
Theimportanceofthemergersproposalhasbeenrecognised bytheCouncil,
initsResolutionof17December1973onIndustrialPolicy(4)which
identifiestheabolitionoftaxationobstaclestomergersandtheearly
adoptionoftheStatuteforEuropeanCompaniesasessentialingredients
ofCommunityindustrialpolicy..
(1)O.J.N°C39,22.3.1969
(2)AmendedproposalforaCouncilregulation ontheStatuteforEuropean
companies,SupplementtoECBulletinN°4-1975 -
(3)DraftConventionontheinternational mergerofsocietes anonymes,
SupplementtoECBulletinN°13/73
(4)O.J.N°C117,31.12.1973,paras3and4

y
-2-
Wehave-now reachedthepointwherenearlyallthetechnical problems have
beensolvedinthecourseofCouncildiscussions .Theadoption ofthe
directive is,however,blocked bypolitical objections onthepartofthe
Netherlands andtheFederalRepublic ofGermany.BothMemberStatesfear
that,oncethetaxobstacles tocross-frontier mergers,etc.areremoved,
companies engaging inamergerorsimilaroperation willtransfer thehead
ofthecorporate groupoutsidetheirrespective countries .Theinducement
foraDutchcompanytodosoisthemorefavourable taxtreatment of
dividends underimputation systems,whichgrantreliefforcorporation tax,
andinthecaseofaGermancompany,mergers couldbeusedasameansof
avoiding theobligations ofworkerparticipation (Mitbestimmungsgesetz ).
Itshouldbepointedoutthatthefearsexpressed bytheNetherlands and
Germany canceleachotheroutintheirbilateral relationships inasmuch
aseachMemberStateenvisages mergerstakingplaceinaonewaydirection
towardstheotherMemberState.Thiscontradiction intheirpositions
inevitably castsconsiderable doubtontheirvalidity .Itis,moreover,
amistaketoassumethatdecisions regarding mergerswillbetakensolely
fortaxreasonsor,inthecaseofGermany,forreasonsofsocialpolicy.
Otherconsiderations generally carrymuchgreaterweight,suchasthe
needtoobtainsourcesoffinance,todiversify production ,topenetrate
newmarkets,andeventomeetcompetition fromthirdcountries .
Despiteefforts bytheCommission tosatisfythetwoMemberSatesconcerned,
theyhavenotmovedfromtheirrespective positions ,thusblocking the
proposal whichthesevenotherMemberStateswould,withminorreservations ,
beprepared toapprove.TheCommission foritspartinsiststhatthetaxa-'
tionofmergers andsimilaroperations presents aseriousproblem
requiring urgentattention ,sincewithout asettlement therecannotbean
effective Community industrial policy. -
Itistherefore imperative thatthemergersproposal shouldbediscussed
intheCouncil,especially whenitisborneinmindthattheproposal has
neverduringitselevenyearsofexistence,beenbroughtbeforetheMinisters
Tofacilitate thisdiscussion ,theCommission ispreparing

proposalsforsafeguarding theinterestsofanyMemberStateagainstthe
risksreferredtoaboveandformonitoringtheoprationofthedirective.
WeenvisageasafeguardarticletoprotectanyMemberStatewhichfinds
that,followingtheintroduction oftheDirective,mergersorsimilar .
operationsaretakingplaceunilaterally inotherMemberStatestosuch
anextentastocreateseriouseconomicorsocial-problems.Underthis
articletheMemberStatecouldapply,statingitsreasons,totheCommission
forauthoritytotakesuchmeasuresasarenecessaryto-correcttheimbalance.
TheCommissionwoulddecide,withinalimitedperiodoftimeandafter'*/■->-
consultingtheotherMemberStates,whetherauthorisation shouldbegranted ,
andifso,underwhatconditions.TheCommission'sdecisionrefusing
authorisation,grantingauthorisation orattachingconditionstothe ,.
!
authorisation ,wouldbesubjecttoreviewbytheCouncilwhich,actingbya,
qualifiedmajority,couldsubstitute'itsowndecision.Ifauthorisation were
granted,thedecisionwouldhavetospecifytheperiodforwhichitwas
granted.Alldecisionstakenunderthesafeguardarticlewouldbepublished.
Thesesafeguardprovisions would,however,ceasetohaveeffectoncethere
wereCommunityrulesinforcedealingwithworkerparticipation andwith
systemsofcorporation tax.Asregardsthelatter,theCommissionconsiders
thattheadoptionofthedirectiveconcerningthecommontaxationsystem
forinternational mergersshouldleadtorenewedeffortstoharmonize
systemsofcompanytaxation.ItthereforecallsupontheEuropeanParliament
whichhasnotyetdelivereditsfinalopinionontheproposalforharmoni­
zingcompanytaxationmadebytheCommissionin1975(1)aswellasonthe
Counciltogiveprioritytotheconsideration ofthismatter^.
Finally,theoperationafthemergersdirectivewillneedpermanentsuper-•'
vision.ItwonIHthereforeseemaporopriatetoaddanarticlerequiringtheCommission
tosupervisetheapplicationoftheDirective,reportonitssupervisionto-
theCouncileverytwoyearsandmakesuchproposalsasseemappropriate .
C1)ProposalforaCouncildirectiveconcerningtheharmonization of
systemsofcompanytaxationandofwithholdingtaxesondividends,
O.J.N°C253,5.11.1975 .