Communication from the Commission on the transfer of small and medium-sized enterprises
Date: 1998-03-28
Institutions: European Commission
Subjects: capital transfer tax, fiscal court, small and medium-sized enterprises, tax system, transfer of property

C  93/2

EN

Official  Journal  of  the  European  Communities

28.3.98

Communication  from  the  Commission  on  the  transfer  of  small  and  medium(cid:220)sized  enterprises

(98/C  93/02)

(Text  with  EEA  relevance)

INTRODUCTION

The  transfer  of  business  is  one  of  the  key  issues  of  the
European  Commission’s  enterprise  policy(cid:216)(˛).  After  the
creation  and  growth  of  the  business,  the  transfer  is  the
third  crucial  phase  in  the  life(cid:220)cycle  of  a  business(cid:216)(ˇ).
Many  jobs  are  at  stake  when  the  founder  reaches  his  or
her  retirement  age  and  has  to  envisage  the  handing  over
of  the  business.

Recent  studies  have  come  to  the  conclusion  that  more
than  5  million  enterprises  in  the  European  Union,  repre(cid:220)
senting  about  30(cid:216)%  of  all  European  enterprises,  will  have
to  face  their  transfer  throughout  the  coming  years.
Moreover,  it  is  expected  that  about  30(cid:216)%  of  those  enter(cid:220)
prises,  i.e.  1,5  million,  will  disappear  because  of  poor
preparation  of  their  transfer.  This  will  put  about  6,3
million  jobs  at  risk(cid:216)(—).

The  European  Commission’s  action  in  this  field  dates
back  to  28  and  29  January  1993,  when  it  organised  a
symposium  in  Brussels  with  the  aim  of  finding  out  the
situation  in  the  different  Member  States  and  to  define
best  practice 
in  the  field  of  business  transfers.  This
symposium  was  followed  by  wide  consultation  of  all
interested  parties  on  the  basis  of  a  specific  communi(cid:220)
led  to  the  adoption,  on
cation(cid:216)((cid:209)).  This  consultation 
7  December  1994,  of  a 
recommendation
transfer  of  small  and  medium(cid:220)sized
the 
concerning 
enterprises 
the
(SMEs),  which  was  addressed  by 
European  Commission  to  the  Member  States(cid:216)((cid:210)).

formal 

The  deadline,  set  out  in  Article  9  of  the  recommen(cid:220)
dation,  by  which  the  Member  States  were  invited  to
report  on  the  progress  made,  was  on  31  December  1996.
Already  in  the  course  of  1996,  the  Commission  had
asked  all  Member  States 
intermediary
information  about  the  action  taken  in  respect  of  the
various  elements  of  the  recommendation  and  about
legis(cid:220)
further  envisaged  modifications  of  the  existing 
lation.

to  provide 

(˛)(cid:217)"Maximising  European  SMEs’  full  potential  for  employment,
for  a  Council
growth  and  competitiveness’.  Proposal 
Decision  on  a  third  multiannual  programme  for  small  and
medium(cid:220)sized  enterprises  in  the  European  Union  (1997  to
2000),  COM(96)(cid:216)98  final  of  20  March  1996.

(ˇ)(cid:217)Integrated  programme  in  favour  of  SMEs  and  the  craft

sector,  COM(94)  207  final  of  3  June  1994.

(—)(cid:217)The  European  Observatory  for  SMEs,  fourth  annual  report,

1996,  page  183.

((cid:209))(cid:217)Communication  from  the  Commission  on  the  transfer  of
businesses.  Actions  in  favour  of  SMEs  (OJ  C(cid:216)204,  23.7.1994,
p.  1).

((cid:210))(cid:217)OJ  L(cid:216)385,  31.12.1994,  p.  14  (hereinafter  referred  to  as  "the
recommendation’);  see  also  the  communication  containing
the  motivations  of 
(OJ  C(cid:216)400,
31.12.1994,  p.  1).

recommendation 

the 

In  its  proposal  for  a  Council  decision  on  the  third  multi(cid:220)
annual  programme  for  SMEs,  the  Commission  intended
to  bring  forward  further  initiatives,  including  a  concerted
action,  on  the  basis  of  the  evaluation  of  the  follow(cid:220)up  to
the  1994  recommendation(cid:216)((cid:211)).  The  Council  Decision  of
9  December  1996  on  the  third  multiannual  programme
confirmed  the  objective  of  continuing  efforts 
in  this
the  European
field(cid:216)((cid:212)).  Mindful  of 
Commisison  organised 
the
transfer  of  business  on  3  and  4  February  1997  in  Lille
(France).  The  evaluation  of  the  information  provided  by
the  Member  States  as  well  as  the  discussions  in  the
plenary  sessions  and  in  the  different  workshops  of  the
forum  have  shown  the  results  set  out  in  this  Communi(cid:220)
cation.

this  decision, 
the  European  forum  on 

the 

issued 

the  Commission 

Since 
recommendation,
several  Member  States  have  either  adopted  or  at  least
considered  adopting  measures  to  improve  the  legislative
and  fiscal  environment  in  this  field.  In  addition,  there  is
a  desire  in  most  Member  States  to  facilitate  the  transfer
of  SMEs.  All  the  parties  concerned, 
i.e.  government
authorities,  business  organisations  and  the  enterprises
themselves,  are  beginning  to  realise  the  scale  of  the  task.
This  latter  point  is  of  considerable  importance,  since
getting  this  message  across  to  the  people  concerned  is
one  of  the  main  objectives  of  the  Commission’s  efforts.

MEASURES  TAKEN  OR  PROPOSED

for 

Most  of  the  measures  taken  so  far  concern  modifications
of  the  legal  environment  in  order  to  encourage  and
transferring  businesses  (see
smooth  preparations 
point  A  below).  Several  Member  States  have  modified
the  fiscal  treatment  of  transfers,  notably  through  the
reduction  of  inheritance  and  gift  taxes  (see  point  B).
Other  initiatives  are  aimed  at  improving  the  financial
prospects  of  businesses  when  they  are  transferred  (see
point  C).  Finally,  a  number  of  practical  apsects  often
have  a  considerable  impact  on  the  success  or  failure  of  a
business  transfer  (see  point  D).

A.(cid:217)Legal  measures  regarding  the  transfer  of  business

In  some  Member  States,  legal  measures  have  been  taken
in  recent  years  in  order  to  facilitate  business  transfers.

((cid:211))(cid:217)See  above,  footnote  1,  p.  6.
((cid:212))(cid:217)OJ  L(cid:216)6,  10.1.1997,  p.  25.

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Most  of  these  measures  concern  civil  and  company  law.
Progress  has  been  made  in  some  areas,  but  little  in  others
and  the  improvements  are  uneven  across  Member  States.
The  following  areas  are  of  particular  concern.

Under  Finnish  law,  the  conversion  of  a  partnership  into  a
limited  company 
the  opposite
operation  is  not.  In  Sweden,  the  conversion  of  companies
in  case  of  a  business  transfer  has  been  facilitated  by  law
of  1996.

is  possible,  whereas 

1.(cid:217)Conversion  of  partnerships  into  limited  companies  and

vice(cid:220)versa

A  change  of  the  legal  form  of  a  business  (conversion)
can  be  useful  for  the  transferor,  in  order  to  allow  him  to
prepare  for  transfer  with  the  most  adequate  structure,  as
well  as  for  the  transferee,  in  order  to  introduce  appro(cid:220)
priate 
example.
However,  in  such  a  case,  some  Member  States  require
the  winding(cid:220)up  of  the  business  and  the  creation  of  a  new
one,  which  is  a  very  burdensome  requirement  and  an
obstacle  to  many  successful  business  transfers.

decision(cid:220)making 

procedures, 

for 

As  pointed  out  in  Article  4(a)  of  the  recommendation,  it
is  therefore  important  that  in  all  Member  States,  SMEs
have  the  posibility  of  being  converted  into  another  legal
structure  without  previously  being  wound  up.

In  Germany,  the  law  on  conversion  of  1994  (Umwand(cid:220)
introduced  various  forms  of  conversions,
lungsgesetz) 
such  as  mergers,  change  of  legal  form  and  divisions.  In
addition,  this  law  introduced  the  concept  of  demerger
into  German  company  law.  These  provisions  apply  to
and 
both 
and
partnerships, 
large  number  of  SME
accordingly  could  benefit  a 
transfers.  This 
tax  rules
(Umwandlungssteuergesetz)  providing  for  tax  neutrality
of  any  conversion  operation  (see  B.4  below).

law  was  accompanied  by 

companies 

limited 

Under  Spanish  law,  the  conversion  of  partnerships  into
limited  companies  and  vice(cid:220)versa 
is  already  widely
possible.

tax 

law 

rules 

facilitated 

in  1996  by 

(Umwandlungsgesetz), 

Under  Austrian 
the
conversion  of  limited  companies  is  possible  by  way  of
fusion  to  the  benefit  of  the  main  shareholder,  or  by  way
into  a  newly(cid:220)created  partnership.
of 
transformation 
These  operations  were 
the
(Umgr(cid:190)ndungssteuergesetz)
adoption  of 
providing  for  the  tax  neutrality  of  any  conversion  (see
B.4  below).  The  conversion  of  a  partnership 
into  a
limited  company  is  not  covered  by  this  law  and  is  only
possible  in  the  form  of  integration  of  the  assets  of  the
partnership  (as  contribution  in  kind)  into  the  limited
company.  The  abovementioned  tax  exemption  applies  to
this  form  of  conversion  only  after  a  minimum  time
period  of  existence  of  the  company.

The  abovementioned  legislation  in  the  various  Member
States  has  turned  out  to  be  successful  in  practice.  This
experience  should  therefore  be  taken  into  account  by
other  Member  States  where  such  changes  are  still  not
allowed  or  result  in  adverse  tax  consequences,  such  as  in
the  United  Kingdom,  Denmark  and  Ireland  (see  Annex,
Table  2).

2.(cid:217)Simplified  public  limited  company

SMEs  should  be  able  to  consider  switching  over  from
sole  trader  or  partnership  to  companies  limited  by  share
capital.  It  is  true  that  the  private  limited  company  (S{rl,
GmbH)  is  also  a  legal  entity  which  is  largely  independent
from  its  members  and  therefore  can  continue  to  exist
after  the  death  of  one  of  its  members.  However,  while  it
may  be  useful  for  very  small  companies  due  to  its  lower
requirements  for  share  capital, 
less  suitable  for
medium(cid:220)sized  companies  as  its  credit  standing  vis(cid:220){(cid:220)vis
banks  is  generally  weaker  than  that  of  public  limited
companies.  Moreover, 
in  many  Member  States,  the
private  limited  company  does  not  permit  the  issuance  of
bearer  shares,  making  this  form  of  company  less  suitable
for  the  transfer  of  companies  from  the  second  to  the
third  (or  indeed  a  further)  generation,  where  generally
the  needs  of  a  larger  number  of  heirs  must  be  taken  into
account.  This  is  then  best  achieved  through  a  public
limited  company  (SA,  AG).

is 

it 

This  is  why  Article  4(b)  of  the  recommendation  states
that  the  concept  of  a  simplified  public  limited  company
should  be  introduced  into  all  Member  States’  laws  to
give  SMEs  easier  access  to  such  a  company,  which  is
more  robust  in  the  process  of  transfer  while  permitting
the  distribution  of  shares  among  current  or  future  heirs,
as  required  by  inheritance  law.

Such  a  simplified  limited  company  has  so  far  only  been
introduced  in  Germany,  within  the  law  governing  public
limited  companies  (Aktiengesetz).  This  law  was  amended
in  1994,  so  as  to  make  it  easier  for  SMEs  to  take  the
limited  company  (kleine
form  of  a  simplified  public 
law
the  amended 
Aktiengesellschaft).  Accordingly, 
provides  for  a  number  of  reliefs  in  establishing  such  a
company  and  in  its  functioning,  as  for  instance  fewer
formalities  at  the  annual  general  meeting  for  companies

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28.3.98

below  a  certain  size,  exemption  from  the  requirement  of
having  a  supervisory  council  for  companies  with  fewer
than  500  employees,  and  the  possibility  of  excluding  a
priority  right  to  purchase  new  shares.

Other  Member  States  should  consider  modifying  their
company  law  in  order  to  allow  public  limited  companies
with  a  single  subscriber/shareholder.  This  has  recently
been  envisaged  in  France  within  the  Rapport  Marini(cid:216)(˛˝).

In  France,  the  Soci~t~  par  actions  simplifi~es  (SAS)  was
introduced  in  1994.  However,  this  legal  form  aims  at
facilitating  the  cooperation  between  big  companies  and  is
therefore  not  a  suitable 
for  all  SMEs,
especially  not  for  the  smallest  ones.  Therefore,  the
reduction  of  the  criteria  for  setting  up  such  a  company  is
currently  being  envisaged  within  the  report  on  the
modernisation  of  company  law,  which  was  presented  to
the  French  Prime  Minister 
in  1996  by  Senator  Ph.
Marini(cid:216)((cid:213)).

instrument 

Other  Member  States  should  also  consider  further  facili(cid:220)
tating  the  access  to  the  legal  form  of  a  public  limited
company,  so  that  this  type  of  company  could  be  more
widely  used  by  SMEs.

3.(cid:217)Single(cid:220)member  public  limited  company

While  for  the  purpose  of  a  business  transfer,  the  public
limited  company  is  often  the  most  convenient  and  appro(cid:220)
priate  legal  structure,  many  Member  States  have  set  high
requirements  concerning  the  minimum  number  of  initial
subscribers  and/or  shareholders.  As  a  result  of  this,  many
entrepreneurs  in  small  businesses  refrain  from  choosing
this  legal  structure,  because  it  is  too  complex.

The  twelfth  Directive  on  company  law(cid:216)((cid:214)),  allowing  the
setting  up  of  a  company  with  a  single  member,  applies  in
principle  to  private 
limted  companies.  According  to
Article  6,  this  Directive  also  applies  if  a  Member  State
allows  a  public  limited  company  with  a  single  member.
In 
the  numerous  Member  States  which  have  not
introduced  such  a  possibility,  this  Directive  still  only
applies  to  private 
limited  companies,  so  that  several
founders  are  still  required  for  public  limited  companies.
For  the  reasons  set  out  above,  it  is  desirable  to  also  allow
public  limited  companies  to  be  set  up  and  run  with  a
single  member  (see  Article  4(c)  of  the  recommendation).
This  has  already  been  achieved  in  Denmark,  Germany
(since  the  revision  of  the  Aktiengesetz  in  1994),  Finland,
Spain  (since  1995),  the  Netherlands  and  Sweden.  In
Belgium,  since  1995,  a  public  limited  company  may  have
a  single  shareholder,  whereas  the  minimum  number  of
initial  subscribers  is  still  two.

4.(cid:217)Increasing  the  continuity  of  businesses

Many  small  and  medium(cid:220)sized  businesses  are  set  up
without  the  entrepreneurs  using  legal  advice.  This  should
of  course  remain  possible,  but  in  some  cases  leads  to  a
situation  where  strategic  choices  and  legal  derogations
are  not  used  in  an  optimum  way,  especially  concerning
the  case  of  the  unforseen  death  of  the  entrepreneur.
Therefore,  many  businesses  are 
legal
provisions,  obliging  them  to  be  wound  up.  A  few
changes  in  national  law  would  considerably  alleviate  this
situation,  notably  the  following  ones:

subject 

to 

(a)(cid:217)Legal principle of continuity

As  pointed  out  in  Article  5(a)  of  the  recommendation,
the  continuity  of  partnerships  as  a  legal  principle  should
be  introduced  into  all  national  civil  law,  in  order  to
avoid  the  unwarranted  closure  of  SMEs.  This  principle
already  exists  in  Italy  and  Portugal,  with  these  countries
representing  the  best  practice  in  this  field.

In  Germany,  this  principle  has  been  introduced  for  part(cid:220)
nerships  in  the  liberal  professions  (by  virtue  of  the  Part(cid:220)
nerschaftsgesellschaftengesetz  of  1994).  The  introduction
of  this  principle  more  generally  into  German  law  has
recently  been  envisaged  in  the  1996  draft  proposal  for
the  revision  of  the  Commercial  Law  (Handelsrechts(cid:220)
reformgesetz).

(b)(cid:217)Pre(cid:220)emption rights

Other  ways  of  achieving  greater  continuity  of  part(cid:220)
nerships  could  be  the  introduction  of  a  right  of  the
entrepreneur  to  transfer  his  or  her  trading  authorisation,
even  provisionally,  to  a  member  of  the  family,  in  case  of
death,  illness  or  other  permanent  incapacity  to  continue
the  business  (as  introduced  for  example  in  Luxembourg
in  the  Loi  r~glementant  l’acc(cid:127)s  aux  professions  d’artisan,
de 
certaines
professions  lib~rales  of  1988).

commer(cid:136)ant,  d’industriel 

ainsi  qu’{ 

In  Belgium,  the  law  of  1995  amending  the  coordinated
laws  on  commercial  companies  (Loi  de  r~paration)
introduced  the  possibility  of  using  approval  clauses  and
pre(cid:220)emption  clauses  in  agreements  on  the  succession  or
liquidation  of  the  common  ownership  of  goods  among
relatives,  which  were  previously  prohibited.  As  a  result,

((cid:213))(cid:217)La  modernisation  du  droit  des  soci~t~s,  Rapport  au  Premier
fran(cid:136)aise,  Collection  des

ministre,  La  documentation 
rapports  officiels,  Paris  1996.

((cid:214))(cid:217)Council  Directive  89/667/EEC,  (OJ  L  395,  30.12.1989,

p.  40,  see  article  2(1)).

(˛˝)(cid:217)See  footnote  8.

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entrepreneurs  now  have  greater  contractual  freedom  in
planning  the  succession  of  their  business  and  in  keeping
it  within  the  family.  This  is  brought  about  by  requiring
an  approval  among  the  heirs  or  by  providing  for  the
preferential  attribution  of  the  business  to  one  of  the
heirs.

the  partnership 

inherently  weak 

is  usually  dissolved  and 

Partnerships,  although  very  widespread  among  SMEs  in
continental  Europe,  are 
forms  of
association  when  it  comes  to  resisting  the  tensions  which
often  arise  in  the  course  of  a  transfer.  This  is  particularly
true  in  cases  where  several  heirs  claim  their  share  in  the
enterprise  and  require  that  it  be  paid  out  in  cash.  As  a
result, 
the
business  ceases,  with  a  loss  of  economic  activity  and  jobs.
In  order  to  protect  partnerships  from  being  dissolved  by
heirs  with  conflicting  interests,  a  number  of  Member
States  have  introduced  a  pre(cid:220)emption  right  or  another
form  of  preferential  attribution  of  shares  in  a  business  to
one  of  the  heirs  working  in  the  business,  coupled  with
the  obligation 
the  other  heirs  (e.g.
Luxembourg  in  Article  815(cid:220)1  to  815(cid:220)18  Code  Civil,  as
modified  by 
l’organisation  de
l’indivision  et  ~tendant  l’attribution  pr~f~rentielle  en  cas
de  succession  aux  entreprises  commerciales,  industrielles
et  artisanales  of  1993;  for  agricultural  businesses 
in
Belgium,  see  Article  41  law  of  1988).

to  compensate 

relative  { 

the  Loi 

(c)(cid:217)Administratiekantoor, trust, fiducie

The  continuity  of  businesses  could  also  be  increased  by
introducing  a  form  of  certification  of  shares  into  national
law,  as  exists  for  instance  with  the  administratiekantoor
of  Dutch  law,  whose  introduction  is  being  considered  in
Belgium.

An  even  stronger  instrument  would  be  the  introduction
of  the  trust,  as  is  well  known  in  English  law,  or  of  other
forms  similar  to  it,  which  are  already  used  in  Germany
in  Luxembourg 
(Treuhandgesellschaft)  and 
(fiducie).
The 
fiducie  has  recently  been
the 
introduction  of 
envisaged  in  Belgium  and  in  France  (see  the  Rapport
Marini(cid:216)(˛˛)).

throughout  the  change  of  generations.  They  are  already
used  to  a  certain  extent  in  France  and  Spain,  so  as  to
mitigate  the  consequences  of  the  prohibition  of  future
succession  pacts.

It  is  clear,  however,  that  these  agreements  remain  a
comparatively  weak  alternative 
to  proper  succession
pacts  which  are  permitted  in  the  majority  of  Member
States.  Where  future  succession  pacts  are  prohibited
(Italy,  France,  Belgium,  Spain,  Luxembourg),  Member
States  should  consider  allowing  the  conclusion  of  future
succession  pacts,  as  their  prohibition  makes  proper  estate
planning  unnecessarily  difficult.

5.(cid:217)Administrative  and  accountancy  simplification

the 

It  is  important  for  the  survival  of  many  enterprises  that
transfer  of
the  administrative  requirements  of 
business  are  simplified  in  the  same  way  as  for  the  setting
up  of  companies, 
i.e.  with  fewer  formalities,  shorter
deadlines  and  with  a  single  contact  point  for  the  entre(cid:220)
preneur(cid:216)(˛ˇ).  At  present,  for  example  in  Italy,  the  entre(cid:220)
preneur  often  has  to  contact  several  offices  and  complete
time(cid:220)consuming  administrative  procedures  before 
the
transfer  can  take  place.

In  Denmark,  a  draft  law  was  proposed  in  1996,  which
aims  at  simplifying  administrative  burdens  for  SMEs.
Furthermore,  a  radical  simplification  of  accounting  regu(cid:220)
lations  applicable  to  SMEs  has  been  approved  within  the
Danish  Company  Accounts  Act  of  1996.  A  model  set  of
accounts  has  been  drafted  to  facilitate  the  filing  of
annual  accounts  by  SMEs  involved  in  the  more  typical
activities  such  as  commerce,  craft  and 
industry.  In
Finland,  a  ministerial  working  group  has  been  set  up  to
consider  ways  to  simplify  the  administration  of  small
businesses.

B.(cid:217)Tax  measures  regarding  the  transfer  of  business

(d)(cid:217)Business/family agreements

Another  practical  way  of  increasing  the  continuity  of  the
business  is  the  use  of  business  or  family  agreements
in
(pacte  d’entreprise,  protocole 
family  businesses,  such  agreements  can  be  used  in  order
to  maintain  a  certain  number  of  management  rules

familial).  Especially 

Transfers  of  businesses  should  not  be  tax  driven.  The
aim  should  be  to  ensure  that  tax  systems  do  not  stand  in
the  way  of  sound  business  preparations  for  transfer,  and
do  not  result  in  the  business  having  to  be  sold  in  order  to
pay  the  tax  bill.  The  clear  objective  of  taxation  policies
concerning  transfers  should  therefore  be  the  protection
of  employment.  Everyone,  including  the  State,  loses  out
when  jobs  are  lost  through  unsuccessful  transfers.

(˛˛)(cid:217)See  footnote  8.

(˛ˇ)(cid:217)Commission  recommendation  of  22  April  1997  (OJ  L  145,

5.6.1997,  p.  29).

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Since  the  publication  of  the  Commission’s  recommen(cid:220)
dation,  tax  measures  have  been  taken  in  a  number  of
Member  States  to  improve  the  tax  treatment  of  business
transfers.  Most  of  the  measures  concern  inheritance  or
gift  taxes.  Reductions  of  the  tax  burden  on  business
transfers  can  be  achieved  by  reducing 
the  highest
applicable  rates  or  by  introducing  exemptions,  reliefs  or
thresholds.  If  these  thresholds  are  to  have  any  effect  in
facilitating  the  continuity  of  business,  then  they  must  be
set  at  levels  which  are  likely  to  benefit  SMEs.

As  with  the 
legal  measures,  the  general  picture  for
taxation  is  of  progress  in  some  areas,  but  little  in  others,
and  the  improvements  are  uneven  across  Member  States.
Capital  gains  tax,  inheritance  tax  and  (where  it  exists  as
a  separate  tax)  gift  tax,  sometimes  at  prohibitively  high
rates,  continue  to  cause  difficulties  for  the  transfer  of
business 
in  almost  all  Member  States,  whether  the
transfer  is  by  way  of  gift  or  succession  within  the  family,
or  to  third  parties.  The  following  areas  are  of  particular
concern.

1.(cid:217)Gifts  and  successions

In  some  Member  States,  maximum  inheritance  and  gift
tax  rates  remain  high  (80(cid:216)%  in  Belgium,  68(cid:216)%  in  the
Netherlands,  65(cid:216)%  in  Greece),  whereas  others  recently
adopted  or  envisage  the  adoption  of  less  burdensome
taxation  rules  for  business  transfers.

The  United  Kingdom, 
for  example,  has  a  100(cid:216)%
exemption  from  inheritance  tax  for  business  assets.  If  a
business  has  been  owned  for  a  minimum  of  two  years
prior  to  transfer,  100(cid:216)%  relief  from  inheritance  tax  is
available  for  transfers  of  interests  in  a  business  as  well  as
unlisted 
(including
trading 
companies  quoted  on  the  Alternative  Investment  Market)
held  for  two  years,  regardless  of  the  size  of  holding  and
voting  entitlement.

companies 

shares 

in 

In  Sweden,  inheritance  tax  on  businesses  is  only  charged,
after  a  basic  relief  of  SEK  70(cid:216)000,  at  a  rate  of  10(cid:216)%  on
amounts  up  to  SEK  300(cid:216)000,  20(cid:216)%  up  to  SEK  600(cid:216)000
and  30(cid:216)%  above  SEK  600(cid:216)000.

In  Germany,  a  DEM  500(cid:216)000  relief  and  a  value
reduction  of  60(cid:216)%  was  introduced  for  business  assets  in
1996.  The  rest  of  the  amount  is  always  taxed  in  the
lowest  category  of  tax  rates,  i.e.  the  one  for  the  closest
relatives  (between  7(cid:216)%  and  30(cid:216)%).  The  inheritance  tax
can  be  paid  in  instalments  over  up  to  10  years  free  of
interest.

Spain  now  has  a  significant  relief  from  inheritance  tax
for  the  transfer  of  business  within  the  family.  Article  20
of  the  Inheritance  and  Gift  Tax 
law  was  recently
modified  in  order  to  secure  the  transfer  of  business  and
securities  within  the  family.  The  change  introduced  a
relief  of  95(cid:216)%  on  the  taxable  base  of  inheritance  tax  if
the  business  or  securities  are  transferred  to  spouses  or
certain
descendants  of 
requirements  when  securities  of  a  company  are  trans(cid:220)
ferred,  for  example  the  individual  must  hold  an  interest
of  at  least  15(cid:216)%  and  be  engaged  in  the  management  of
the  company.  Moreover,  the  transferees  are  required  to
maintain  the  acquisition  for  10  years.  The  same  relief
also  applies  to  gifts  if  the  donor  is  more  than  65  years
old  or  in  permanent  incapacity  to  work  and  no  longer
has  income  from  the  business.

the  deceased.  There  are 

From  1  April  1996,  France  has  reduced  tax  on  gifts  by
providing  for  a  tax  reduction  on  transfers  free  of  charge.
The  tax  reduction  on  shared  gifts  was  increased  from
25(cid:216)%  to  35(cid:216)%  for  donors  under  65  years  of  age,  and
from  15(cid:216)%  to  25(cid:216)%  for  donors  between  65  and  75  years
of  age.  However,  such  a  regime  limited  to  gifts  does  not
satisfactorily  deal  with  unprepared  transfers,  such  as
accidental  death  of  the  entrepreneur.  These  provisions
should 
to  cover  unprepared
transfers.

therefore  be  extended 

In  the  Flemish  region  of  Belgium,  inheritance  tax  for
business  transfers  was  reduced  in  1996,  to  3(cid:216)%  of  the  net
value  of  the  assets  of  a  family(cid:220)owned  business,  the
taxable  base  being  adjusted  according  to  the  number  of
employees.  In  1997,  the  Federal  Belgian  Government
approved  a  draft  law  reducing  the  gift  tax  for  businesses
to  3(cid:216)%  if  the  transfer  is  made  to  a  family  member  who
continues  the  business  for  at  least  five  years.

More  needs  to  be  done  in  order  to  reduce  the  burden
resulting  from  inheritance  and  gift  taxes  on  the  transfer
of  business  assets,  as  set  out  in  Article  6(a)  of  the  recom(cid:220)
mendation.  This  could  be  done,  for  example,  by  way  of
complete  exemption,  reduced  tax  rates  or  higher  reliefs.
Finally,  a  deferred  payment  of  the  inheritance  tax  over  a
reasonably  long  period  could  be  envisaged,  perhaps  with
the  possibility  for  the  continuing  entrepreneur  to  "work
off’  his  tax  bill  over  the  years.

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2.(cid:217)Sale  to  third  parties

Regarding  the  transfer  of  businesses  to  third  parties,
there  are  already  capital(cid:220)gains 
tax  exemptions  or
reductions  in  some  Member  States.  As  set  out  in  Article
7(a)  of  the  recommendation,  these  tax  reliefs  should
become  more  widespread.

In  particular,  relief  for  the  reinvestment  of  the  sale
into  a  subsequent  business
proceeds  from  a  business 
(roll(cid:220)over  relief)  should  be  introduced.  This  exists  in
Ireland  and  the  United  Kingdom,  where  the  relief  also
applies  when  the  proceeds  of  the  sale  of  the  business  are
invested  in  a  new  limited  company.  The  capital  gain  is
"rolled(cid:220)over’  to  the  new  share  holding  and  the  transferor
only  becomes  liable  for  capital  gains  tax  if  he  sells  his
share  holding.  The  same  possibility  exists  to  some  extent
in  Germany.

Ireland, 

in  Austria,  Belgium,  Germany, 

Similarly,  relief  encouraging  transfers  from  a  certain  age
of  the  entrepreneur  (retirement  relief),  which  already
the
exists 
Netherlands  and  the  United  Kingdom,  should  be  made
available  in  other  Member  States.  In  Germany,  when  the
owner  is  more  than  55  years  old,  he  can  have  a  tax  relief
of  DEM  60(cid:216)000.  This  relief  is  reduced  by  any  amount  of
capital  gains  which  exceed  DEM  300(cid:216)000  or  is  reduced
to  zero  if  the  gains  are  more  than  DEM  360(cid:216)000.  If  the
result  of  the  sale  exceeds  DEM  15  million,  the  tax  rate
applicable  is  only  50(cid:216)%  of  the  normal  one.

In  Ireland,  since  the  1995  Finance  Act,  the  owner  of  a
small  business,  if  he  is  over  the  age  of  55  and  has  owned
the  business  for  10  years,  can  retire  and  transfer  his
family(cid:220)owned  business  to  anyone  without  incurring  a
liability  for  capital  gains  tax  on  the  first  IEP  250(cid:216)000  of
the  selling  price.  In  the  UK,  retirement  relief  from  tax  on
capital  gains  was  also  extended  recently.  The  age  at
which  an  entrepreneur  can  transfer  his  enterprise  and
benefit  from  the  relief  has  been  reduced  from  55  years  to
50  years.  When  a  "full(cid:220)time  working  investor’  disposes  of
all  or  part  of  a  business  or  trading  company  there  are
substantial  degrees  of  exemption  for  chargeable  gains.  If
the  gain  is  below  GBP  250(cid:216)000  there  is  full  exemption,
plus  a  50(cid:216)%  exemption  on  gains  falling  between  GBP
250(cid:216)000  and  GBP  1  million.  The  qualifying  age  is  50  or
lower  if  the  retirement  from  the  business  is  because  of
ill(cid:220)health.

In  Austria,  the  tax  burden  on  a  transfer  to  third  parties
was  reduced 
law  of  1996  (Strukturanpassungs(cid:220)
gesetz).  The  profit  from  selling  an  enterprise  may  now
be  spread  over  three  years  if  the  business  had  existed  for

in  a 

at  least  seven  years.  Capital  gains  are  being  taxed  at  half
rate  if  the  seller  died,  became  unable  to  work  or  retired
at  the  age  of  at  least  60.  In  France,  80(cid:216)%  of  such
transfers  can  be  exempted  from  taxation  or  only  be  taxed
at  a  flat  rate  of  5(cid:216)%.

3.(cid:217)Sale  to  employees

The  transfer  of  a  business  to  its  employees  is  one  way  of
preserving  the  jobs  provided  by  the  business  and  main(cid:220)
taining  the  motivation  and  expertise  of  those  already
involved  in  the  business.  However,  the  tax  burden  from
the  sale  of  a  business  to  its  employees  may  be  an  obstacle
is  why  the  Commission
to  such  an  operation.  That 
recommended  that  there  should  be  a  more  favourable
treatment  for 
in
this 
Article  7(b)  of  the  recommendation.

transfer,  as  set  out 

type  of 

from  stamp  duties.  In 

However,  very  few  tax  measures  have  been  introduced
so  far  to  encourage  transfers  of  businesses  to  employees.
In  France,  such  transfers  are,  under  certain  circum(cid:220)
stances,  exempt 
the  United
Kingdom,  there  are  various  reliefs  for  the  transfer  of
shares  to  employees,  for  example  through  the  use  of
trusts  (statutory  employee  share  ownership  trusts  and
approved  profit(cid:220)sharing  schemes).  It  would  be  very
helpful  for  many  businesses  if  such  reliefs,  which  have
proved  to  be  very  popular,  became  more  generally
available  in  other  Member  States  so  as  to  encourage  the
continuation  of  the  business  by  employees.

4.(cid:217)Conversion  of  companies

in  order 

to  promote 

tax  charges, 

Unwarranted  tax  charges  can  arise  from  the  conversion
of a company in preparation for transfer (see Section A.1).
Member  States  should  therefore  consider  eliminating
such 
successful
transfers.  In  Germany,  for  example,  the  tax  measures
adopted  with  the  1994  law  on  the  conversion  of  busi(cid:220)
tax
(Umwandlungssteuergesetz)  provide 
nesses 
neutrality  for  income  tax  and  corporation  tax  for  all
types  of  conversion, 
including  those  not  specifically
law  on  conversion.  In  Austria,  the
covered  by  the 
tax
Umgr(cid:190)ndungssteuergesetz 
neutrality  of  all  kinds  of  such  operation.  In  France,  the
conversion  of  a  partnership  to  a  capital  company  is  taxed
at  a  fixed  amount  of  only  FRF  500,  if  the  partners  accept
to  keep  their  shares  for  a  period  of  at  least  five  years
after  the  conversion.  Other  Member  States  are  invited  to
follow  these  examples  and  introduce  such  a  system  of
complete  or  at 
for  all
conversion  operations.

tax  neutrality 

least  partial 

provides 

also 

for 

for 

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5.(cid:217)Double  taxation

mainly  consultants  and  financial  institutions,  still  remain
valid  and  can  be  specified  as  follows.

There  are  at  present  very  few  double  taxation  treaties
between  Member  States  covering  inheritance  and  gift
taxes.  Double  taxation  can  be  a  major  problem  for  the
transfer  of  business  assets  other  than  land  when  the
business  operates  with  branches 
than  one
Member  State.  It  is  important  that  all  double  taxation  in
this 
the
inheritance/gift  tax  treaty  network,  as  they  are  required
to  do  within  the  meaning  of  Article  220  of  the  EC
Treaty.

is  eliminated  by  way  of  completing 

in  more 

field 

6.(cid:217)Information  and  best  practice

information  on  tax 

As  pointed  out  in  Article  2  of  the  recommendation,  clear
and  accessible 
law  and  practice
relating  to  business  transfers  needs  to  be  provided,
whether  by  public  or  private  bodies.  A  system  of  advance
rulings  by  the  tax  authorities,  agreeing  the  tax  conse(cid:220)
quences  of  a  business  transfer  before  the  operations  take
place,  would  provide  greater  certainty  for  all  parties
involved.  This  is  at  present  envisaged  in  France.

Entrepeneurs  need  to  "think  tax’  when  preparing  for  the
transfer  of  their  business,  right  from  the  start  of  the
preparations.  The  Commission  itself  has  a  role  to  play  in
disseminating  up(cid:220)to(cid:220)date  information  and  examples  of
best  practices  across  Member  States.

7.(cid:217)Tax  reforms

Article  6  of  the  recommendation  states  that  the  survival
of  businesses  should  be  ensured  through  appropriate
fiscal  treatment.  This  implies  that  tax  systems  need  to
evolve  with  changing  business  practices  and  changing
priorities.  On(cid:220)going  tax  reform  in  the  area  of  business
transfers,  tackling  the  most  urgent  obstacles  first,  should
be  pursued  by  Member  States.  Also  in  this  field,  the
Commission  will  continue  to  assist  Member  States  in  the
exchange  of  best  practice.

C.(cid:217)Support  measures  provided  by  public  institutions  and
private  persons  regarding  the  transfer  of  business

information  and 

initiatives  aimed  at  stimulating 

According  to  Article  2  of  the  recommendation,  public
and  private 
increased
awareness, 
training  of  businessmen
should  be  encouraged.  Futhermore,  Article  3  of  the
recommendation  states  that  SMEs  should  be  provided
is  conducive  to
with  a  financial  environment  which 
concerning
successful 

transfers.  These 

suggestions, 

1.(cid:217)The  role  of  financial  institutions

SMEs  frequently  face  difficulties  in  obtaining  finance
from  financial  institutions.  Yet  business  transfers  often
require  high  financial  requirements,  for  example  in  order
to  fund  the  acquisition  costs.  Moreover,  a  takeover  often
results  in  the  need  for  a  strategic  reorganisation  of  the
business  which  may  require  a  considerable  amount  of
additional  capital.  A  study  carried  out  by  the  Deutsche
Ausgleichsbank  has  shown  that  the  capital  requirement
for  takeovers  is  60(cid:216)%  higher  than  for  business  start(cid:220)ups
(DEM  400(cid:216)000  for  takeovers  against  DEM  250(cid:216)000  for
start(cid:220)ups).

(a)(cid:217)Existing measures

Existing  support  measures  by  banks  include  databases  for
the  collection  and  delivery  of  information  on  the  calcu(cid:220)
lation  of  risks,  a  network  for  the  active  search  of
partners  for  the  matching  of  potential  buyers  and  sellers
of  a  business 
information
networks),  a  valuation  service  to  determine  the  precise
value  of  the  business,  advice  on  the  precise  amount  of
required  financial  support,  loan  guarantee  funds  as  well
as  mutual  guarantee  funds.

cross(cid:220)border 

(including 

for 

special 

In  Belgium,  a 
financing  business
fund 
transfers  (Fonds  de  transmission)  has  been  set  up  as  part
of  the  Fonds  de  participation  at  the  Caisse  nationale  du
cr~dit  professionnel.  The  transfer  fund  offers  preferential
loans  facilitating  business  transfers
interest  rates  for 
within  the  family  or  to  third  parties.  The  loan  is  granted
for  a  minimum  period  of  seven  years  and  a  maximum  of
20  years.  The  interest  rate  is  3(cid:216)%  during  the  first  five
years,  and  rises  by  0,25(cid:216)%  points  thereafter  with  an
is  required  to
upper 
secure  the  loan.

limit  of  3,75(cid:216)%.  No  guarantee 

Since  1990,  the  Deutsche  Ausgleichsbank,  a  German
public  institution,  has  promoted  the  transfer  of  businesses
its  Eigenkapitalhilfeprogramm  (equity  capital
through 
assistance  programme).  More 
than  20(cid:216)000  business
takeovers  have  been  supported  through  subordinated
loans  at  very  favourable  interest  rates.  Almost  50(cid:216)%  of
the  businesses  taken  over  belong  to  the  craft  sector,
25(cid:216)%  to  trade  and  20(cid:216)%  to  the  service  sector.  This
experience  has  shown  that  the  default  rate  of  loans
granted  for  the  transfer  of  business  was  slightly  higher
than 
for
for  newly(cid:220)created  enterprises 
transfers  against  3,3(cid:216)%  for  start(cid:220)ups),  but  could  be  kept
within  manageable  proportions.

(4,6(cid:216)% 

that 

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Schemes  providing  guarantees  for  business  takeovers  also
exist  in  France,  where  loans  are  available  at  a  rate  of
only  3,5(cid:216)%  through  the  State(cid:220)owned  financial  organism
Sofaris(cid:216)(˛—),  in  the  United  Kingdom  through  the  small
firms  loan  guarantees  scheme,  in  Austria  through  the
B˜RGES(cid:220)F‰rderungsbank,  and  in  Finland  through  the
State(cid:220)owned  financial  institution  Kera  Ltd.

All  the  abovementioned  schemes  have  generally  proved
worthwhile  and  their  adaptability  to  other  Member
States  should  be  investigated.

(b)(cid:217)Priorities to be taken into account

Many  business  transfers  could  be  facilitated  if  financial
institutions  were  encouraged  to  adopt  a  more  positive
approach  towards  granting  loans  for  SMEs.  Indeed,  the
financing  of  SMEs’  operations  in  general  and  that  of
SME  transfers  in  particular  can  be  a  profitable  business
for  banks  if  they  conduct  it  in  a  highly  professional  way,
notably  by  considering  long(cid:220)term  calculation  of  interest
for  loans  and  the  introduction  of  a  quality  assessment  of
the  business  to  be  transferred.  The  financing  of  goodwill
needs  particular  care,  given  the  difficulty  of  arriving  at  a
precise  valuation  of  intangible  assets.

Furthermore,  banks  could  adopt  a  more  coherent
internal  strategy  for  transfers  of  SMEs,  including  prep(cid:220)
aration  schemes  for  a  successful  transfer  of  business  with
better  and  earlier  information  for  entrepreneurs  on  the
support  measures  available,  as  well  as  transfer  plans
covering  the  value  of  the  business,  the  profile  of  the
person  taking  over  and  ways  to  achieve  the  best  price  for
the  business.

2.(cid:217)The  role  of  intermediaries

legal  questions,  as  well  as 

Since  the  transfer  of  a  business  covers  accounting,
taxation  and 
financial
requirements,  a  wide  range  of  professional  services  by  all
intermediaries, 
tax  advisers,
including  accountants, 
lawyers,  notaries  public,  business  consultants,  etc.,
should  be  available  to  entrepreneurs  contemplating  trans(cid:220)
ferring  or  taking  over  a  business.  All  of  the  options  for
succession  need  to  be  considered  by  the  professional

(˛—)(cid:217)Sofaris  and  CEPME  have  recently  been  integrated  into  the
financial  holding  BDPME  (Banque  pour  le  d~veloppement
des  PME).  Both  organisms  are  now  bound  to  cooperate  by
using  their  complementary  skills,  in  order  to  provide  a
wider  range  of  financial  support  to  SMEs,  but  Sofaris  still
exists  as  such  and  is  specialised  in  guarantee  schemes.

advisers  after 
commercial  circumstances  of 
emotional  relationships  of  the  family  members.

consideration  of  both 
the  business  and 

careful 

the
the

(a)(cid:217)Existing measures

For  the  entrepreneur  thinking  about  transferring  the
business,  the  main  services  provided  by  the  abovemen(cid:220)
tioned  professionals  concern  advice,  studies,  surveys,
seminars,  communication,  development  of  a  network,
and  an  enterprise  check(cid:220)up.  For  persons  seeking  to  take
over  a  business,  the  main  services  are  the  preparation  and
monitoring  of  the  business  before  and  after  the  takeover,
notably  by  examining  a  considerable  number  of  potential
firms  offered 
for  sale,  by  contacting  networks  or
databases,  or  by  setting  up  a  network  of  enterprises
which  are  ready  for  transfer,  and  the  development  of
business  transfer  plans.

Many  firms  and  organisations  are  active  in  this  field  and
many  databases  have  been  set  up  in  specific  regions  or
sectors.  However, 
the  activities  aimed  at  bringing
interested  parties  together  generally  have  a  limited  range.
There  is  no  single  activity  which  fulfils  the  requirements
of  the  entire  group.  In  order  to  mediate  effectively
between  the  parties,  a  larger  database  of  supply  and
demand  would  therefore  be  necessary,  so  that  specific
and  selective  contacts  could  be  arranged.  The  fact  that
most  of  the  databases  are  not  accessible  for  the  public
poses  another  problem,  since  entrepreneurs  are  excluded
from  consulting  the  data  available  only  to  banks  and
accountants.  It  would  be  hepful  for  the  success  of  many
business  transfers  if  these  databases  could  become  more
widely  accessible.

(b)(cid:217)Priorities to be taken into account

Professional  advice  is  needed  at  a  much  earlier  stage  so
that  a  business  plan  can  be  prepared 
in  time.  All
consultants  need  to  check  the  criteria  for  a  successful
transfer  of  business  in  three  main  areas:  the  future  entre(cid:220)
preneur  (e.g.  training,  experience,  financial  situation,
etc.),  the  current  entrepreneur  (e.g.  pensions,  age,  future
interest,  etc.)  and  the  business  itself  (assets,  investment,
employees,  financial  situation,  prospects,  etc.).  Inter(cid:220)
mediaries 
an  overall
approach  for  the  development  of  the  business  transfer
plan,  involving  all  the  abovementioned  professionals.

consider  developing 

should 

C  93/10

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28.3.98

The  services  provided  could  fall  into  three  main  sectors:
the  stability  of  the  enterprise  once  transferred  to  the  next
generation,  the  pension  arrangements  for  the  retiring
entrepreneur  and  the  opportunities  for  the  new  entre(cid:220)
preneur.  A  structure,  such  as  a  family  forum,  should  exist
to  allow  a  frank  discussion  of  succession  issues  before  a
succession  plan  is  drafted.  The  succession  plan  should
settle  the  succession,  the  continuation  of  the  business,  as
well  as  a  timetable  and  mechanisms  for  correcting  any
errors.

3.(cid:217)Conclusions

In  order  to  be  carried  out  successfully,  the  transfer  of
business  needs  to  be  accompanied  in  all  its  phases,  since
the  entrepreneur  needs  financial  support  (see  Article  3  of
the  recommendation)  and  professional  advice  before,
during  and  after  the  transfer.  The  criteria  for  the  best
future  development  of  the  business  and  the  actions  which
have  to  be  taken  need  to  be  clearly  identified  from  the
outset.  A  cross(cid:220)border  network  of  potential  buyers  and
sellers  (as  in  the  Netherlands  and  Belgium)  could  be  very
helpful  in  this  respect.  The  financial  support  of  business
transfers  ought  to  be  granted  on  the  same  level  as  for
business  start(cid:220)ups  (as  in  Belgium,  France,  Germany  and
Italy).

D.(cid:217)Practical  experience  by  entrepreneurs  having  trans(cid:220)

ferred  or  taken  over  a  business

In  the  course  of  1996,  as  part  of  the  preparation  of  the
European  Forum 
in  Lille,  European  business  organi(cid:220)
sations  conducted  a  survey  about  the  practical  experience
of  transferors  (i.e.  the  person  transferring  the  business)
and  transferees  (i.e.  the  person  taking  over  the  business).
This  survey  was  carried  out  through  the  evaluation  of  a
questionnaire  which  had  previously  been 
to
numerous  entrepreneurs 
the  different  Member
from 
States.  The  results  of  this  survey  can  be  summarised  as
follows.

sent 

1.(cid:217)Preparation  and  training

The  clearest  conclusion  is  that  the  transfer  of  business  is
often  badly  prepared.  Generally,  the  problem  is  tackled
too 
to  options  which  are  more
leading 
expensive  and  which  entail  greater  risks.

late, 

thus 

Transferors  mostly  prefer  the  total  transfer  of  the  whole
business.  If  this  cannot  be  achieved,  they  are  in  favour  of
a  gradual  transfer  to  a  person  within  the  family  instead
of  someone  external  to  the  enterprise  or  an  employee.
According  to  the  survey,  transferees  consider  the  transfer
primarily  in  terms  of  taking  advantage  of  a  good  oppor(cid:220)
tunity,  and  only  to  a  lesser  extent  in  terms  of  ensuring
the  continuity  of  the  enterprise.  They  tend  to  opt  for  a
total  or  partial  transfer,  whereas  other  possibilities,  such
as  leasing,  donation  or  going  public,  are  not  considered

highly.  The  two  essential  aspects  for  the  successful
transfer  of  business  are  the  awareness  of  the  transferor  of
the  need  to  prepare  the  transfer  in  plenty  of  time,  and
the  familiarisation  of  the  transferee  with  the  specific
structure  of  the  enterprise.

It 

therefore  vital 

The  transfer  of  business  is  not  usually  seen  as  a  central
management  activity. 
start
is 
awareness(cid:220)raising  programmes  for  entrepreneurs,  taking
into  account  that  the  business  transfer  is  a  sensitive
matter  regarding  both  emotional  aspects  and  confiden(cid:220)
tiality.  One  way  of  approaching  this  subject  would  be  to
start  training  measures 
in  businesses  with  a  view  to
familiarising  entrepreneurs  with  the  issue  of  transfer,  as
mentioned  in  Article  2  of  the  recommendation.

to 

2.(cid:217)Valuation

The  issue  of  valuation  plays  a  role  in  three  different
scenarios, 
i.e.  taxation  of  the  business,  sale  of  the
business  to  a  third  party  or  gift  of  the  business  to  a
member  of  the  family.  The  valuation  can  be  made  by
using  methods  based  on  the  intrinsic  value,  the  proceeds,
the  return  on  investment,  cash(cid:220)flow,  market  value,  etc.

(a)(cid:217)Taxation of the business

As  regards  taxation,  in  particular  for  transfers  by  way  of
succession,  the  valuation  methods  used  by  State  adminis(cid:220)
trations,  relating  to  inheritance  taxes,  are  often  seen  as
being  too  rigid.  It  is,  therefore,  important  to  allow  enter(cid:220)
prises  the  option  of  having  an 
independent  analysis
carried  out.  Moreover,  as  set  out  in  Article  6(c)  of  the
recommendation,  it  is  important  to  ensure  that  the  tax
assessment  of  the  business  should  take  account  of  how
the  value  of  the  business  can  change  after  the  death  of
the  owner.  In  most  cases,  this  value  will  be  much  lower
than  during  the 
lifetime  of  the  previous  owner  and
should  therefore  be  assessed  by  reference  to  a  moment
several  months  after  the  death  of  the  owner.

(b)(cid:217)Sale of the business to a third party

As  regards  transfers  by  way  of  sale,  the  final  result  is
determined  by  negotiations  and  by 
financial
capacities  of  the  transferee  involved.  In  this  respect,  one
to
can  only  encourrage 

transferors  and 

transferees 

the 

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C  93/11

themselves  about 

the  different  methods  of
inform 
valuation  and, 
if  necessary,  to  make  use  of  experts
sufficiently  early  in  the  process,  in  order  to  allow  a  thor(cid:220)
oughassessment  of  the  offer.  What  counts  in  the  end,
however,  is  the  market  value  of  the  enterprise,  i.e.  the
price  which  potential  transferees  are  ready  to  pay.

business.  The  reinvestment  of  such  proceeds  has  been
made  attractive  for  tax  purposes  and  could  well  facilitate
a  number  of  business  transfers.  The  added(cid:220)valued  of  this
scheme  consists  in  the  fact  that  the  retired  businessmen
also  offer  advice  to  the  companies  in  which  they  invest,
thus  assisting  them  in  avoiding  problems  encountered  in
the  transfer  from  one  generation  to  the  next.

(c)(cid:217)Gift of the business to a member of the family

COMPARATIVE  TABLES

As  regards  transfers  by  way  of  a  gift  within  the  family,
the  problem  consists  of  the  fact  that  there  is  no  market
price  and  that  the  valuation  will  therefore  depend  on  a
number  of  estimates.  On  the  other  hand,  the  valuation  of
the  business  will  be  compared  to  that  of  other  items  of
property  given  to  members  of  the  family  in  anticipation
of  the  succession.  In  this  situation,  the  valuation  of  the
business  should  notably  take  into  account  the  specific
risks  and  potential  weaknesses  of  a  business 
in
comparison  with  the  other  items  transferred,  such  as  real
estate,  the  value  of  which  tends  to  be  less  volatile.

3.(cid:217)Using  the  experience  of  former  entrepreneurs

Even  for  transfers  which  have  been  prepared  sufficiently
early  and  which  have  been  accomplished  according  to  an
agreed  plan,  the  transferee  often  has  to  face  unexpected
management  situations.  In  such  a  case,  the  transferor
could  continue  to  help  the  new  entrepreneur 
in  his
decision(cid:220)making,  acting  for  example  as  a  consultant  or
part(cid:220)time  director  or  manager  for  a  limited  period  of
time  after  the  transfer.  Good  understanding  between  the
transferor  and  the  transferee  is  essential  in  this  respect.  It
could  also  be  envisaged  that  an  external  adviser  proceeds
to  audit  on  social,  fiscal  and  financial  matters,  in  order
to  assist  the  transferor  and  the  transferee  in  working
towards  a  smooth  changeover.

It  would  be  advantageous  if  a  dialogue  was  initiated  on
advantages  to  be  gained  from  greater  understanding
between  different  generations  of  entrepreneurs  as  well  as
a  better  transfer  of  know(cid:220)how  from  one  generation  to
the  next.  For  example,  the  concept  of  business  angels(cid:216)(˛(cid:209)),
which  is  relatively  widespread  in  the  USA  and  the  United
Kingdom,  consists  of  retired  businessmen  who  are
prepared  to  invest  the  proceeds  of  the  sale  of  their  own
business  in  one  or  several  other  small  and  medium(cid:220)sized

(˛(cid:209))(cid:217)See  Commission  communication  on  the  financial  problems
experienced  by 
companies,
COM(93)  528  of  10  November  1993,  paragraph  29;
Commission  communication  on  the 
improvement  of  the
fiscal  environment  of  small  and  medium(cid:220)sized  enterprises
(OJ  C  187,  9.7.1994,  p.  5,  paragraph  6).

small  and  medium(cid:220)sized 

To  get  the  best  possible  overview  of  the  current  situation
concerning  legal  and  tax  aspects  of  the  business  transfer
in  the  15  Member  States  of  the  European  Union,  the
Commission  has  updated  and  amended  the  comparative
tables  published  as  annexes  to  the  communication  of
23  July  1994(cid:216)(˛(cid:210)).  These  six  tables  are  adjoined  as
annexes  to  the  present  communication.

SUMMARY  AND  CONSEQUENCES  OF  THE  PRESENT
SITUATION

As  shown  in  the  preceding  section  and  in  the  tables  set
out  in  the  annexes  to  the  present  communication,  there
are  wide  variations  between  the  situation  in  the  different
Member  States.  Some  of  them  have  taken  action  in
recent  years  or  are  contemplating  facilitating  the  legal,
fiscal  and  financial  environment  of  business  transfers,
whereas  others  have  not  been  very  active  in  this  respect.

The  general  picture  of  all  Member  States  shows  that  the
various  suggestions  set  out  in  the  recommendation  have
not  been  followed  to  an  extent  which  would  be  sufficient
to  overcome  the  specific  obstacles  met  by  businesses
facing 
to  be
particularly  acute  in  the  light  of  the  high  number  of
expected  business  failures  due  to  poor  preparation  of  the
transfer.

transfer.  This  conclusion  seems 

their 

themselves, 

the  entrepreneurs 

Member  States,  but  also  all  public  and  private  inter(cid:220)
should
mediaries  and 
therefore  be  aware  of  the  crucial  importance  of  this
subject  for  the  survival  of  many  businesses  and,  thereby,
for  the  maintenance  of  a  great  number  of  jobs.  Member
States  should  furthermore  continue  and  strengthen  their
efforts  to  facilitate  the  transfer  of  businesses,  through
legislative  and  administrative  simplification,  effective  tax
reductions  and  easier  access  to  financial  support  for  the
takeover  of  a  business.  Intermediaries  should  be  well
in  all  relevant  aspects  of  the
informed  and  trained 

(˛(cid:210))(cid:217)See  footnote  4.

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28.3.98

transfer  of  businesses  so  as  to  be  prepared  to  give  their
know(cid:220)how  to  a  large  number  of  entrepreneurs,  both  of
the  present  and  of  the  coming  generation.

The  role  of  the  European  Commission  in  this  field  will
be  to  monitor  the  situation  closely  and  to  contribute  to
raising  awareness,  information  and  training  of  all  parties
concerned.  On  the  basis  of  a  thorough  evaluation  of  all
the
the 

the  present  communication, 

reactions 

to 

European  Commission  may  propose  further  measures  to
facilitate  the  transfer  of  business.

The  Commission  would  therefore  welcome  comments  on
this  communication,  which  should  be  sent  to:

Mr.  Guy  Crauser,
Director(cid:220)General,  DG  XXIII,
Rue  de  la  Loi/Wetstraat  200,
B(cid:220)1049  Brussels.

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C  93/13

ANNEX

COMPARATIVE  TABLE  1

Companies  limited  by  share  capital

Member  State

Minimum  number
of  members  for
formation

Minimum  capital

Supervisory  board

Reduced  administrative
burdens  for  SMEs

A

B

DK

D

EL

FIN

E

F

IRL

I

L

NL

P

UK

S

2

2

1

1

2

1

3

7

7

2

2

1

5

2

1

ATS  1  million
ECU  71(cid:216)890

Obligatory  (3/7/12/20  members  according  to
the  size  of  the  company)

No

BEF  1(cid:216)250(cid:216)000
ECU  30(cid:216)660

No

Yes  (accountancy)

DKK  500(cid:216)000
ECU  66(cid:216)490

Obligatory 
workers’  participation)

(mixed 

system  with  optional

Yes  (accountancy)

DEM  100(cid:216)000
ECU  50(cid:216)500

Obligatory  (workers’  participation  limited  to
companies  having  at  least  500  employees)

Yes  (kleine
Aktiengesellschaft)

GRD  10(cid:216)000(cid:216)000
ECU  32(cid:216)260

FIM  500(cid:216)000
ECU  83(cid:216)750

ESP  10(cid:216)000(cid:216)000
ECU  59(cid:216)880
(higher  for  special
companies)

On  the  share  market:
FRF  1(cid:216)500(cid:216)000
ECU  226(cid:216)930

not  on  the  share  market:
FRF  250(cid:216)000
ECU  37(cid:216)820

IEP  30(cid:216)000
ECU  39(cid:216)470

ITL  200(cid:216)000(cid:216)000
ECU  103(cid:216)250

LUF  1(cid:216)250(cid:216)000
ECU  30(cid:216)660

NLG  100(cid:216)000
ECU  43(cid:216)860

PTE  5(cid:216)000(cid:216)000
ECU  24(cid:216)780
(higher  for  special
activities)

GBP  50(cid:216)000
ECU  74(cid:216)630

SEK  500(cid:216)000
ECU  57(cid:216)600

-

No

Optional  if  capital  of  at  least  FIM  500(cid:216)000;  if
capital  is  lower,  the  number  of  board  members
can  be  fewer  than  three  and  the  managing
director  is  not  obligatory

Yes  (accountancy)

No

Yes  (accountancy)

Optional

No

No

No

Obligatory  for  major  companies  (capital  at
least  NLG  25  million,  company  council,  at
least  100  employees)

Optional

No

Obligatory

No

No

No

No

No

No

No

No

C  93/14

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COMPARATIVE  TABLE  2

Partnerships  and  sole  proprietorships

Member
State

Continuity  of
partnerships  as  a
legal  principle

Conflict  will/partnership
contract

Decision  of  the  beneficaries Transfer  of  enterprise  assets

Transformation  to  capital
companies  and  vice(cid:220)versa

A

B

No

No

legal  solution,  but
in

No 
agreement  prevails 
practice

Unanimity

-

codified 

Partially 
(only
from  capital  companies  to
partnerships)

legal  solution,  but
in

No 
agreement  prevails 
practice

Unanimity

Concept  of 
commerce’ 
practice

"fonds  de
in
used 

Partially  codified

DK

No

No  legal  solution

-

-

Codified

D

No 
(soon:
yes)  yes:  for
partner  asso(cid:220)
ciations

Solution  only  partly  in
favour  of  the  priority  of
the  partnership  contract

Unanimity 
in  specific  cases)

(majority

in 
total 
Transfer 
traders  and 
sole 
partner  associations

for
for

Codified

EL

No

Solution  only  partly  in
favour  of  the  priority  of
the  partnership  contract

Unaminity

-

-

FIN

No

Priority  of 
nership  contract

the  part(cid:220)

Unanimity

legal  obligation  to
No 
transfer  each  asset  indi(cid:220)
vidually

codified 

(only
Partially 
from  a  partnership  to  a
capital  company)

E

F

No

Solution  only  partly  in
favour  of  the  priority  of
the  partnership  contract

of 

for 

the
Unanimity 
disposal 
part(cid:220)
nership  shares,  ma(cid:220)
jority 
their
for 
administration

Provision  of  immediate
cash

Partially  codified

No

Priority  of 
nership  contract

the  part(cid:220)

Unanimity

Transfer  in  total  ("fonds
de  commerce’)

Partially  codified

IRL

No

legal  solution,  but
the  part(cid:220)
in

No 
priority  of 
nership 
practice

contract 

Unanimity

Transfer  in  total

Not  codified,  obligation
to  dissolve  the  company
when 
into
transformed 
partnership 
(disincorpor(cid:220)
ation)

I

L

Yes

No 
legal  solution,  but
surviving  partners  have
a  threefold  choice

Unanimity

Transfer 
("azienda’)

in 

total

-

No

No  legal  solution

Unanimity

Concept  of 
commerce’ 
practice

"fonds  de
in
used 

Partially  codified

NL

No

-

-

No  transfer  in  total

Partially  codified

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Member
State

Continuity  of
partnerships  as  a
legal  principle

Conflict  will/partnership
contract

Decision  of  the  beneficaries Transfer  of  enterprise  assets

Transformation  to  capital
companies  and  vice(cid:220)versa

P

Yes

No  legal  solution

for 

Unanimity 
the
disposal  of  partner(cid:220)
ship  shares,  majority
for 
adminis(cid:220)
tration

their 

Transfer  in  total  ("esta(cid:220)
belecimento  comercial’)

Codified

No  legal  solution

Unanimity

Transfer  in  total

Not  codified;  obligation
to  dissolve  the  company
when  transformed  into  a
(disincorpor(cid:220)
partnership 
ation)

UK

No,  but  per(cid:220)
sonal 
rep(cid:220)
resentative
can  dispose  of
the  enterprise
one
within 
year  on 
the
instructions  of
benefi(cid:220)
the 
ciaries

S

No

Solution 
favour  of
in 
the  partnership  contract

Unanimity

Transfer  in  total

Partially  codified

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COMPARATIVE  TABLE  3

Transfer  of  business  within  the  family  and  its  taxation

Member
State

Transfer  between  spouses

Rights  of  the  spouse  at  the
death  of  the  entrepreneur

Taxation  implications  of
transfers  between  spouses

Moment  of  valuation  of  the
business  for  tax  purposes

A

Yes

to 

inherit

Legal  right 
(Ehegattenerbrecht),
in  cash
compensation 
(Pflichtteil), 
exception
for  agricultural  prop(cid:220)
adequate
erties: 
(Aner(cid:220)
compensation 
benrecht)

no 

B

Only  within  wedding
agreement;  no  sale;
no  agreements  on
future  inheritance

No  property  right,  but
right  to  use  and  profit
(usufruit),  possibility  of
buying  this  right  back

DK

-

Optional 
undistributed
property  right  on  estate

inherit

to 

Legal  right 
(Ehegattenerbrecht),
compensation 
(Pflichtteil)

in  cash

-

No

Payment  by  instalments
of  the  capital  gains  tax
arising  from  a  transfer

Yes, 
years 
passungsgesetz)

over 
three
(Strukturan(cid:220)

No

No

-

-

No

-

-

gains 

Capital 
inheritance 
gift  tax  apply

tax,
tax  and

-

-

Inventory  day  (one  to
the
two  years 
death  of 
entre(cid:220)
preneur)

after 

the 

-

Death  of 
preneur

the  entre(cid:220)

Death  of 
preneur

the  entre(cid:220)

-

-

No

-

-

-

No  property  right,  but
in  cash;
compensation 
agri(cid:220)
exception 
cultural  properties

for 

-

-

-

-

-

Relief 
330(cid:216)000

of 

FRF

Death  of 
the  entre(cid:220)
preneur  (the  declaration
has  to  be  made  within
six  months)

No

the
On  decision  by 
administrator 
the
of 
estate  after  taking  into
legal
account  tax  and 
(usually
requirements 
shortly  after  the  death)

-

-

No

D

Yes

EL

FIN

E

F

-

Yes

-

Only  within  wedding
agreement  (commu(cid:220)
naut~ 
universelle),
gift  possible;  no  sale;
no  agreements  on
future  inheritance

IRL

Yes

I

Only  within  wedding
(azienda
agreement 
coniugale);  no  sale;
no  agreements  on
future  inheritance

28.3.98

EN

Official  Journal  of  the  European  Communities

C  93/17

Member
State

Transfer  between  spouses

Rights  of  the  spouse  at  the
death  of  the  entrepreneur

Taxation  implications  of
transfers  between  spouses

Moment  of  valuation  of  the
business  for  tax  purposes

Payment  by  instalments
of  the  capital  gains  tax
arising  from  a  transfer

L

NL

P

UK

S

-

-

-

Yes

Yes

-

-

-

-

-

-

-

-

-

-

-

-

No  special  rights  for  the
spouse

No  income  tax  when
share(cid:220)
changing 
holders, 
and
inheritance  tax  apply

gift 

Death  of 
preneur

the  entre(cid:220)

-

No

-

Yes

No

C  93/18

EN

Official  Journal  of  the  European  Communities

28.3.98

COMPARATIVE  TABLE  4

Inheritance  and  gift  tax

Member  State

Inheritance  tax
maximum  rate

Maximum  rate  for  children Special  rules  for  business

Interest(cid:220)free  instalments Calculation  of  the  tax  base

A

B

60(cid:216)%

15(cid:216)%

No

No

value 

Market 
less
liabilities,  real  property:
monetary  value  (10(cid:216)%
of  market  value)

80(cid:216)%

30(cid:216)%

rate 
assets 

Flemish  law  of  1996
for
reduced 
business 
to
3(cid:216)%;  draft 
federal
law  of  1997  reduces
gift  tax  rate  to  3(cid:216)%

-

Market 
relationship 
donor  and  donee

value  +
between

DK

36,25(cid:216)%

15(cid:216)%

ECU  25(cid:216)000  relief

-

Market 
relationship 
donor  and  donee

value  +
between

D

50(cid:216)%

30(cid:216)%

DEM  500(cid:216)000  busi(cid:220)
ness  relief,  40(cid:216)%  on
the 
the
amount

rest 

of 

Yes:  10  years 
necessary 
the  survival)

(if
to  assure

Tax  balance  value  of
assessed
estate: 
real 
relief  +
value 
less 
relationship 
between
donor  and  donee

EL

65(cid:216)%

25(cid:216)%

-

Yes:  five  years

Scaled 
60(cid:216)%

from  5(cid:216)% 

to

FIN

48(cid:216)%

16(cid:216)%

Taxation 
value 
market 
request)

on 
instead 
value 

tax
of
(on

Yes:  five  years  (on
request)

Market 
liabilities

value 

less

E

F

34(cid:216)%  (calculation
of  due  amount
with  wealth  coef(cid:220)
ficient  up  to  2,4)

reduced 

The  taxable  amount
in 
is 
line
the  children’s
with 
age

Reduction  of  95(cid:216)%

Yes:  five  years

Market 
liabilities

value 

less

60(cid:216)%

40(cid:216)%

Payment  deferred  or
in  instalments

IRL

40(cid:216)%  estate  duty

40(cid:216)%

Business  relief

I

60(cid:216)%

27(cid:216)%

Business  relief  of
ITL  250(cid:216)000(cid:216)000

No

No

-

Assessed 
relief

value 

less

Market  value  less  relief
+  relationship  between
donor  and  donee

plus
value 
Book 
goodwill + relationship
between  donor 
and
donee

28.3.98

EN

Official  Journal  of  the  European  Communities

C  93/19

Member  State

Inheritance  tax
maximum  rate

Maximum  rate  for  children Special  rules  for  business

Interest(cid:220)free  instalments Calculation  of  the  tax  base

L

15(cid:216)%

15(cid:216)%

NL

P

68(cid:216)%

50(cid:216)%

27(cid:216)%

25(cid:216)%

UK

40(cid:216)%

40(cid:216)%

S

30(cid:216)%

30(cid:216)%

-

-

-

-

-

-

Yes:  10  years 
for
non(cid:220)exempted  assets

value 

Market 
less
liabilities + relationship
between  donor 
and
donee

Income  and  inheritance
tax

value 

Market 
less
liabilities + relationship
and
between  donor 
donee

value 

Market 
less
liabilities + relationship
between  donor 
and
donee

No

value 

less
Market 
liabilities + relationship
between  donor 
and
donee

exemption
100(cid:216)% 
(the
business 
for 
threshold  for  taxable
assets 
to
ECU  155(cid:216)000)

increased 

10(cid:216)% 

Basic  allowance:  SEK
on
70(cid:216)000, 
remaining 
amounts
from  SEK  1  up  to
SEK  300(cid:216)000,  20(cid:216)%
up  to  SEK  600(cid:216)000
above
30(cid:216)% 
and 
SEK  600(cid:216)000

C  93/20

EN

Official  Journal  of  the  European  Communities

28.3.98

COMPARATIVE  TABLE  5

Transfer  of  business  to  third  parties  and  its  taxation

Member  State

Measures  facilitating  the  transfer  of
businesses  to  third  parties

Tax  relief  on  money,  received  from  a
transfer,  which  is  subsequently  reinvested
in  another  SME

Relief  for  early  retirement

A

B

DK

D

EL

FIN

E

F

IRL

I

L

NL

P

UK

S

Payment  of  capital  gains  tax  is
possible  over  three  years  if  seller
had  owned  the  business  for  at
least  seven  years

-

No

Half  of  the  average  income  tax
rate

-

No

No

-

Yes

-

-

Taxation  can  be  deferred  by  legal
means  and  also  avoids  high  rates

-

Yes

No

No

No

No

Yes

-

No

-

No

Capital  gains  tax  rate  is  only  50(cid:216)%  if
the  seller  is  more  than  60  years  old  and
retires

Capital  gains  on  intangible  assets  are
if
subject  to  a  reduced 
seller  is  more  than  60  years  old

income  tax 

No

Basic  allowance  of  DEM  60(cid:216)000  for
transfers  by  owners  over  55.  This  is
reduced  by  the  amount  by  which  the
transfer  exceeds  DEM  300(cid:216)000

-

No

-

No

Yes  (roll(cid:220)over  relief)

If  an  entrepreneur  reaches  55  years  of
age  and  sells  qualifying  business  assets
for  less  than  IEP  250(cid:216)000,  he  will  get
tax  exemption  for  the  capital  gain

No

-

No

-

Yes

No

-

-

NLG  20(cid:216)000  are  exempted;  for  people
above  55  this  exemption  is  increased  to
NLG  45(cid:216)000

-

Capital  gains  tax  relief  (qualifying  age
reduced  from  55  to  50)

No

28.3.98

EN

Official  Journal  of  the  European  Communities

C  93/21

COMPARATIVE  TABLE  6

Transfer  of  businesses  to  employees  and  its  taxation

Member  State

Specific  measures  facilitating  transfers  to
employees

Relief  available  to  employees  in  relation  to
stamp  duties  and  registration  fees

Special  rules  for  the  transfer  to  an  enterprise
or  a  workers’  cooperative  set  up  by  the
employees

A

B

DK

D

EL

FIN

E

F

IRL

I

L

NL

P

UK

S

-

-

No

No

-

BEF  40(cid:216)000/ECU  1(cid:216)000  general
tax  relief

Social  economy  companies

No

Inheritance  and  gifts  tax  down  to
30(cid:216)%

DEM  300/ECU  150  threshold
per  year

-

-

-

-

-

-

-

-

-

ESOP

No

Tax  reduction

-

-

-

-

-

-

-

-

ESOP

No

No

-

-

-

Cooperatives

Tax  exemption  for  shares  transferred

-

-

-

-

-

ESOP

No