Proposal for a Council Directive amending Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States
Date: 2003-10-17
Institutions: European Commission
Subjects: demerger, merger, organisation, share, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 17.10.2003
COM(2003) 613 final

2003/0239 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 90/434/EEC of 23 July 1990 on the common system of taxation
applicable to mergers, divisions, transfers of assets and exchanges of shares concerning
companies of different Member States

(presented by the Commission)

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EXPLANATORY MEMORANDUM

INTRODUCTION

The European Council held in  Lisbon in March 20001 concluded that the European
Union  had  the  strategic  goal  to  become  the  most  competitive  and  dynamic
knowledge-based  economy  in  the  world,  capable  of  sustainable  economic  growth,
with more and better jobs and greater social cohesion. This objective was reiterated
by the Stockholm European Council of March 20012. The Lisbon Council also called
for building up a supportive general framework for economic activity in the EU.

In  July  1999,  the  Council  of  Ministers  had  given  a  mandate  to  the  Commission  to
investigate  the  impact  of  tax  provisions  that  constitute  obstacles  to  cross-border
economic  activities  in  the  internal  market  and  remedies  thereto.  The  context
generated by the  Lisbon Council strengthens the importance of  analysing  corporate
taxes  since  taxation  of  companies  can  play  an  important  role  in  achieving  the
objectives  set  by  the  Council.  Following  this  mandate,  the  Commission  services
conducted a study on company tax.

tax  study3  resulted 

the  company 

The  conclusions  of 
in  a  Commission
Communication4.  There  it  was  examined,  among  other  things,  whether  the  current
application  of  company  taxation  in  the  internal  market  creates  inefficiencies  and
prevents operators from  exploiting  its  full benefits.  This  would  imply  a  loss  of  EU
welfare, undermine the competitiveness of EU businesses and thus be counter to the
Lisbon objectives. The Communication sets out the Commission view of what needs
to be and what can be realistically done in the area of company  taxation  in the  EU
over  the  next  few  years  in  order  to  adapt  company  taxation  in  the  EU  to  the  new
economic framework and to achieve a more efficient internal market without internal
tax obstacles. For this purpose, a number of concrete initiatives were presented.

In addition, the Commission adopted in 2001 a Communication on tax policy for the
European Union5 where it identified both general objectives and a number of specific
priorities  in  direct  and  indirect  taxation.  It  referred  in  particular  to  corporate  tax
issues  where  it highlighted  that,  at present, re-organisations of  companies  are  often
accompanied  by  cross-border  mergers  and  acquisitions  which  currently  result  in  a
combination of one-off and ongoing tax costs.

Presidency  Conclusions  of  the  Lisbon  European  Council  of  23  and  24  March  2000,  Press  release  nr:
100/1/00, 24/3/2000, published on the website of the Council of the European Union (http://ue.eu.int).
Presidency Conclusions of the Stockholm European Council of 23 and 24 March 2001, Press release nr:
100/1/00, 24/3/2001, published on the website of the Council of the European Union (http://ue.eu.int).
Commission staff working paper "Company taxation in the internal market" SEC(2001) 1681.
Communication from the Commission to the Council, the European Parliament and the Economic and
Social  Committee,  "Towards  an  Internal  Market  without  tax  obstacles.  A  strategy  for  providing
companies with a consolidated corporate tax base for their EU-wide activities", COM(2001) 582 final.
Communication from the Commission to the Council, the European Parliament and the Economic and
Social  Committee  “Tax  Policy  in  the  European  Union”,  COM  (2001)  260  final,  OJ C 284  of
10.10.2001.

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If  the  Lisbon  goals  are  to  be  achieved,  company  cross-border  mobility  within  the
Union must be encouraged and obstacles to it eliminated or reduced. This will have
social  implications,  which  are  dealt  with  in  the  framework  of  other  Community
policies: the various Directives on worker information and consultation, the on-going
initiative  on "Anticipating  and managing change:  a  dynamic  approach  to  the  social
aspects of corporate restructuring" and other initiatives in the employment field.

Moreover,  the  Statute  of  the  European  company  (Societas  Europaea  -  SE)  was
adopted in 20016. It aims at contributing to the completion of the internal market and
the spreading of the improvements that this brings about in the economic and social
perspective  throughout  the  Community.  To  this  end,  it  provides  for  a  legal
framework so that structures  of  production  can  adapt  to  the  Community  dimension
and carry out the reorganisation of their business on a Community scale. The success
of  the  SE  is  very  much  related  to  the  applicable  tax  regime.  It  should  be  able  to
benefit from the whole body of harmonised corporate tax law.

Similarly, the Statute of the European Cooperative Society (SCE) has been adopted
in 20037. The SCE should also be able to benefit from the whole body of harmonised
corporate tax law.

The  Statutes  of  the  SE,  Article  8,  and  of  the  SCE,  Article  7,  provide  for  the
possibility  of  the  transfer  of  their  respective  registered  offices  between  Member
States. This is an expression of the fundamental freedom of establishment. It should
not be hampered by discriminatory tax rules or by restrictions or distortions arising
from the tax provisions of the Member States which would be in violation of the EC
Treaty  provisions.  Nevertheless,  in  order  to  ensure  clarity  on  this  point  it  is
appropriate to provide in the Directive for provisions that explicitly refer to this case.

In view of the existing cross-border tax obstacles, ensuring the proper functioning of
the internal market requires some action. According to Article 94 of the EC Treaty,
the  Commission  has  the  power  to  propose  to  the  Council  directives  for  the
approximation of such laws, regulations or administrative provisions of the Member
States as directly affect the establishment or functioning of the common market.

The  Directive  on  the  common  system  of  taxation  applicable  to  mergers,  divisions,
transfers  of  assets  and  exchanges  of  shares  concerning  companies  of  different
Member  States  (the  Merger  Directive)8  already  provides  for  a  solution  in  certain
cases  to  the  cross-border  obstacle  created  by  high  tax  costs  linked  to  business
restructurings. However, it is still possible to improve the scope of the Directive and
the  methods  provided  for  the  deferral  of  taxation,  while  at  the  same  time
safeguarding the financial interests of the Member States.

Council Regulation (EC) n° 2157/2001 of 8 October 2001 on the Statute for a European Company (SE)
and  Council  Directive  2001/86/EC  of  8  October  2001  supplementing  the  Statute  for  a  European
company with regard to the involvement of employees, OJ L 294 of 10.11.2001.
Council  Regulation  (EC)  n°  1435/2003  of  22  July  2003  on  the  Statute  for  a  European  Cooperative
Society  (SCE)  and  Council  Directive  2003/72/EC  of  22  July  2003  supplementing  the  Statute  for  a
European Cooperative Society with regard to the involvement of employees, OJ L 207 of 18.8.2003.
Council  Directive  90/434/EEC  of  23  July  1990  on  the  common  system  of  taxation  applicable  to
mergers,  divisions,  transfers  of  assets  and  exchanges  of  shares  concerning  companies  of  different
Member States, OJ L 225 of 20.8.1990.

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During  1993  the  Commission  adopted  a  proposal  amending  the  Merger  Directive9.
This proposal included two modifications. In the first place, it was designed to enable
the Directive to be applied to all enterprises subject to corporation tax, irrespective of
their legal form.

The  second  amendment  referred  to  the  exemption  of  capital  gains  derived  from
mergers and divisions in certain cases. It may be the case that the company receiving
assets  in  these  operations  has  a  holding  in  the  transferring  company.  As  a
consequence of the merger or division, the transferring company is dissolved and its
shares are cancelled. In this case, the receiving company obtains a capital gain from
the  difference  in  value  between  the  shares  cancelled  and  the  assets  received.
According  to  Article  7  of  the  Merger  Directive,  this  capital  gain  is  exempted  from
tax provided that this company had a minimum holding in the transferring company.
However, the status of holding  was not defined in the same terms as in the Parent-
Subsidiary Directive10. The proposed amendment made the concept of holding in the
Merger  Directive  consistent  with  that  of  the  Parent-Subsidiary  Directive  (see  also
paragraphs 24 and 25 below).

The recent company tax study released in 2001 referred to these same problems. In
addition, the experience gained after the implementation of the Directive in 1992 has
revealed  some  other  shortcomings  and  the  study  refers  to  them  in  detail  and
considers possible measures to tackle them.

The  Commission  Communication  following  the  company  tax  study  highlighted  the
priority of tabling the  necessary amendments to  the  current  Directives  harmonising
corporate tax, following technical consultations with Member States. In the course of
2002,  the  Commission  services  have  called  several  meetings  of  the  appropriate
Commission  working  party  during  which  the  relevant  issues  have  been  discussed
with delegations of technical experts from Member States.

This proposal for a Directive amends the Merger Directive. It aims at introducing the
necessary  changes  to  this  Directive  to  take  into  account  the  above-mentioned
Conclusions and Communications. Industry is still often subject to high tax costs and
international  double  taxation  when  entering  into  business  restructurings  in  which
companies  of  different  Member  States  are  involved.  The  final  goal  is  to  eliminate
these obstacles to the proper functioning of the internal market found in the Member
States  tax  regimes.  Eventually,  removing  the  various  tax  obstacles  to  cross-border
economic activity in the Internal Market would require the introduction of a common
consolidated tax base for the EU-wide activities of companies. However, as long as
this  objective  is  not  yet  achieved,  specifically  targeted  measures  are  needed  to
address the most pressing practical tax problems of internationally active companies.
Such measures include all those considered absolutely essential in order to improve
the  existing  body  of  EU  company  tax  law.  In  particular,  this  proposal  refers  to
similar  matters  to  those  included  in  the  proposal  adopted  in  1993  and  adds  other
provisions dealing with new issues. In consequence, the previous proposal amending
the Merger Directive is being withdrawn.

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Proposal  for  a  Council  Directive  amending  Directive  90/434/EEC  of  23  July  1990  on  the  common
system  of  taxation  applicable  to  mergers,  divisions,  transfers  of  assets  and  exchanges  of  shares
concerning companies of different Member States, COM (93) 293 final, OJ C 225 of 20.08.1993.
Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case
of parent companies and subsidiaries of different Member States, OJ L 225 of 20.8.1990.

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The  first  amendment  of  the  Directive  relates  to  the  inclusion  within  its  scope  of  a
new type of transaction.  It is known as  split-off.  Article 2  of the Merger  Directive,
letter (b), refers to divisions. The new transaction to be covered is a special type of
division.  The  so-called  split-off  operation  is  a  limited  or  partial  division  since  the
transferring  company continues to  exist.  It  transfers  part  of  its  assets  and  liabilities
constituting  one  or  more  branches  of  activity.  In  exchange,  the  receiving  company
issues  securities  representing  its  capital.  These  securities  are  transferred  to  the
shareholders  of  the  transferring  company.  Thus,  a  new  letter  (b  a)  is  inserted  in
Article 2 defining the concept of "partial division".

In  the  case  of  the  split-off,  the  tax  deferral  regime,  as  provided  in  Article  4  of  the
Directive, will apply. Thus, there will be a requirement that the assets and liabilities
so  transferred  remain  connected  with  a  permanent  establishment  of  the  receiving
company in the Member State of the transferring  company. The  Directive  will  also
refer  to  the  tax  regime  applicable  to  the  shareholders  of  the  transferring  company.
According to the rules included in Article 8 of the Directive, shareholders are not to
be taxed at the time of the transaction but only in respect of the gain arising out of a
subsequent  transfer  of  the  securities  that  they  received.  In  addition,  the  securities
received  will  have  attributed  to  them  the  same  value  that  the  securities  exchanged
had  immediately  before  the  transaction.  In  the  case  of  the  split-off,  a  similar  tax
regime  will  be  applicable.  The  shareholders  will  not  be  taxed  at  the  time  of  the
operation.  In  addition,  the  value  to  be  attributed  to  the  securities  held  in  the
transferring  company  will  be  divided  between  those  same  securities  and  the
securities representing the capital of the receiving company so acquired.

One  of  the  main  conclusions  of  the  study  on  Company  Taxation  is  the  too  limited
scope of the Merger Directive. It applies only to those companies included in the list
annexed  to  its  text.  The  ECOFIN  Council  of  26-27 November 200011  had  already
concluded that the updating of the list was a political priority.

This  topic  was  addressed  in  the  proposal  adopted  in  1993.  That  proposal  aimed  at
extending the Directive to all enterprises resident and subject to corporation tax in a
Member  State.  However,  the  asymmetries  found  in  commercial  law  governing  the
legal types of entities and the diversity of tax arrangements applicable to them in the
Member  States  creates  considerable  problems.  These  difficulties  were  already
brought up during the Council discussions on the previous proposal held during 1996
and  1997.  These  discussions  were  suspended  without  reaching  a  final  conclusion.
This subject has been discussed again with the Member States from a technical point
of view in the framework of the appropriate Commission working party. As a result,
the aim of improving the coverage of the Merger Directive is achieved in this current
proposal by proposing the extension of the list of entities annexed to the Directive, to
cover new named legal types.

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Annex  to  the  Presidency  Conclusions  of  the  ECOFIN  Council  of  26  and  27  November  2000,  Press
release 453 nr: 13861/00, Brussels 26/11/2000, published on the website of the Council of the European
Union (http://ue.eu.int).

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As  already  mentioned,  the  Statutes  of  the  SE  and  of  the  SCE  have  been  recently
adopted. Their success requires among other factors that the benefits of the Merger
Directive be applicable to them. Thus, the annex to the Directive should include the
companies that will in future be run under these new legal types. As a result, the SE
and  the  SCE  are  among  the  new  entries  in  the  list  of  entities  covered  by  the
Directive.

Some of the new entities proposed for inclusion in the list raise a particular technical
problem.  It  could  be  the  case  that  the  Member  State  where  an  entity  is  established
treats  it  for  its  own  tax  purposes  as  a  corporate  taxpayer  whereas  another  Member
State  whose  resident  has  an  interest  in  that  same  entity  treats  it  for  its  own  tax
purposes  as  transparent.  The  latter  State  attributes  the  income  of  the  entity  to  its
resident having an interest in the entity and taxes it accordingly. This Member State
should  be  obliged  to  extend  the  benefits  of  the  Directive  to  that  resident  with  an
interest in the entity. Otherwise, double taxation of profits will occur.

Similarly,  this  is  the  case  when  shareholders  of  companies  entering  into  the
transactions governed by the Directive are treated for tax purposes as transparent. If
those persons and entities having an interest in the shareholder have to bear taxation
on  the  occasion  of  restructuring  transactions  they  may  oppose  the  idea  of  the
company taking part in a business restructuring. Member States should be obliged to
extend  the  benefits  of  the  Directive  to  such  a  resident  with  an  interest  in  the
shareholder. Otherwise, double taxation of profits will occur.

A different subject is the uncertainty that exists, in practice, about the application of
the Directive to the conversion of branches into subsidiaries. Under Article 4 (1) of
the  Directive,  the  deferral  of  capital  gains  taxation  is  possible  when  the  assets  and
liabilities  transferred  continue  to  be  effectively  connected  with  a  permanent
establishment  of  the  acquiring  company  situated  in  the  Member  State  of  the
transferring  company.  However,  this  does  not  occur  when  a  branch  of  a  foreign
company is converted into its subsidiary since the assets and liabilities transferred are
not  effectively  connected to  a permanent  establishment  in  the  Member  State  of  the
transferring  company,  but  of  the  receiving  company.  In  consequence,  it  has  been
argued  that  the  Merger  Directive  does  not  cover  the  conversion  of  a  branch  into  a
subsidiary.  As  these  operations  fall  within  the  aims  of  the  Directive,  it  should  be
clear that it also covers them. There is no risk for Member State's taxing rights since
assets and liabilities transferred remain under the same tax jurisdiction.

Another important issue concerns Article 7 (2) of the Directive. This provision links
this Directive to the Parent-Subsidiary Directive. In mergers and divisions, one of the
companies  involved  receives  assets  and  liabilities.  It  may  occur  that  this  company
holds shares in the transferring company that are cancelled as a consequence of the
re-organisation. The value of the assets and liabilities received could be higher than
the  value  of  the  shares  cancelled.  This  difference  in  value  derives  from  non-
distributed profits or hidden capital gains of the transferring company. In its capacity
as a shareholder of a transferring company, a receiving company could receive from
the latter those reserved profits just as easily in the form of distributed profits. The
Parent-Subsidiary  Directive  may  apply  when  these  profits  are  distributed.  Thus,
where the receiving company has a "sufficient holding" according to the conditions
of the Parent-Subsidiary Directive, the  Merger Directive should allow a similar tax
concession to be granted in the case of a merger or division. The difference in value
mentioned above should not be subject to tax.

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However,  the  definition  of  "sufficient  holding"  included  in  Article  7  (2)  of  the
Merger  Directive  to  enjoy  the  exemption  does  not  correspond  to  that  laid  down  in
Article 3 of the Parent-Subsidiary Directive. The latter Directive provides for relief
of  double  taxation  of  profits.  This  tax  relief  is  provided  only  for  those  companies
fulfilling the conditions set to be considered as parent companies or as subsidiaries.
For  this  purpose,  the  Parent-Subsidiary  Directive  requires  that  a  company  has  a
minimum holding of 25% in the capital of the other company. Similarly, the Merger
Directive  stipulates  exemption  of  the  above-mentioned  capital  gain  for  parent
companies.  However,  according  to  its  Article  7  (2)  a  company  is  deemed  to  be  a
parent  when  its  holding  in  the  subsidiary  exceeds  25%  of  the  share  capital.  The
criterion  of  both  directives  does  not  coincide.  It  is  therefore  necessary  to  make  the
concept  of  "holding"  in  the  Merger  Directive  consistent  with  that  of  the  Parent-
Subsidiary  Directive.  In  addition,  any  amendment  of  this  subject  in  the  Merger
Directive should be made consistent with the amendments introduced in the Parent-
Subsidiary  Directive,  where  the  minimum  threshold  to  be  considered  as  a  parent
company or as a subsidiary is being proposed to be lowered from 25 to 10%.

In  the  case  of  transfer  of  assets  double  taxation  may  occur.  The  company  that
transfers  a  branch  of  activity  receives,  in  exchange,  securities  from  the  receiving
company. The Directive does not provide any rules for the valuation of the securities
so acquired. Some national legislations oblige the transferring company to calculate
capital gains on the subsequent transfer of the securities received on the basis of the
book  value  that  the  assets  transferred  had  before  the  transfer.  On  the  other  hand,
Article  4  (2)  obliges  the  company  receiving  the  assets  to  compute  any  new
depreciation and any gains or losses in respect of the assets and liabilities transferred
according  to  their  value  before  the  transfer.  In  these  cases,  the  same  value  is  used
twice  for  tax  purposes.  Thus,  the  same  capital  gain  derived  from  the  assets
transferred is attributed to two different taxpayers and is taxed twice. The conclusion
is  that  this  double  taxation  problem  arises  in  the  Member  State  of  the  transferring
company.  This  Member  State  will  tax  the  income  and  capital  gains  derived  by  the
permanent establishment receiving the assets. In addition, it may tax the capital gains
derived  by  the  transferring  company  at  the  time  of  a  subsequent  transfer  of  the
securities  received  in  exchange  for  the  assets  transferred.  There  are  no  objective
reasons that would justify such taxation. In case of tax abuse, however, Article 11 (1)
of  the  Directive  allows  Member  States  to  refuse  the  application  of  its  benefits.
According to the doctrine of the European Court of Justice12, under Article 11(1)(a)
of  the  Directive,  it  is  for  the  Member  States,  observing  the  principle  of
proportionality,  to  determine  the  internal  procedures  necessary  to  counteract  tax
abuse.  However,  the  laying  down  of  a  general  rule  automatically  excluding  certain
categories of operations from the tax advantage, whether or not there is actually tax
evasion  or  tax  avoidance,  would  go  further  than  is  necessary  for  preventing  such
abuse and would undermine the aim pursued by the Directive. Thus, Member States
may  provide  that  the  securities  received  by  the  transferring  company  are  attributed
their real value at the time of the transfer of assets. Taxing rights will not be at risk
since  it  is  still  possible  to  tax  the  income  or  capital  gain  derived  from  the  assets
connected  with  the  permanent  establishment  that  will  remain  within  the  same  tax
jurisdiction.

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Judgment of 17 July 1997 in case C-28/95 Leur-Bloem. ECR 1997, p. I-4161.

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Economic  double  taxation  may  also  distort  exchanges  of  shares.  The  acquiring
company receives securities from the shareholders of  the  acquired  company.  These
shareholders  are  not  taxed  on  the  capital  gain  derived  from  the  exchange  of  the
shares  in  the  acquired  company  for  shares  in  the  acquiring  company.  Article  8  (2)
makes  this  tax  benefit  conditional  upon  the  shareholders  not  attributing  to  the
securities received a value for tax purposes higher than the securities exchanged had
immediately  before  the  exchange  of  shares.  This  capital  gain  will  be  taxed  on  the
occasion of a subsequent transfer of the securities so acquired.

The Directive does not provide  any rules  concerning  the valuation of the  securities
received  by  the  acquiring  company  from  these  shareholders.  Some  national
legislations  oblige  the  acquiring  company  to  calculate  capital  gains  on  the  later
disposal of the securities received on the basis of the value that these securities had
immediately  before  the  exchange  of  shares.  The  Member  State  of  the  acquiring
company  will  take  into  account  the  value  of  the  shares  exchanged  before  the
transaction. In these cases, the same value is used twice for tax purposes. Thus, this
valuation results in economic double taxation: the same capital gain derived from the
shares transferred is attributed to two different taxpayers and is taxed twice.

In this particular case, the acquiring company obtains a holding in another company
by  paying  a  fair  market  price.  This  company  has  to  transfer  to  the  shareholders
securities representing its capital. A new paragraph inserted in Article 8 (2) provides
that the acquiring company values the shares received according to their real value at
the  time  of  the  exchange  of  shares.  This  provision  will  avoid  economic  double
taxation.  The  taxing  rights  of  the  Member  States  will  not  be  put  at  risk  since  the
shareholders  will  be  taxed  on  the  deferred  capital  gain.  In  case  of  tax  abuse,
Article 11 (1) of the Directive allows Member States to refuse the application of its
benefits (see also paragraph 26 above).

On the other hand, it may be the case that the acquiring company holds some of its
own  shares  acquired  in  the  market.  It  may  decide  not  to  increase  its  capital  but  to
transfer its own shares in exchange. In this particular situation, the acquisition cost of
those  own  shares  may  be  lower  than  their  current  market  value  at  the  time  of  the
exchange. There  is a capital  gain  and the  Member  States may  want to  tax  it. If the
rules  hereby  proposed  also  apply  to  these  cases,  taxing  rights  may  be  lost
permanently.  Thus,  an  exception  is  required  to  the  proposed  valuation  rule  of  the
securities received by the acquiring company for these cases: the securities received
by the acquiring company shall be attributed the value that the own shares exchanged
had immediately before the exchange. In accordance with the aims of the Directive,
no taxation on this taxpayer will arise at the time of the exchange.

31.

Article  8  is  amended  to  clarify  that  the  Directive  covers  those  exchange  of  shares
where  the  majority  of  the  voting  rights  is  acquired  by  a  company  resident  in  a
Member  State  from  a  shareholder  resident  in  a  state  which  is  not  a  member  of  the
European Union.

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34.

Finally, a new title is being added to the Directive to provide for the tax regime that
would  apply  in  the  case  of  a  transfer  of  the  registered  office  of  the  SE  and  of  the
SCE13. The applicable tax rules will be neutral from the point of view of competition
while safeguarding the financial interests of the State where the company is resident
before  transferring  its  registered  office.  The  harmonisation  will  cover  the  cases
where the transfer of the registered office has as a consequence that the company is
no longer a tax resident in that Member State. It will enjoy tax deferral for the capital
gains  relating  to  those  of  its  assets  becoming  connected  with  the  permanent
establishment that it will now have in its State of tax residence before the transfer of
registered office.

The  rules  already  existing  in  Articles  5,  6  and  10  of  the  Directive,  concerning
mergers and divisions, will be extended to this case. Thus, the tax regime applicable
to  the  transfer  of  the  registered  office  will  also  refer  to  provisions  or  reserves
constituted by the company before this operation, to the possible take-over of losses
and to the existence of a permanent establishment in a third Member State.

In  addition,  a  specific  provision  will  provide  that  no  taxes  can  be  imposed  on  the
shareholders linked to the change of residence of the company. This provision gives
expression  to  the  EC  Treaty  obligations  concerning  the  freedom  of  establishment.
Capital gains arising out of the subsequent transfer of the securities may be taxable.

2.

COMMENTARY ON THE ARTICLES OF THE PROPOSAL FOR A DIRECTIVE

This Article comprises ten paragraphs amending the Merger Directive.

Article 1

paragraph (1)

The Merger Directive will include a new title concerning the provisions necessary to grant tax
deferral  and  to  safeguard  the  financial  interests  of  the  Member  States  in  cases  where  a
European  Company  (SE)  or  a  European  Cooperative  Society  (SCE)  transfers  its  registered
office from one Member State to another. Accordingly, the title of the Directive is amended
so that it also refers to the transfer of the registered office between Member States.

13

Article  8  of  the  SE  Statute  and  Article  7  of  the  SCE  Statute  state  that  the  registered  office  may  be
transferred to another Member State without it being wound up. According to these statutes, Articles 7
and 6 respectively, their registered offices shall be located within the Community, in the same Member
State as their head offices.

9

                                                
1.

2.

1.

2.

3.

4.

1.

2.

paragraph (2)

This proposal to amend the Directive includes provisions extending the objectives of
the Merger Directive to a transfer of registered office by the SE and by the SCE.

Accordingly, Article 1 of the Directive is amended. It includes two indents. The first
one  refers  to  the  operations  that  are  already  covered  in  the  Directive.  The  second
indent  now  imposes  an  obligation  on  Member  States  to  apply  its  provisions  to  a
transfer of registered office by the SE and by the SCE.

paragraph (3)

Article  2  of  the  Directive  is  modified  in  order  to  include  the  definition  of  a  new
business  re-organisation,  partial  divisions  (“split-off”)  that  will  be  covered  in  the
future.

A partial division or “split-off” is a transaction whereby a company transfers, without
being dissolved, part of its assets and liabilities, constituting one or more branches of
activity,  to  a  receiving  company.  In  exchange,  the  latter  transfers  securities,
representing its capital, to the shareholders of the transferring company.

Thus,  a  new  paragraph  (b  a)  is  added  in  Article  2  defining  the  concept  of  "partial
division".  Article  4  will  be  applicable  to  the  transferring  company.  Further
amendments  are  introduced  in  Article  8  taking  account  of  the  shareholders'  tax
regime

The transfer of registered office by the SE or by the SCE is included within the scope
of the Directive. A new letter (j) is added in Article 2 including definitions according
to the wording of Article 8 of Statute of the SE and Article 7 of Statute of the SCE.

paragraph (4)

This paragraph modifies Article 4 introducing a new text inserted as paragraph (2).
This  new  paragraph  refers  to  the  issue  raised  by  companies  subject  to  tax  as
corporate  taxpayers  in  their  Member  State  of  residence  which  are  nevertheless
considered  as transparent for tax purposes in  a different Member State. Due to this
circumstance,  the  benefits  of  the  Directive  were  in  the  past  not  applicable  to  a
number  of  corporate  taxpayers.  The  aim  of  the  text  proposed  is  to  provide  for  a
specific  tax  regime  applicable  in  these  cases.  According  to  it,  Member  States  will
defer taxation on the capital gains derived from mergers or divisions by their resident
companies  that  are  included  in  the  list.  If  a  different  Member  State  considers  the
company  as  transparent  for  tax  purposes,  this  new  paragraph  will  not  allow  this
Member State to tax its resident taxpayers having an interest in that company at the
time of the transactions covered by the Directive. These taxpayers may be taxed on
the occasion of a later disposal of the assets transferred.

This  new  paragraph  identifies  those  taxpayers  by  referring  to  fiscally  transparent
companies  due  to  their  provisions  on  civil  law  relating  to  the  organisation  of
commercial  undertakings.  These  are  the  circumstances  that  Member  States  use  to
consider  companies  as  fiscally  transparent.  The  text  proposed  avoids  referring  to

10

3.

4.

1.

2.

1.

2.

3.

4.

5.

6.

companies that are considered as fiscally transparent by a Member State based on the
tax regime applicable to them in their State of residence.

Paragraphs  (2)  and  (3)  are  renumbered  as  paragraphs  (3)  and  (4).  Both  paragraphs
add a reference to the new paragraph (2).

Some drafting improvements are also introduced in paragraphs (1) and (3).

paragraph (5)

This Article sets the  holding  requirement of the  Merger Directive  consistently  with
that  of  the  Parent-Subsidiary  Directive.  Thus,  the  receiving  company  must  hold  at
least 10% of the shares of the transferring company in order to be exempted from tax
on capital gains derived from these shares.

The 10% proposed follows the amendment already proposed to the Parent-Subsidiary
Directive, reducing the holding requirement from 25% of the share capital to 10%.

paragraph (6)

This paragraph amends Article 8.

The  existing  paragraphs  of  Article  8  together  with  the  new  added  ones  are
renumbered. Article 8 comprises now 12 paragraphs.

The  amendments  introduced  in  the  current  wording  of  Article  8  refer  to  several
measures.  In  the  first  place,  a  new  paragraph  (2)  is  inserted  to  deal  with  the  tax
regime  applicable  to  the  shareholder  of  the  transferring  company  in  the  case  of  a
partial division or "split off". These taxpayers will not be taxed on the allotment of
securities representing the capital of the receiving company.

A new paragraph (3) is included. It may be the case that shareholders of companies
(as defined in the Directive) entering into the transactions included within the scope
of  the  Directive  are  considered  as  fiscally  transparent.  The  taxpayers  having  an
interest in these shareholders may be taxed when they derive income or capital gains
from restructuring operations. The aim of the proposed text is to defer taxation on the
taxpayers having an interest in those shareholders. These taxpayers may be taxed on
that  income  on  the  occasion  of  a  later  disposal  of  the  securities  received  by  the
shareholders.

The  new  paragraph  (5)  provides  for  a  valuation  rule  applicable  to  the  securities
received  by  the  shareholders  in  the  case  of  partial  divisions.  According  to  it,  the
value of the securities held by them in the transferring company is divided between
those  same  securities  and  the  securities  representing  the  capital  of  the  receiving
company allotted to them.

The new  paragraph (10) refers to  the  value  of  the  shares  received  by  the  acquiring
company  in  the  case  of  an  exchange  of  shares.  According  to  this  new  rule,  the
acquiring  company  may  attribute  to  the  shares  received  the  real  value  of  the
securities  issued  in  exchange.  This  value  corresponds  to  the  real  price  paid.  If
Member  States  are  allowed  to  attribute  to  the  securities  received  a  lower  value,

11

7.

8.

9.

10.

1.

2.

capital gains taxation would be charged on the acquiring company on the occasion of
a  later  disposal  of  these  securities.  The  capital  gain  derived  from  these  securities
would then be attributed to two different taxpayers: this acquiring company and the
shareholders exchanging them. This would lead to double taxation. The rule included
in the text proposed avoids double taxation.

The  new  paragraph  (11)  includes  an  exception  for  the  valuation  rule  of  the  new
paragraph  (10).  It  refers  to  the  cases  where  the  acquiring  company  holds  its  own
shares  and,  instead  of  increasing  its  issued  capital,  decides  to  transfer  these  in
exchange to the shareholders of the acquired company. In this circumstance, there is
normally a difference between the value of those of its own shares held and their real
value at the time of the exchange. Member States may tax this capital gain. Under the
principle of neutrality, this capital gain should be taxed at the time of  a subsequent
transfer  of  the  securities  exchanged.  For  this  purpose,  the  acquiring  company  will
attribute  to  the  securities  received  the  value  that  the  own  shares  exchanged  had
immediately before the exchange.

A new paragraph (12) is added. It refers to exchange of shares where the majority of
the voting rights in the acquired company are received from shareholders which are
not  tax  residents in  a  Member State of  the  European  Union.  The  aim  pursued  with
this new provision is to clarify that the Directive covers these transactions. Thus, its
benefits  are  applicable  to  the  taxpayers  concerned  as  currently  identified  in  the
Directive.

The former paragraph (1) is divided into three different paragraphs numbers (4), (6)
and  (7).  Paragraphs  (3)  and  (4)  are  renumbered  as  paragraphs  (8)  and  (9)
respectively.

The cross references existing in this Article have been modified in order to take into
account the new structure of its provisions.

paragraph (7)

This  paragraph  amends  Article  9.  A  new  paragraph  is  introduced  and  the  existing
text is  renumbered  as paragraph  (1).  In the  case  of the  transfer  of  assets,  there  is  a
capital gain linked to the assets transferred. This capital gain is deferred and will be
taxed on the occasion of a later disposal of those assets. The tax will be charged on
the permanent establishment acquiring those assets. In addition, Member States may
provide that the transferring company is obliged to attribute to the securities received
in exchange the value that the assets so transferred had before the transaction. This
national rule leads to double taxation.

The  text  proposed  includes  a  rule  for  valuing  the  securities  received  by  the
transferring company. This company will attribute to them the real value of the assets
and  liabilities  transferred.  Consequently,  the  Member  State  of  the  transferring
company,  at  the  time  of  taxing  the  later  disposal  of  the  securities  received  in
consideration for the assets transferred, will have to compute the capital gain arising
from this transaction taking account of that value.

12

paragraph (8)

1.

Paragraph (1) of Article 10 is divided into three new subparagraphs and another new
one is added in order to cover expressly the conversion of branches into subsidiaries.
The tax regime will be the same as already provided for the case of the transfer of a
permanent  establishment.  Consequently,  the  transfer  of  assets  connected  with  a
permanent establishment to a newly set up company will not give rise to taxation. In
addition,  paragraph  (2)  of  Article  10  will  apply  and  taxing  rights  of  Member  State
applying a system of taxing worldwide profits will be safeguarded.

2.

Some drafting improvements are introduced to clarify the text of this provision.

1.

2.

3.

4.

5.

6.

paragraph (9)

A new title is included in the Directive to provide for a tax regime applicable to the
transfer of the registered office. It will be numbered as title IVa.

Articles  10a,  10b  and  10c  are  included  in  the  Directive  to  rule  the  transfer  of  the
registered office of an SE or of an SCE.

Article 10a deals with the tax deferral regime applicable to the SE and to the SCE in
the case of a transfer of registered office. A consequence of this operation may be a
change in the Member State of tax residence. If this occurs, it may be the case that
the Member States tax these companies on the difference between the real value of
their  assets  and  liabilities  and  their  value  for  tax  purposes  before  the  transfer.
Paragraph  (1)  makes  tax  deferral  conditional  on  the  assets  and  liabilities  of  the
company  continuing  to  be  effectively  connected  with  a  permanent  establishment
situated  in  the  Member  State  where  the  company  transferring  the  registered  office
was resident before the transfer.

Paragraph  (2)  of  Article  10a  provides  for  the  rules  applicable  to  the  calculation  of
depreciation,  gains  or  losses  in  respect  of  the  assets  of  the  company  that  remain
connected  with  the  permanent  establishment.  It  obliges  Member  States  to  apply
future taxation as though the transfer of the registered office had not taken place.

Paragraph (3) of Article 10a refers to the cases where a national legislation provides
for  special  rules  applicable  to  the  calculation  of  depreciation,  gains  or  losses  in
respect  of  the  assets  and  liabilities  connected  with  the  permanent  establishment.
Should  the  company  opt  for  the  application  of  such  rules,  the  provisions  of
paragraph (1) will not apply.

The  taxation  of  the  transfer  of  the  registered  office  is  similar  to  that  applicable  to
mergers and divisions. The new article 10b refers to other provisions of the Directive
on mergers and divisions. However, these operations involve a transferring company
and  a  receiving  company.  Those  provisions  refer  to  both  companies  while  the
operation  envisaged  here  involves  one  single  company.  In  order  to  clarify  the
position,  paragraph  (4)  states  that  the  company  is  considered  to  be  both  the
transferring company and the receiving company.

13

7.

8.

9.

10.

11.

12.

13.

14.

1.

Paragraph (1) of Article 10b provides for the application of Article 5 to the transfer
of  the  registered  office.  It  guarantees  that  the  permanent  establishment  of  the
company  continues  to  enjoy  the  exemption  of  the  provisions  or  reserves  properly
constituted by it before the transfer of the registered office.

Paragraph  (2)  of  Article  10b  refers  to  the  take-over  of  losses.  The  permanent
establishment  may  continue  to  offset  those  incurred  by  the  company  that  had  not
been  exhausted  for  tax  purposes.  Member  States  are  under  the  same  obligation
concerning succession to tax losses as that imposed by their tax law in the case of a
domestic business restructuring.

Paragraph  (3)  of  Article  10b  refers  to  the  case  where  the  company  transferring  the
registered  office  has  a  permanent  establishment  in  a  third  Member  State.  The
principles  of  Article  10  shall  apply  and  the  Member  State  where  the  permanent
establishment is situated will not raise tax on the transfer of the registered office.

If the company had incurred losses in the permanent establishment, those losses had
to be set off against other profits of the company. It is possible that the company had
not offset its total amount against profits arising from the permanent establishment.
Then,  the  Member  State  where  the  company  was  resident  before  the  transfer  may
reinstate in its taxable profits such amount of non-recovered losses.

It  is  possible  that  the  Member  State  of  the  company  applies  a  system  of  taxing
worldwide  profits.  Then,  that  Member  State  may  tax  any  profits  or  capital  gains
linked  to  the  permanent  establishment  at  the  time  of  the  transfer  of  the  registered
office.  This  Member  State  must  give  relief  for  the  tax  that  had  been  paid  in  the
Member State where the permanent establishment is situated if tax deferral had not
been provided for.

The transfer of the registered office does not change the situation of the shareholders
of the company. However, there is a change that might be relevant for tax purposes.
They  have  a  holding  in  a  company  that  changes  its  tax  residence.  Thus,  the  tax
regime applicable to income or profits arising from those securities may change.

The new Article 10c, paragraph (1), guarantees that the shareholders are not taxed on
any income, profits or capital gains when the company transfers its registered office.

Paragraph  2  of  Article  10c  defers  taxation  until  a  later  disposal  of  the  shares
representing the capital of the company.

Paragraph (10)

This  paragraph  refers  to  the  annex  of  this  amending  proposal  where  the  annex  of
Directive 90/434/EEC is amended. Thus, the list of companies to which the Directive
applies contained in its annex is replaced by a new one incorporating other types of
entities and in particular the European company (SE) and the European Cooperative
Society (SCE). This proposal will extend  the  benefits of the Directive  to new legal
types  of  entities,  including  co-operatives,  mutual  companies,  certain  non-capital
based companies, saving banks, funds and associations with commercial activity.

14

2.

The SE and the SCE are included under letter (z) of the annex. This new entry does
not  follow the  natural  sequence  of  letters  because  it  is  intended  to  make  additional
entries in the annex under points (p) to (y) to cover the types of company that exist in
the acceding countries.

Article 2

This Article lays down the timetable and the requirements for transposing the Directive into
Member  States’  national  laws.  Member  States  are  required  forthwith  to  inform  the
Commission  of  the  transposition  of  the  Directive  in  their  national  laws  and  submit  a
correlation table between this Directive and the national provisions adopted.

This  Article  refers  to  the  date  of  entry  into  force  of  the  amending  Directive  and  to  its
publication.

Article 3

15

2003/0239 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 90/434/EEC of 23 July 1990 on the common system of taxation
applicable to mergers, divisions, transfers of assets and exchanges of shares concerning
companies of different Member States

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Economic  Community,  and  in
particular Article 94 thereof,

Having regard to the proposal from the Commission14,

Having regard to the opinion of the European Parliament15,

Having regard to the opinion of the European Economic and Social Committee16,

Having regard to the opinion of the Committee of the Regions17,

Whereas:

(1)

(2)

(3)

(4)

14

15

16

17

18

19

20

21

Council  Directive  90/434/EEC18  introduced  common  rules  applicable  to  business
restructuring which are neutral from the point of view of competition.

The  objective  of  Directive  90/434/EEC  is  that  taxation  of  the  income,  profits  and
capital  gains  from  business  reorganisations  should  be  deferred  and  Member  States
taxing rights safeguarded.

The experience gained following implementation of Directive 90/434/EEC in January
1992  has  demonstrated  different  ways  in  which  the  Directive  can  be  improved  and
how the beneficial effects of the common rules as adopted in 1990 could be extended.

On 8 October 2001 the Council adopted Regulation (EC) No 2157/2001 on the Statute
for a European Company (SE)19 and Directive 2001/86/EC supplementing the Statute
for a European company with regard to the involvement of employees20. Similarly, on
22 July 2003 the Council adopted Regulation (EC) N° 1435/2003 on the Statute for a
European Cooperative Society (SCE)21  and  Directive  2003/72/EC  supplementing  the

OJ C …, …, p. …
OJ C …, …, p. …
OJ C …, …, p. …
OJ C …, …, p. …
OJ L 225, 20.8.1990, p. 1.
OJ L 294, 10.11.2001, p. 1.
OJ L 294, 10.11.2001, p. 22.
OJ L 207 of 18.8.2003, p.1.

16

                                                
Statute  for  a  European  Cooperative  Society  with  regard  to  the  involvement  of
employees22. One of the most important features of these instruments is that both the
SE  and  the  SCE  will  be  able  to  transfer  their  respective  registered  offices  between
Member States without being dissolved and going into liquidation.

The transfer of the registered office is a means of exercising freedom of establishment
as provided for in Articles 43 and 48 of the Treaty. No assets are transferred and the
company and its shareholders do not derive any income, profits or capital gains from
it. The company decision to reorganise its business by transferring its registered office
should not be hampered by discriminatory tax rules or by restrictions, disadvantages or
distortions arising from national tax legislation which is contrary to Community Law.

The transfer of the registered office necessitates the introduction of a number of new
rules which must, however, be neutral from the point of view of competition. Where,
upon, the transfer of the registered office, the assets of the SE or of  the SCE remain
effectively  connected with  a permanent  establishment  belonging  to  it  and  situated  in
the Member State in which the SE or the SCE was previously resident, that permanent
establishment should enjoy benefits similar to those provided for in Articles 5, 6 and
10  of  Directive  90/434/EEC,  concerning  tax-exempted  provisions  and  reserves,  the
take-over  of  losses  and  taxation  of  permanent  establishments  of  the  SE  situated  in  a
third Member State. Moreover, in accordance with the principles of the EC Treaty, the
taxation of shareholders on the occasion of the transfer of the registered office should
be excluded.

Directive  90/434/EEC  did  not  refer  to  a  type  of  division  where  the  company
transferring  branches of  activity  is  not  dissolved.  The  provisions  of  Article  4  of  that
Directive should therefore be extended to cover such cases.

Article 3 of Directive 90/434/EEC defines the companies falling within its scope and
the Annex thereto lists the forms of company to which the Directive applies. However,
certain forms of company are not listed in the Annex even though they are resident for
tax purposes in a Member State and are subject to corporation tax there. In the light of
the experience, this appears to be an unjustifiable lacuna and the scope of the Directive
should  therefore  be  extended  to  cover  entities  which  can  carry  out  cross-border
activities in the Community and which meet all the relevant requirements.

Since the SE is a public limited-liability company and since the SCE is a cooperative
society, both similar in nature to other forms of company already covered by Directive
90/434/EEC, the SE and the SCE should be added to the list set out in the Annex to
Directive 90/434/EEC.

The  new  entities  included  in  the  list  of  the  Annex  are  corporate  taxpayers  in  their
Member  State  of  residence  but  some  of  them  are  considered  transparent  for  tax
purposes by other Member States. In order for the benefits of Directive 90/434/EEC to
be  effective,  Member  States  treating  non-resident  corporate  taxpayers  as  fiscally
transparent should apply the benefits of the Directive to them.

(5)

(6)

(7)

(8)

(9)

(10)

22

OJ L 207 of 18.8.2003, p.25.

17

                                                
(11) Where shareholders of companies entering into the transactions governed by Directive
90/434/EEC are treated for tax purposes as transparent, persons having an interest in
the shareholder should not suffer taxation on the occasion of restructuring transactions.

(12)

(13)

(14)

Some doubts exist as to the application of Directive 90/434/EEC to the conversion of
branches  into  subsidiaries.  In  these  operations,  the  assets  connected  to  a  permanent
establishment  and  constituting  a  branch  of  activity,  as  defined  in  Article  2  (i)  of
Directive  90/434/EEC,  are  transferred  to  a  newly  set  up  company  which  will  be  a
subsidiary  of  the  transferring  company  and  it  should  be  made  clear  that  being  the
transfer  of  assets  from  a  company  of  a  Member  State  of  a  permanent  establishment
located  in  a  different  Member  State  to  a  company  of  the  latter  Member  State,  this
transaction is covered by the Directive.

The definition of exchange of shares, set out in Article 2 (d) of Directive 90/434/EEC
does not impose  any special conditions  on  shareholders who transfer the majority of
voting rights in a company to an acquiring company. It should be made clear that the
Directive covers cases where both the  acquired company and the acquiring  company
involved  in  an  exchange  of  shares  meet  the  conditions  required  in  Article  3  of
Directive 90/434/EEC but the shareholders transferring their participation to the latter
company are resident outside the Community.

In the case of mergers and divisions, the receiving company may derive gains from the
difference  in  value  between  the  assets  and  liabilities  received  and  the  shares  that  it
may  have  held  in  the  transferring  company  that  are  annulled  following  these
operations.  Article  (7)  of  Directive  90/434/EEC  provides  for  the  exemption  of  these
capital gains since these profits may be derived just as easily in the form of distributed
profits from the transferring company that would have been exempted under Council
Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable
in  the  case  of  parent  companies  and  subsidiaries  of  different  Member  States23.  The
objectives  of  both  Directive  90/434/EEC  and  Directive  90/435/EEC  coincide  with
regard to this particular issue but the conditions required are not  the same. Directive
90/434/EEC  should  therefore  be  amended  to  assimilate  its  requirements  to  those  of
Directive  90/435/EEC  and  to  take  into  account  the  lower  shareholding  threshold
included in the proposal to amend that Directive.

(15) Under Article 8 (2) of Directive 90/434/EEC, securities received by the shareholders
in  an  exchange  of  shares  are  computed  for  tax  purposes  by  reference  to  the  value,
immediately  before  the  exchange,  of  the  securities  thus  transferred,  but  there  are  no
provisions as to the value to be attributed by the acquiring company to the securities
thus acquired. If, in such cases, Member States attribute to the shares received by the
acquiring company the value that they had immediately before the exchange, the same
value is attributed to two different taxpayers and the same capital gain is taxed twice.
The resulting double taxation should be avoided by allowing the acquiring company to
value the securities received by reference to the real value of  the securities  issued in
exchange.

23

OJ L 225, 20.8.1990, p. 6.

18

                                                
(16)

In  such  cases,  the  acquiring  company  may  exchange  its  own  shares  representing  its
capital  and  there  may  be  a  difference  between  their  acquisition  cost  and  their  real
value at the time of the exchange. Member States should defer taxation on such gains
and tax  it only on  the  occasion  of  a  subsequent  transfer  of  the  securities  received  in
exchange.

(17) Under Article 4 (1) of Directive 90/434/EEC, assets acquired in a transfer of assets are
computed  for  tax  purposes  by  reference  to  their  value  immediately  before  the
transaction but there are no provisions as to the value to be attributed to the securities
received in exchange. If Member States were to attribute to the securities, received in a
transfer of assets, the same value that the assets transferred had immediately before the
transaction,  and  taking  into  account  that  this  is  the  value  attributed  to  the  branch  of
activity  transferred,  the  result  would  be  that  the  same  value  is  attributed  to  two
different  taxpayers  and  the  same  capital  gain  is  taxed  twice.  The  resulting  double
taxation should be eliminated by providing that the transferring company is to attribute
to the securities received the real value of the assets transferred.

(18) Directive 90/434/EEC should therefore be amended accordingly.

HAS ADOPTED THIS DIRECTIVE:

Article 1

Directive 90/434/EEC is amended as follows:

(1)

The title is replaced by the following:

"Council  Directive  90/434/EEC  on  the  common  system  of  taxation  applicable  to
mergers, divisions, transfers of assets and exchanges of shares concerning companies
of  different  Member  States  and  to  the  transfer  of  the  registered  office  between
Member States."

(2)

Article 1 is replaced by the following:

Each Member State shall apply this Directive to the following:

"Article 1

(a) mergers, divisions, transfers of assets and exchanges of shares  in which

companies from two or more Member States are involved,

(b) European  companies  (Societas  Europaea  or  SE),  as  established  in
Council  Regulation  (EC)  No  2157/2001,  and  European  Cooperative
Societies  (SCE),  as  established  in  Council  Regulation  (EC)  No
1435/2003, transferring their registered office from one Member State to
another Member State."

19

(3)

Article 2 is amended as follows:

(a)

The following paragraph (b a) is added:

(b a) 'partial  division'  shall  mean  an  operation  whereby  a  company  transfers,
without being dissolved, one or more branches of activity, to one or more
existing  or  new  companies,  in  exchange  for  the  pro-rata  issue  to  its
shareholders  of  securities  representing  the  capital  of  the  companies
receiving the assets and liabilities, and, if applicable, a cash payment not
exceeding  10  %  of  the  nominal  value  or,  in  the  absence  of  a  nominal
value, of the accounting par value of those securities;

(b) The following paragraph (j) is added:

(j)

'transfer of the registered office' shall mean an operation whereby an SE
or an SCE without winding up or creating a  new legal person,  transfers
its registered office from one Member State to another Member State.

(4)

Article 4 is replaced by the following:

Article 4

"1. A  merger,  division  or  partial  division  shall  not  give  rise  to  any  taxation  of
capital gains calculated by reference to the difference between the real values
of the assets and liabilities transferred and their values for tax purposes.

For the purpose of this Article the following definitions shall apply:

(a)

(b)

value for tax purposes: the value on the basis of which any  gain or loss
would  have  been  computed  for  the  purposes  of  tax  upon  the  income,
profits  or  capital  gains  of  the  transferring  company  if  such  assets  or
liabilities  had  been  sold  at  the  time  of  the  merger  or  division  but
independently of it;

transferred  assets  and  liabilities:  those  assets  and  liabilities  of  the
transferring  company  which,  in  consequence  of  the  merger  or  division,
are effectively connected with a permanent establishment of the receiving
company  in  the  Member  State  of  the  transferring  company  and  play  a
part  in  generating  the  profits  or  losses  taken  into  account  for  tax
purposes.

2. Where paragraph 1 applies and where a Member State considers a non-resident
transferring company as fiscally transparent on the basis of its provisions under
civil law relating to the organisation of commercial undertakings and therefore
taxes the shareholders on their share of the profits of the transferring company
as and when those profits arise, that State shall not tax any income, profits or
capital gains calculated by reference to the difference between the real values
of the assets and liabilities transferred and their values for tax purposes.

20

3.

Paragraphs  1  and  2  shall  apply  only  if  the  receiving  company  computes  any
new depreciation and any gains or losses in respect of the assets and liabilities
transferred  according  to  the  rules  that  would  have  applied  to  the  transferring
company or companies if the merger or division had not taken place.

4. Where,  under  the  laws  of  the  Member  State  of  the  transferring  company,  the
receiving  company  is  entitled  to  have  any  new  depreciation  or  any  gains  or
losses  in  respect  of  the  assets  and  liabilities  transferred  computed  on  a  basis
different  from  that  set  out  in  paragraph  3,  paragraph  1  shall  not  apply  to  the
assets and liabilities in respect of which that option is exercised."

(5)

In Article 7, paragraph 2 is replaced by the following:

"2. The  Member  States  may  derogate  from  paragraph  1  where  the  receiving
company  has  a  holding  of  less  than  10%  in  the  capital  of  the  transferring
company."

(6)

Article 8 is replaced by the following:

"Article 8

1.

2.

On  a  merger,  division  or  exchange  of  shares,  the  allotment  of  securities
representing the capital of the receiving or acquiring company to a shareholder
of the transferring or acquired company in exchange for securities representing
the capital of the latter company shall not, of itself, give rise to any taxation of
the income, profits or capital gains of that shareholder.

On  a  partial  division,  the  allotment  to  a  shareholder  of  the  transferring
company of securities representing the capital of the  receiving company shall
not, of itself, give rise to any taxation of the income, profits or capital gains of
that shareholder.

3. Where, on the basis of provisions under civil law relating to the organisation of
commercial  undertakings,  a  Member  State  considers  a  shareholder  as  fiscally
transparent  and  therefore  taxes  those  persons  having  an  interest  in  the
shareholders  on  their  share  of  the  profits  of  the  transferring  company  as  and
when  those  profits  arise,  that  State  shall  not  tax  those  persons  on  income,
profits or capital gains from the allotment of securities representing the capital
of the receiving or acquiring company to the shareholder.

4.

5.

Paragraphs 1 and 3 shall apply only if the shareholder does not attribute to the
securities received a value for tax purposes higher than the value the securities
exchanged had immediately before the merger, division or exchange.

Paragraph 2 shall apply only if the shareholder does not attribute to the sum of
the securities received and those held in the transferring company, a value for
tax  purposes  higher  than  the  value  the  securities  held  in  the  transferring
company had immediately before the division.

21

6.

7.

The application of paragraphs 1, 2 and 3 shall not prevent the Member States
from  taxing  the  gain  arising  out  of  the  subsequent  transfer  of  securities
received  in  the  same  way  as  the  gain  arising  out  of  the  transfer  of  securities
existing before the acquisition.

In  this  Article  the  expression  'value  for  tax  purposes'  means  the  value  on  the
basis  of  which  any  gain  or  loss  would  be  computed  for  the  purposes  of  tax
upon the income, profits or capital gains of a shareholder of the company.

8. Where,  under  the  law  of  the  Member  State  in  which  he  is  resident,  a
shareholder may opt for tax treatment different from that set out in paragraphs
4  and  5,  paragraphs  1,  2  and  3  shall  not  apply  to  the  securities  in  respect  of
which such an option is exercised.

9.

Paragraphs  1,  2  and  3  shall  not  prevent  a  Member  State  from  taking  into
account when taxing shareholders any cash payment that may be made on the
merger, division, partial division or exchange.

10. The acquiring company in an exchange of shares shall attribute to the securities
received  the  real  value  of  the  securities  issued  to  the  shareholders  of  the
acquired company.

11. When  the  acquiring  company  holds  its  own  shares  and  transfers  these  in
exchange,  Member  States  may  derogate  from  paragraph  10  and  compute  any
income, profits or capital gains, from the subsequent transfer of the securities
received,  according  to  the  value  those  transferred  shares  had  immediately
before the exchange.

12. The  fact  that  a  company  acquires  a  holding  in  the  acquired  company  from
shareholders  with  tax  residence  outside  the  Community  shall  not  prevent  the
granting of the tax relief provided for in this Article."

(7)

Article 9 is replaced by the following:

"Article 9

1.

2.

The provisions of Articles 4, 5 and 6 shall apply to transfers of assets.

The  securities  representing  the  capital  of  the  receiving  company,  received  in
exchange  for  the  transfer  of  assets  by  the  transferring  company,  shall  have
attributed  to  them  the  real  value  that  the  assets  and  liabilities  transferred  had
immediately before the transfer of assets.”

(8)

In Article 10, paragraph 1 is replaced by the following:

"1. Where  the  assets  transferred  in  a  merger,  a  division  or  a  transfer  of  assets
include  a  permanent  establishment  of  the  transferring  company  which  is
situated  in  a  Member  State  other  than  that  of  the  transferring  company,  the
Member  State  where  the  permanent  establishment  is  situated  shall  renounce
any right to tax that permanent establishment.

The  Member  State  of  the  transferring  company  may  reinstate  in  the  taxable

22

profits  of  that  company  such  losses  of  the  permanent  establishment  as  may
previously have been set off against the taxable profits of the company in that
State and which have not been recovered.

The  Member  State  in  which  the  permanent  establishment  is  situated  and  the
Member  State  of  the  receiving  company  shall  apply  the  provisions  of  this
Directive  to  such  a  transfer  as  if  the  Member  State  where  the  permanent
establishment is situated were the Member State of the transferring  company.

These  provisions  shall  also  apply  in  the  case  where  the  permanent
establishment  is  situated  in  the  same  Member  State  as  that  in  which  the
receiving company is resident."

(9)

The following TITLE IVa is inserted.

"TITLE IVa

Rules applicable to the transfer of the registered office.

Article 10a

1.

2.

The transfer of the registered office of an SE or of an SCE shall not give rise to
any taxation of income, profits or  capital  gains derived from those assets and
liabilities of the transferring company which, in consequence of the transfer of
the  registered  office,  remain  effectively  connected  with  a  permanent
establishment  of  the  SE  or  of  the  SCE  in  the  Member  State  where  it  was
resident before the transfer of its registered office and play a part in generating
the profits or losses taken into account for tax purposes.

Paragraph  1  shall  apply  only  if  the  SE  or  the  SCE  computes  any  new
depreciation  and  any  gains  or  losses  in  respect  of  those  assets  and  liabilities
transferred, as though the transfer of the registered office had not taken place.

3. Where,  under  the  laws  of  the  Member  State  where  the  SE  or  the  SCE  was
resident  before  the  transfer  of  the  registered  office,  the  SE  or  the  SCE  is
entitled  to have any new depreciation  or  any  gains  or  losses  in  respect  of  the
assets  and  liabilities  remaining  in  that  Member  State  computed  on  a  basis
different  from  that  set  out  in  paragraph  2,  paragraph  1  shall  not  apply  to  the
assets and liabilities in respect of which that option is exercised.

Article 10b

1.

The  provisions  of  Article  5  shall  apply  in  the  case  of  the  transfer  of  the
registered office of an SE or of an SCE.

2. Where  a  Member  State  allows  the  receiving  company  to  take  over  from  the
transferring  company,  the  losses,  which  had  not  yet  been  exhausted  for  tax
purposes  in  the  case  of  the  operations  referred  to  in  Article  1  between
companies of that Member State, it shall allow the permanent establishment of
the SE or of the SCE, situated within its territory, to take-over the losses of the

23

3.

4.

1.

2.

SE  or  of  the  SCE  transferring  its  registered  office  which  have  not  been
exhausted for tax purposes.

The  provisions  of  Article  10  shall  apply  in  the  case  of  the  transfer  of  the
registered office of an SE or of an SCE, if that SE or that SCE has a permanent
establishment situated in another Member State, notwithstanding that no assets
and liabilities are transferred between companies.

For the purposes of  this Article,  the  SE  or  the  SCE  transferring  its  registered
office shall  be  deemed to  be  both  the  transferring  company  and  the  receiving
company.

Article 10c

The transfer of the registered office of an SE or of an SCE shall not, of itself,
give  rise  to  any  taxation  of  the  income,  profits  or  capital  gains  of  the
shareholders.

The  application  of  paragraph  1  shall  not  prevent  the  Member  States  from
taxing  the  gain  arising  out  of  the  subsequent  transfer  of  the  securities
representing  the  capital  of  the  SE  or  of  the  SCE  that  transfers  its  registered
office."

(10)

The annex is replaced by the text in the Annex to this Directive.

Article 2

1.

2.

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative
provisions necessary for them to comply with this Directive by 1 January 2005 at the
latest.  They  shall  forthwith  communicate  to  the  Commission  the  text  of  those
provisions and a correlation table between those provisions and this Directive.

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official
publication. Member States shall determine how such reference is to be made.

Member States shall communicate to the Commission the text of the main provisions
of national law which they adopt in the field covered by this Directive.

Article 3

This Directive is addressed to the Member States.

Done at Brussels,

For the Council
The President

24

a)

b)

c)

d)

e)

f)

g)

h)

i)

ANNEX

“ANNEX

"List of companies referred to in Article 3 (a)

companies  under  Belgian 
"société  anonyme"/"naamloze
law  known  as 
vennootschap",  "société  en  commandite  par  actions"/"commanditaire  vennootschap
op  aandelen",  "société  privée  à  responsabilité  limitée"/"besloten  vennootschap  met
beperkte 
responsabilité
limitée"/"coöperatieve  vennootschap  met  beperkte  aansprakelijkheid",  "société
coopérative  à  responsabilité  illimitée"/"coöperatieve  vennootschap  met  onbeperkte
aansprakelijkheid"  and  public  undertakings  which  have  adopted  one  of  the
abovementioned legal forms;

aansprakelijkheid", 

coopérative 

"société 

à 

companies  under  Danish  law  known  as  ”aktieselskab”  and  “anpartsselskab”.  Other
companies  subject  to  tax  under  the  Corporation  Tax  Act,  insofar  as  their  taxable
income  is  calculated  and  taxed  in  accordance  with  the  general  tax  legislation  rules
applicable to “aktieselskaber”;

under 

companies 
"Aktiengesellschaft",
"Kommanditgesellschaft  auf  Aktien",  "Gesellschaft  mit  beschränkter  Haftung",
"bergrechtliche Gewerkschaft";

German 

known 

law 

as 

companies under Greek law known as "αvώvυµη εταιρεία", "εταιρεία περιωρισµέvης
ευθύvης (Ε.Π.Ε.)";

companies under Spanish law known as "sociedad anónima", "sociedad comanditaria
por  acciones",  "sociedad  de  responsabilidad  limitada",  and  those  public  law  bodies
which operate under private law;

companies under French law known as "société anonyme", "société en commandite
par  actions",  "société  à  responsabilité  limitée",  "sociétés  par  actions  simplifiées",
"sociétés d'assurances mutuelles", "sociétés civiles" which are automatically subject
to  corporation 
tax,  "coopératives",  "unions  de  coopératives"  and  public
establishments and undertakings;

companies  incorporated  or  existing  under  Irish  laws,  bodies  registered  under  the
Industrial  and  Provident  Societies  Act,  building  societies  incorporated  under  the
Building Societies Acts and trustee savings banks within the meaning of the Trustee
Savings Banks Act, 1989;

companies under Italian law known as "società per azioni", "società in accomandita
per  azioni",  "società  a  responsibilità  limitata",  "società  cooperative",  "società  per
mutua  assicurazione",  and  private  and  public  entities  whose  activity  is  wholly  or
principally commercial;

companies  under  Luxembourg  law  known  as  "société  anonyme",  "société  en
commandite  par  actions",  "société  à  responsabilité  limitée","société  coopérative",
"société  coopérative  organisée  comme  une  société  anonyme",  "association
d'assurances  mutuelles",  "association  d'épargne-pension",  "entreprise  de  nature

25

j)

k)

l)

m)

n)

o)

z)

commerciale,  industrielle  ou  minière  de  l'Etat,  des  communes,  des  syndicats  de
communes,  des  établissements  publics  et  des  autres  personnes  morales  de  droit
public";

companies  under  Dutch  law  known  as  "naamloze  vennnootschap",  "besloten
commanditaire
vennootschap  met 
vennootschap",  "Coöperatie",  "onderlinge  waarborgmaatschappij",  "Fonds  voor
gemene rekening", "vereniging op coöperatieve grondslag" and "vereniging welke op
onderlinge grondslag als verzekeraar of kredietinstelling optreedt";

aansprakelijkheid", 

beperkte 

"Open 

companies  under  Austrian  law  known  as  "Aktiengesellschaft",  "Gesellschaft  mit
beschränkter Haftung";

commercial companies or civil law companies having a commercial form as well as
other  legal  persons  carrying  on  commercial  or  industrial  activities,  which  are
incorporated under Portuguese law;

companies  under  Finnish  law  known  as  "osakeyhtiö"/"aktiebolag",  "osuuskunta"
/"andelslag", "säästöpankki"/"sparbank" and "vakuutusyhtiö"/"försäkringsbolag";

companies  under  Swedish 
"försäkringsaktiebolag";

law  known  as  "aktiebolag",  "bankaktiebolag",

companies incorporated under the law of the United Kingdom;

companies incorporated under Council Regulation (EC) n° 2157/2001 of 8  October
2001  on  the  Statute  for  a  European  company  (SE)  and  the  Council  Directive
2001/86/EC  of  8  October  2001 supplementing the  Statute for  a  European  company
with regard to the involvement of employees and cooperative societies incorporated
under  Council  Regulation  (EC)  n°  1435/2003  of  22  July  2003  on  the  Statute  for  a
European  Cooperative  Society  (SCE)  and  the  Council  Directive  2003/72/EC  of
22 July  2003  supplementing  the  Statute  for  a  European  Cooperative  Society  with
regard to the involvement of employees."

26

FINANCIAL STATEMENT

This  proposal  for  a  Council  Directive  has  no  financial  implications  for  the  Community
budget.

27

IMPACT ASSESSMENT FORM

THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE
TO SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

TITLE OF PROPOSAL

Proposal  for  a  Council  Directive  amending  Directive  90/434/EEC  of  23  July  1990  on  the
common  system  of  taxation  applicable  to  mergers,  divisions,  transfers  of  assets  and
exchanges of shares concerning companies of different Member States.

DOCUMENT REFERENCE NUMBER

THE PROPOSAL

1.

Taking  account  of  the  principle  of  subsidiarity,  why  is  Community  legislation
necessary in this area and what are its main aims?

Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable
to  mergers,  divisions,  transfers  of  assets  and  exchanges  of  shares  concerning
companies  of  different  Member  States  (the  Directive)  aims  at  harmonising  the
taxation of business re-structuring operations. It introduces a neutral tax regime from
the  point  of  view  of  competition,  in  order  to  allow  enterprises  to  participate  in
mergers, divisions, transfers of assets or exchanges of shares and so to adapt to the
requirements  of  the  common  market,  to  increase  their  productivity  and  to  improve
their competitive strength at the international level. This is achieved by deferring the
taxation of the capital gains relating to the assets transferred on the occasion of the
operations  described  in  the  Directive.  At  the  same  time,  requiring  that  the  assets
transferred remain under  the same  tax jurisdiction safeguards  the  financial  interests
of  the  Member  States.  The  harmful  effects  of  a  well-known  tax  obstacle  to  the
internal market are so reduced.

However, due to the current scope of the Directive and its different implementation
in Member States, cross-border  restructuring operations  still  give  rise  to  substantial
tax  charges.  The  amount  of  capital  gains  taxation  on  sound  business  restructuring
operations forces companies to leave economically sub-optimal structures untouched.
These  facts  reduce  the  effectiveness  of  tax  harmonisation  in  this  particular  area.
Industry  still  encounters  important  obstacles  to  cross-border  activity,  establishment
and investment in the internal market. This adversely affects the competitiveness of
European companies. In economic terms there is a loss of potential EU welfare.

In  addition,  the  Statute  of  the  European  company  (Societas  Europaea  or  SE)  was
adopted  in  2001  and  the  Statue  of  the  European  Cooperative  Society  (SCE)  was
adopted in 2003. According to the preamble of their Regulations, the completion of
the internal market and the improvement it brings about in the economic and social
situation  throughout  the  Community  mean  not  only  that  barriers  to  trade  must  be
removed,  but  also  that  the  structures  of  production  must  be  adapted  to  the
Community  dimension.  For  that  purpose  it  is  essential  that  companies  whose
business  is  not  limited  to  satisfying  purely  local  needs  should  be  able  to  plan  and

28

carry  out  the  reorganisation  of  their  business  on  a  Community  scale.  These
Regulations do not include any tax provisions. It is urgent to adopt measures now. It
is essential that the benefits of the Directive are applicable to these new legal types.
In  particular,  these  companies  are  able  to  transfer  their  registered  offices  between
Member States: it is also very important to guarantee the application of a neutral tax
regime to these operations.

This  proposal  for  a  Directive  contains  targeted  measures  addressing  specific
problems.  It  does  not  seek  to  apply  a  global  solution  to  all  existing  cross-border
obstacles.  It  is  designed  to  overcome  these  problems  by  extending  the  tax  deferral
regime to a larger number of cases. The proposal is aimed at broadening the scope of
harmonisation  provided  for  in  the  current  text  of  the  Directive  and  improving  the
methods to secure tax neutrality while safeguarding the financial interests of Member
States. All this is achieved in the proposal through the following measures:

– 

– 

– 

– 

– 

– 

– 

The  Directive  will  be  applicable  to  a  larger  number  of  legal  persons  and
entities, including the SE and the SCE.

A new type of transactions will be covered: a special division known as "split
off".

The  shareholding  required  to  enjoy  exemption  of  gains  accruing  on  the
cancellation  of  the  holding  in  the  company  transferring  the  assets  is  set
consistently with that of the Directive 90/435/EEC on the common system of
taxation  applicable  to  parent  and  subsidiary  companies  of  different  Member
States (the Parent-Subsidiary Directive). This requirement is being lowered as
well  from  25%  to  10%,  following  the  amendments  proposed  to  the  Parent-
Subsidiary Directive.

It  introduces  specific  provisions  concerning  the  conversion  of  branches  into
subsidiaries.

It clarifies that its benefits apply to exchange of shares  where the  majority of
the voting  rights is acquired from  shareholders  with tax residence outside the
European Union.

It  introduces  rules  to  eliminate  economic  double  taxation  in  the  case  of
exchange of shares.

It  provides  for  methods  to  eliminate  economic  double  taxation  in  the  case  of
transfer of assets

– 

It deals with the transfer of the registered office of the SE and of the SCE.

THE IMPACT ON BUSINESS

2.

Who will be affected by the proposal?

–  which sectors of business

–  which  sizes  of  business  (what  is  the  concentration  of  small  and  medium-sized

firms)

29

–  are there particular geographical areas of the Community where these businesses

are found

The  Directive  applies  to  mergers,  divisions,  transfers  of  assets  and  exchanges  of
shares  in  which  companies  from  two  or  more  Member  States  are  involved.  Those
companies  must  adopt  one  of  the  legal  forms  mentioned  in  the  list  annexed  to  the
Directive.  The  amending  proposal  will  extend  its  benefits  to  new  legal  types  of
entities,  including  the  SE,  the  SCE,  co-operatives,  mutual  companies,  certain  non-
capital  based  companies,  saving  banks,  funds  and  associations  with  commercial
activity. The SE is a public limited company of an EC dimension. The SCE is a co-
operative  of  an  EC  dimension.  Co-operatives  normally  have  separate  legal
personality, which cover the needs of their members by concluding agreements with
them.  Mutual  companies  usually  bring  together  persons  who  pool  their  common
interests in order to receive services in exchange. Funds are assigned capital to meet
the purposes for which they are set up. Including these legal forms in the coverage of
the  Directive  will  extend  its  benefits  to  different  forms  of  organising  economic
activities.

Although  the  inclusion  in  the  scope  of  the  Directive  of  saving  banks  and  mutual
companies should have its effects in the banking and insurance sectors, all sectors of
business and geographical areas of the  Community should  benefit equally  from the
proposal.

The  proposal  clarifies  that  the  Directive  covers  exchange  of  shares  where
shareholders with tax residence outside the European Union are covered. This should
contribute  to  a  wider  application  of  the  Directive.  Groups  of  companies  which  are
non-exclusively  EC  can  enter  into  restructuring  operations  while  their  European
components will enjoy deferral of taxation on the capital gains accruing. Besides this
particular fact, all geographical areas of the Community should benefit equally from
the proposal.

What will business have to do to comply with the proposal?

No new obligations or tax compliance burdens are imposed on business.

What economic effects is the proposal likely to have?

–  on employment

–  on investment and the creation of new businesses

–  on the competitiveness of businesses

The purpose of the proposal  is to improve and  extend the  tax  deferral provided  for
capital gains derived from restructuring operations. A bigger number of entities and
business  groups  will  benefit  from  this  tax  neutral  regime.  It  is  extended  to  cover
"split  offs"  and  is  also  made  clear  that  the  Directive  also  covers  the  conversion  of
branches into subsidiaries and the transactions where resident  outside  the  European
Union  take  part  in  the  sense  that  they  are  shareholders  in  the  companies  involved.
The  methods  designed  for  this  purpose  will  also  be  more  effective  since  economic
double  taxation  linked  to  transfers  of  assets  and  exchange  of  shares  will  also  be
avoided. Ensuring a more uniform application of tax law by extending company tax

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3.

4.

harmonisation is also an important step to reduce compliance costs and increase the
efficiency of company taxation in the EU.

The benefits of the neutral tax regime as provided in the Directive are extended to the
SE and to the SCE. These provisions will contribute to the creation and management
of  companies  with  a  European  dimension,  free  from  the  obstacles  arising  from  the
disparity and the limited territorial application of national company law and tax law.
This  proposal  will  enable  the  transfer,  in  specific  circumstances,  of  the  registered
office under a tax neutral regime and ensures that the benefits of the SE statute and
of the SCE statute are not undermined in this case by a tax obstacle.

All this will play a major role in removing an identified tax obstacle for companies
within the EU. By ensuring tax deferral on gains derived from international business
re-organisations,  the  Directive  can  contribute  to  balanced  taxation  of  domestic  and
cross-border  activities  and  improved  investment  location  decisions.  International
investor's  decisions  will  no  longer  be  influenced  by  certain  current  tax  obstacles.
This will contribute to a reduction of capital costs.

The  reduction  of  disadvantages  and  distortions  arising  from  variable  national  tax
provisions  through  a  common  tax  regime  consisting  of  tax  deferral  will  encourage
new business initiatives.

The competitiveness of European business will improve by allowing sound business
reorganisation  at  no  present  tax  cost.  A  more  efficient  investment  decision  or
restructuring will contribute to business competitiveness in the EU. Also, the waste
of resources linked to economic double taxation will be reduced.

The  improvement  of  the  business  climate  should  have  a  positive  effect  on  job
creation and the fight against unemployment

5.

Does the proposal contain measures to take account of the specific situation of small
and medium-sized firms (reduced or different requirements etc)?

The  proposal  contains  provisions  extending  the  Directive  to  non-capital  based
entities.  Thus,  a  larger  number  of  small  and  medium  size  enterprises  that  do  not
normally adopt the form of a capital based company will be covered.

CONSULTATION

6.

List the organisations which have been consulted about the proposal and outline their
main views.

The text of this proposal is the result of long consultative processes. On one hand, the
initiatives  following  the  previous  amending  proposal  of  the  Merger  Directive,
[COM(93) 293 final], were based on the conclusions of the Ruding Committee24 and
on  the  Commission  Communication  of  26  June  1992  to  the  Council  and  to
Parliament subsequent to the conclusions of the Ruding Committee25.

24

25

Report of the Committee of Independent experts on company taxation of March 1992.
SEC(92) 1118 final.

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In addition, the more far reaching modifications included in the text hereby proposed
are the result of the debates between international tax experts, technical delegations
from  Member  States  and  the  Commission  services.  The  company  tax  study  is  the
main  source  of  ideas  for  this  legislative  process.  This  study  was  conducted  by  the
Commission  services  based  on  discussions  with  two  panels  of  experts  and
documentation  provided  by  them.  The  panels  of  experts  were  composed  of  highly
qualified  tax  professionals  from  the  academic  world,  including  universities  and
research institutions, and business representatives.

The  final  step  of  this  process  consisted  of  meetings  with  the  Member  States  in  a
Commission chaired working group that examined aspects of the elements taken up
in the proposal.

The present proposal is the result of the deliberations of all those experts, the analysis
provided  for  by  the  Commission  services  and  the  evaluation  of  the  reflections  and
concerns of national tax policy makers.

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