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Company taxation: Commission welcomes agreement on improvements to Mergers Directive

Commission Européenne - IP/05/193   17/02/2005

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IP/05/193

Brussels, 17 February 2005

Company taxation: Commission welcomes agreement on improvements to Mergers Directive

The European Commission has welcomed the adoption by the EU's Council of Finance Ministers of a proposal to amend the EU Directive that provides for tax deferral in the case of cross-border mergers and divisions of companies, transfers of assets and exchanges of shares (90/434/EEC). The amendment that is based on a Commission proposal of October 2003 (see IP/03/1418) will, in particular, broaden the existing Directive's scope to cover a larger range of companies including the European Company (see IP/01/1376) and the European Co-operative Society (see IP/03/1071); provide for a new tax-neutral regime for the transfer of the registered office of a European Company or of a European Cooperative Society between Member States; clarify that the Directive applies in the case of the conversion of branches into subsidiaries; and cover a new type of operation, known as a 'partial division' or 'split-off'.

"I welcome the decision of the Council to adopt this Directive that will extend to a much larger range of companies a set of tax rules that facilitate cross-border corporate re-structuring" commented Taxation and Customs Commissioner László Kovács. "Despite some compromises that had to be made in order to achieve agreement, this Directive is an important step forward in our endeavours to remove the tax obstacles that companies currently encounter when exercising their freedom to operate across borders within the Internal Market".

The new Directive expands and updates the existing "Mergers" Directive that provides for tax deferral in the case of cross-border mergers and divisions of companies, transfers of assets and exchanges of shares. Its main effects are as follows:

  • The list of companies to which the Mergers Directive applies is expanded to cover new, specified, legal entities, including certain co-operatives and certain forms of partnership, mutual companies, savings banks, funds and associations with commercial activity. The new list includes the European Company that became available for use as a corporate structure in October 2004 and the European Co-operative Society that will become available from 2006.
  • Provided certain conditions are met, the transfer of the registered office of a European Company or of a European Co-operative Society from one Member State to another will not result in immediate taxation of unrealised gains on assets remaining in the Member State from which the office is transferred.
  • The tax deferral regime in the Directive has been confirmed as being applicable where a company decides to convert its foreign branch into a subsidiary.
  • The Directive is expanded to cover a new type of operation, known as a "partial division" or "split-off", whereby an existing company transfers one or more of its branches of activity to an existing or newly created sister company.

The Council did not agree to the Commission's proposal to state explicitly that gains on securities and assets exchanged in cross-border mergers and divisions should not be taxed twice, in different Member States, when ultimately disposed of. The Council also qualified the Commission's proposal that fiscally transparent entities should explicitly be covered by the provisions of the Directive. In order to close what it perceived to be potential tax loopholes, the Council wished to leave a substantial amount of discretion in these matters to the individual Member States.

For further information on the Mergers Directive see:

http://ec.europa.eu/taxation_customs/taxation/company_tax/mergers_directive/index_en.htm


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