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Brussels, 13th September 2004
Results of Informal Meeting of Economics and Finance Ministers, The Hague, 10-11th September 2004 – Banking and Company Taxation
Possible obstacles to cross-border mergers and takeovers in the banking sector
The Economics and Finance Ministers called up the Commission to study possible obstacles to cross-border mergers and acquisitions in the wholesale and retail banking sectors arising not only from different supervisory practices but also other broader factors. In addition, the Ministers took note of the Commission’s intention to review those parts of the EU’s Banking Directive (2000/12/EC) that allow Member States to block mergers and acquisitions on prudential grounds.
Currently, Article 16 of the Directive states that “The Member States shall require any natural or legal person who proposes to hold, directly or indirectly a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of the intended holding. Such a person must likewise inform the competent authorities if he proposes to increase his qualifying holding so that the proportion of the voting rights or of the capital held by him would reach or exceed 20%, 33% or 50% or so that the credit institution would become his subsidiary.”
“The competent authorities shall have a maximum of three months from the date of the notification provided for in the first paragraph to oppose such a plan if, in view of the need to ensure sound and prudent management of the credit institution, they are not satisfied as to the suitability of the person referred to in the first subparagraph. If they do not oppose the plan referred to in the first subparagraph, they may fix a maximum period for its implementation.”
The aim of the review of the Banking Directive to be undertaken by the Commission will be to try to ensure that supervisory authorities have to be as specific and transparent as possible if they have doubts about the “sound and prudent management” of the credit institution. This would ensure that there would be less scope for prudential rules to be invoked for political reasons.
Under the terms of the EU’s Merger Regulation (134/2004/EC), the European Commission has sole jurisdiction over mergers and takeovers over a certain size -- when the companies involved have a combined, worldwide turnover in excess of €5.0 billion and EEA sales of more than €250 million each -- and can already challenge Member States' measures to stop a cross-border deal. Article 21 of the Merger Regulation allows a Member State to intervene to protect legitimate interests, including on prudential grounds, but the Commission has the power to verify that the intervention is indeed founded and proportional. However, a potential problem is that banks considering a merger or takeover may be dissuaded by preliminary contacts with banking supervisory authorities before any formal bid is launched.
Speaking after the meeting, Commissioner Bolkestein stated that “a strong healthy banking sector in Europe is crucial to help the EU reach its targets for economic growth and to maintain financial stability. More competition is needed – in wholesale, but also in retail –to close the present competitiveness and profitability gap with the US.”
Following a political discussion over lunch on company taxation in the EU, a large majority of Ministers supported the creation of a working group of Member States, chaired by the European Commission, to consider the idea of allowing all companies to use a common consolidated set of rules for calculating their EU-wide taxable profits and a pilot project that would allow SMEs to use the tax rules of their home state for calculating their EU-wide taxable profits. The Ministers discussions were based on two Commission non-papers that are available from the Commission’s website:
The Commission intends to establish the working group within the next few weeks. Speaking afterwards, Commissioner Bolkestein expressed the hope that all Member States would participate in the group’s work.
During a previous debate on reducing the administrative burden on companies, Commissioner Bolkestein pointed out to Ministers that companies operating in more than one Member State currently face considerable red tape as a result of having to calculate their tax liabilities according to different sets of rules. For example, different countries have different rules on transfer pricings and losses in one Member State cannot be offset against profits in another.