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Speech by Frits Bolkestein

Member of the European Commission in charge of the Internal Market and Taxation

The new European Company: opportunity in diversity

Address to Conference at the University of Leiden

Leiden, 29th November 2002

Ladies and Gentlemen,

I would like to begin my speech by saying what a pleasure it is for me to see here today - back in top form - the person who is regarded as the Father of the European Company, Mr Piet SANDERS.

I also like to add my heartfelt thanks for all his efforts in support of what he called the "Societas Europaea", or SE, as it is known in all languages.

You will certainly tell us, Mr Sanders, that your initial idea and the tangible achievement we have today, namely "the new European Company", are worlds apart. But we are dealing with matters tangible since, as from 8 October 2004, this new legal vehicle will be available to companies wishing to do business throughout the European Union.

I note a touch of scepticism in some quarters, but this is only to be expected with any new legal entity: there is always fear of the unknown. And I concede that work remains to be done in some areas: in particular, I refer to the taxation aspects, which, quite rightly, are of concern to potential users, and about which I will say a few words later on.

But I am also convinced that it is important to create a "European perspective" for businesses by allowing them to combine or reorganise their business structure so that they can take full advantage of the single market. To my mind it is essential to underscore, as the organisers of this conference have done, "the opportunity in diversity" afforded by this new European Company.

Advantages of the European Company Statute

On 8 October 2004 the European Company will become a reality some 34 years after it was first proposed. The benefits of this concept of a true Societas Europea, organised under a supra-national European law rather than the law of an individual Member State, are evident: companies that are active across the Internal Market can operate throughout the EU with one set of rules and a unified management and reporting system rather than having to comply with all the different laws of the Member States where these companies have subsidiaries.

For companies doing business throughout the Internal Market, the European Company therefore offers the prospect of reduced administrative costs and a legal structure adapted to the Internal Market as a whole. Cross-border operations will be facilitated: there is no longer a need for setting up a costly and complex network of subsidiaries. There will be substantive reductions in administrative and legal costs they were estimated to be up to €30 billion per year.

By setting up as a European company, a business can restructure fast and easily to take full advantage of the trading possibilities within the Internal Market. Moving across borders will be possible without the burdensome and costly process of dissolution and winding up in one Member State and re-registering in another. The Statute will thus maximise the freedom of movement for such public companies.

The European Company Statute will also enable groups of companies which have developed activities in different industries in various Member States to restructure their business in various forms: they could, for instance, create one European Company for each geographical sector, for each sector of activity or for each product line. This will allow for a more efficient and less costly management and will lead to productivity gains which will, so it is estimated, even surpass the economies of scale achieved.

With the introduction of the euro, the European Company is regarded as an important instrument within the Economic and Monetary Union in terms of access to capital. For pan-European projects, for example Trans-European Network projects in transport, energy and telecommunications, a European Company could more easily attract investors and private venture capital than a series of national companies all working under different national rules.

Furthermore, the "European dimension" of a company's activities is also something a company with pan-European operations might want to advertise: the Societas Europaea will offer companies a "European flag", which has value in publicity terms. This "European identity" of a company will also be a way of removing the psychological barriers between Member States and prompt a more European outlook on doing business.

Worker participation

The question of whether and how to introduce worker participation rules in the Statute has been the subject of great controversy and discord. Agreement on these questions finally paved the way to adoption of the Statute: the Directive foresees that management and employee representatives in each European Company have to negotiate on the arrangement to apply. In case they cannot reach an agreement, a set of back-up statutory "standard" rules apply. Worker involvement arrangements - information and consultation of employees and, in some cases, board-level employee participation must generally apply in all types of European Company.

To those who are concerned that worker involvement will act as a deterrent I would like to say that there will be no worker participation in the organs of the European Company, if no agreement was found in the negotiations between management and employees and if there was no arrangement for worker involvement in the companies that set up the Societas Europaea.


On the tax front, however, I have to acknowledge that a great deal remains to be done. I would now like to develop this point further.

The Commission was always determined to include tax provisions in the Statute. The relevant articles in the original proposal of 1970 were very complete. In the 1989 proposal, these comprehensive rules were reduced to just one provision on the taxation of the permanent establishments of the SE. In the negotiations running up to the final agreement on the statute, however, even this reference was removed. Member States considered that the tax questions relating to the SE should be considered separately.

This leaves the SE-Statute without any tax rules. This is a rather unfortunate situation, which I regret very much. Clearly, the lack of appropriate tax rules significantly reduces the practical attractiveness of the European Company Statute. Business representatives emphasise this quite forcefully.

I can however assure you that the Commission will not remain inactive. The first thing to do now is to make sure that the creation of the European Company by businesses as from 8 October 2004 will not be hampered by tax problems. For this purpose it is essential that the SE will in future fall under the scope of the Tax Merger Directive.

My services are currently preparing a proposal for the amendment of this directive. The European Company should of course be included in its scope so that businesses will be able to set up a European Company in a tax neutral way, without inappropriate taxation of capital gains. Similarly, the scope of the other tax directives and notably of the parent/subsidiary directive will have to be extended so as to include the SE. We plan to come forward with appropriate legislative initiatives next year.

The reform of the merger directive also provides a very good opportunity to devise appropriate tax rules for the transfer of the registered office of a European Company from one Member State to another. If a SE transfers its seat to another Member State but leaves its assets behind connected with a permanent establishment in the original Member State there is no reason to tax the related capital gains or "'hidden reserves".

Moreover, I should like to stress that the SE will of course also benefit from the various Commission initiatives on company taxation in general, in particular in the thorny field of transfer pricing.

In a more long-term perspective there is finally the issue of granting the European Company Statute a proper EU tax regime of its own. Industry federations at EU level and many individual representatives strongly advocate such an EU tax regime for the SE.

Although we are fully aware of the difficulties involved, the Commission is receptive to this plea. In particular, I believe that the long-term general objective of providing companies with a common consolidated tax base for their EU-wide activities could be usefully tested with the SE. As you know, the Commission is convinced that such a tax base is the way forward for tackling the various and complex tax obstacles, which still hamper businesses in the Internal Market.

At the "European Conference on Company Taxation", organised by the Commission in late April this year, the idea of a European Company pilot scheme met with considerable support. The positions taken by the Economic and Social Committee and by the European Parliament also show an opening to this idea. Even some Member States have signalled to us that they are interested in pursuing this idea.

The comprehensive study on company taxation carried out by my services last year presents, among many other things, a detailed analysis of various models for such a common consolidated tax base. My services are now looking into the more concrete questions linked to such an admittedly ambitious project.

There are genuinely new and very complex issues to be faced. Let me just mention one: How should the common EU tax base be determined? It is sometimes said that a common EU tax base could be easily derived from the International Accounting Standards, which will be, as from 2005, binding for the consolidated accounts of all listed EU companies. But as always, the devil is in the detail and it seems quite clear that the IAS can, if ever, only form a basic starting point for developing EU tax base rules.

This brings me to the related area of accounting rules.


Accounting is clearly not the most important part of the Regulation. In fact, only two Articles of the Regulation deal with accounting. The same principle, that we have seen in other areas, also applies here: for its accounting, the European Company is subject to the law of the Member State in which it has its registered office.

However, since the adoption of the Regulation of 19 July 2002, all listed EU companies must prepare their consolidated accounts in accordance with International Accounting Standards (IAS) from 2005 onwards. This requirement also applies to those European Companies whose securities are admitted to trading on a regulated market in a Member State. Member States might even go a step further and extend this requirement to an unlisted European Company or to the annual accounts of the European Company.

One might regret that it was not possible to develop a uniform accounting regime for the Societas Europaea. However, our recent proposal to modernise the Accounting Directives will give Member States the possibility to amend their national accounting legislation in a manner which brings it closer to IAS. To the extent that Member States make use of this possibility, the European Company will also benefit from this.


After a long and sinuous legislative adventure of some thirty-four years, the European Company is now about to become a reality. Its birth has been a long and painstaking process. The result could have been more to the taste of some, but it is now for the users of the European Company to make it a definite success. Company forms can live extremely long: the Dutch East India company of the XVIIth century is often quoted as being the ancestor of the modern public limited liability company. I can only wish a similar development for the European Company!

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