Brussels, 20/10/2003 (Agence Europe) - The European Commission has made a proposal for its new draft merger directive that updates, clarifies and broadens the scope of the European Community's Directive that provides for tax deferral in the case of cross-border mergers. "European companies" and European Cooperative Societies" are included in the list of companies affected by the directive.
This system has been designed as a short term measure, while waiting for the possible creation of a common company tax rate (the Commission is expected to produce a communication in November on the subject). The proposal will be combined with another proposal combined with the forthcoming proposal for a Tenth Company Law Directive facilitating mergers between companies from different Member States. This new proposal replaces the 1993 proposal as Member States could not agree to the wide scope of the earlier proposal because of the asymmetries in their commercial laws governing the types of legal entities and in the tax arrangements applicable to these entities.
Field of application: The proposal extends application of the directive to the European Company (which could be set up in 2004) and the European Cooperative Society (from 2006), as well as certain cooperatives and non-capital based companies, mutual companies, savings banks, funds and associations with commercial activity.
Divisions with share exchanges: the directive now includes a breaks with share exchanges when the associates of a company entering into merger receive shares in exchange for selling part of the active or passive capital between one or several branches of activity of this company "entering" the merger.
Tax deferral: the proposal would clarify that the tax deferral regime in the Directive can apply where a company decides to convert its foreign branch into a subsidiary. The proposal would ensure that the values of securities and assets exchanged in cross-border mergers and divisions are calculated the same way for tax purposes in different Member States when they are ultimately subjected to tax.
Transfer of registered offices: the proposal would ensure that the transfer of the registered office of a European Company or of a European Co-operative Society from one Member State to another would not result directly in taxation of capital gains. The intention is that the facility to make such a transfer, which is specifically provided for in the Statutes governing those entities, would not be hampered by discriminatory tax rules or by restrictions or distortions that would violate the EC Treaty.
Subsidiary and branches: the proposal would clarify that the tax deferral regime in the Directive can apply where a company decides to convert its foreign branch into a subsidiary.