Taxation of European Companies at the Time of Establishment and Restructuring (eBook)

Dr. Christiane Malke completed her doctoral studies at the Department of Business Administration and Taxation II at the University of Mannheim under supervision of Prof. Dr. Christoph Spengel.

Foreword 6
Preface 7
Summary of Contents 8
Table of Contents 8
List of Abbreviations 12
List of Figures 15
List of Tables 17
1 Introduction 18
1.1 Motivation of the thesis 18
1.2 Aim of the thesis and object of examination 23
1.3 Organization of the thesis 24
2 Relevance of the European Company in practice 26
2.1 Basic features of the European Company 26
2.2 Examination of statistical data regarding the use of the European Company 27
2.3 Interim conclusions 32
3 Taxation of European Companies during the time of restructuring in an ideal environment 33
3.1 Guiding tax principles 33
3.1.1 Neutrality and efficiency 33
3.1.2 Equity and fairness 34
3.2 Issues at reorganizations 37
3.2.1 General features of reorganizations 37
3.2.2 Treatment of hidden reserves 38
3.2.3 Retention of unused losses 41
3.2.4 Treatment of tax incentives 42
3.2.5 Additional transaction taxes 42
3.2.6 Scope of rules 43
3.3 Application to purely national contexts 43
3.4 Application to the ideal internal market 44
3.5 Interim conclusions 46
4 Taxation of European Companies during the time of restructuring in the current environment 47
4.1 Guiding tax principles 47
4.1.1 Neutrality and equity in an international context 47
4.1.1.1 International neutrality and efficiency 48
4.1.1.2 International equity and fairness 49
4.1.1.3 Taxing right and time of taxation at international restructurings 52
4.1.1.4 Valuation at international restructurings 56
4.1.1.5 Interim conclusions 57
4.1.2 EU law 58
4.1.2.1 Primary EU law 59
4.1.2.1.1 Decisive fundamental freedoms 59
4.1.2.1.2 Discriminations and restrictions of the fundamental freedoms 61
4.1.2.1.3 Justifications of discriminations and/or restrictions 63
4.1.2.2 Secondary EU law 66
4.1.2.3 Decisive judgments of the European Court of Justice in the context of reorganizations 66
4.1.2.4 Interim conclusions 69
4.1.3 Side condition: Feasibility 69
4.1.4 Interim conclusions 70
4.2 Comparative analysis of the treatment in the EU member states 72
4.2.1 Approach for the comparative analysis 72
4.2.2 Merger Directive 73
4.2.3 Entry 75
4.2.3.1 Merger 75
4.2.3.1.1 Basics with regard to company law 75
4.2.3.1.2 Tax consequences 76
4.2.3.1.2.1 Entity level 78
4.2.3.1.2.1.1 Transferring company/companies 78
4.2.3.1.2.1.1.1 Assets and liabilities in country of transferring company 78
4.2.3.1.2.1.1.2 Permanent establishments in country other than that of transferring company 89
4.2.3.1.2.1.2 Receiving company (SE) 94
4.2.3.1.2.1.2.1 Tax-exempt provisions and reserves 94
4.2.3.1.2.1.2.2 Losses 96
4.2.3.1.2.1.2.3 Prior holdings 99
4.2.3.1.2.1.2.4 Additional transaction taxes 101
4.2.3.1.2.2 Shareholder level 103
4.2.3.1.3 Interim conclusions 110
4.2.3.2 Holding SE 111
4.2.3.2.1 Basics with regard to company law 111
4.2.3.2.2 Tax consequences 112
4.2.3.3 Subsidiary SE 126
4.2.3.3.1 Basics with regard to company law 126
4.2.3.3.2 Tax consequences 126
4.2.3.3.2.1 Contributions of cash or shares 127
4.2.3.3.2.2 Contributions of branches of activity or single assets 128
4.2.3.4 Conversion 145
4.2.4 Transfer 147
4.2.4.1 Basics with regard to company law 147
4.2.4.2 Tax consequences 148
4.2.5 Exit 161
4.2.6 Interim conclusions 162
4.3 Issues and options for reform 164
4.3.1 Company law 164
4.3.2 Tax law 167
4.3.2.1 Missing or incorrect transformation of Merger Directive 167
4.3.2.2 Treatment of accrued hidden reserves 169
4.3.2.2.1 Transfer of assets and companies from one member state to another 170
4.3.2.2.1.1 Issues 170
4.3.2.2.1.1.1 Taxing right and time of taxation 170
4.3.2.2.1.1.1.1 Assessment against the background of international neutrality and equity 171
4.3.2.2.1.1.1.2 Assessment against the background of primary and secondary EU law 173
4.3.2.2.1.1.2 Valuation 179
4.3.2.2.1.1.3 Interim conclusions 181
4.3.2.2.1.2 Options for reform 181
4.3.2.2.1.2.1 Assets remaining in the former jurisdiction to tax 181
4.3.2.2.1.2.2 Assets leaving the former jurisdiction to tax 182
4.3.2.2.1.2.2.1 Requirements with regard to the tax base, the tax rate and the taxable event 182
4.3.2.2.1.2.2.2 Personal, objective and territorial scope 185
4.3.2.2.1.2.2.3 Required coordination between countries involved 185
4.3.2.2.1.2.2.4 Uncoordinated approaches 189
4.3.2.2.1.2.2.5 Other options: taxation of unrealized gains or abolishment of taxing rights upon exit 192
4.3.2.2.1.2.3 Interim conclusions 194
4.3.2.2.2 Transfers of foreign permanent establishments 194
4.3.2.2.3 Transfer of shares from one member state to another 195
4.3.2.2.4 Doubling of hidden reserves 196
4.3.2.3 Retention of unused losses 199
4.3.2.4 Filing obligations and avoidance of abuse 202
4.3.2.5 Additional transaction taxes 204
4.3.3 Interim conclusions 205
5 Taxation of European Companies during the time of restructuring in the proposed environment 208
5.1 Guiding tax principles 208
5.2 Common Corporate Tax Base 209
5.3 Common Consolidated Corporate Tax Base 212
5.3.1 Proposed rules 212
5.3.1.1 Ongoing system 212
5.3.1.2 Transitional aspects 217
5.3.2 Issues and options for reform 220
5.3.2.1 Transactions taking place within a consolidated CCCTB group 220
5.3.2.2 Transactions not taking place within a consolidated CCCTB group 225
5.4 Interim conclusions 231
6 Conclusions 233
Appendix 240
List of References 245

3 Taxation of European Companies during the time of restructuring in an ideal environment (S. 16-17)

As has been pointed out above, a Societas Europaea may not be established by individuals via a contribution of cash or assets but solely by reorganization of entities already existing. Furthermore, a feature of the SE is the possibility to transfer the registered office from one country to another without losing the legal entity. Thus, in the following, the focus is on generally accepted principles which need to be observed in such transactions from a tax perspective.

In this chapter an ideal environment is considered. An ideal environment may be defined as an area with a uniform tax system in which the transaction takes place, thus an area without borders. Such an environment would be provided if the transaction occurs within one country. Taking the aim of the European Company Statute into consideration, it should also be provided within the internal market of the European Union.

3.1 Guiding tax principles

3.1.1 Neutrality and efficiency

Taxes are not explicitly mentioned in the European Company Statute. It is only stated that member states may not discriminate SEs against domestic corporations for unjustified reasons or disproportionately restrict SEs when they are formed or transfers their registered offices. This implies that such reorganizations may not be hindered, which also needs to be respected with regard to taxes.79 The generally accepted principle in this context is the principle of tax neutrality. Accordingly, taxes shall not influence decisions. Ideally, in a world with taxes decisions are made in the same manner as in a world without taxes. Thus decisions would be made only with regard to profitability or other corporate aspects.80 There are two ways to put tax neutrality into more precise terms. The microeconomic perspective looks at the effects of taxation on the decision makers of single businesses (decision neutrality).

Accordingly, on the one hand, one can analyze whether current tax systems are neutral and, on the other hand, how neutral tax systems should look like.82 Such an approach can be justified by the following reasons. One argument is that tax planning and information costs are avoided since decisions are not influenced by taxes.83 Another argument is that the risk of incorrect business decisions is minimized since the factor “taxes” does not need to be taken into account.

From a macroeconomic perspective, taxation shall provide allocation and production efficiency and thus avoid the misuse of resources from the point of view of the economy as a whole since this would cause a loss of welfare, i.e. an excess burden.85 Although decision neutrality and allocation and production efficiency are put into concrete terms differently, a neutral system is the basis for an efficient system. Only if decisions at the level of the entrepreneurs are not distorted by taxes, may an optimal allocation of resources within the whole economy take place.86 Neutrality and efficiency are also part of the requirements established by the European Commission in the context of company taxation within the internal market.