Shortcomings in the EU merger directive / Frederik Boulogne.
2016
KJE7198 .B68 2016 (Map It)
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Title
Shortcomings in the EU merger directive / Frederik Boulogne.
Published
Alphen Aan Den Rijn, The Netherlands : Wolters Kluwer, [2016]
Copyright
©2016
Call Number
KJE7198 .B68 2016
ISBN
9041167137
9789041167132 (hbk.)
9789041167132 (hbk.)
Description
xv, 408 pages ; 25 cm.
System Control No.
(OCoLC)947082812
Summary
"The book, 'Shortcomings in the EU Merger Directive', offers solutions for dealing with issues arising out of the shortcomings in the European Union (EU) Merger Directive (adopted in 1990 with the aim of eliminating the tax obstacles to cross-border restructuring operations, while simultaneously safeguarding the financial interests of EU Member States). In spite of the amendments and the European Court of Justice?s (ECJ) interpretations of its provisions, various shortcomings remain. Most of these pitfalls exist where the Directive conflicts with higher (EU) law (the fundamental freedoms and the general principles of EU law). Now, more than twenty years later, there is a heightened interest in tax harmonisation, while drawing reference from the ECJ's significantly developed case-law in the field of direct taxation and learning from the issues that have emerged with the implementation of the Directive in the Member States."--Publisher's website.
Note
"The book, 'Shortcomings in the EU Merger Directive', offers solutions for dealing with issues arising out of the shortcomings in the European Union (EU) Merger Directive (adopted in 1990 with the aim of eliminating the tax obstacles to cross-border restructuring operations, while simultaneously safeguarding the financial interests of EU Member States). In spite of the amendments and the European Court of Justice?s (ECJ) interpretations of its provisions, various shortcomings remain. Most of these pitfalls exist where the Directive conflicts with higher (EU) law (the fundamental freedoms and the general principles of EU law). Now, more than twenty years later, there is a heightened interest in tax harmonisation, while drawing reference from the ECJ's significantly developed case-law in the field of direct taxation and learning from the issues that have emerged with the implementation of the Directive in the Member States."--Publisher's website.
Bibliography, etc. Note
Includes bibliographical references (pages 381-392).
Record Appears in
Variant Title
Shortcomings in the European Union merger directive
Table of Contents
Acknowledgement
xv
Introduction
1
I.
Background and Overview of the Merger Directive
1
II.
Main Question and Sub-questions
5
III.
Justification of Topic and Research
6
IV.
Approach
7
V.
Relationship between Primary EU Law, Secondary EU Law and Domestic Law
10
VI.
Delimitations
11
ch. 1
Scope Ratione Personae
13
1.01.
Introduction
13
1.02.
'Company'
13
A.
Introduction
13
B.
Literal Interpretation
14
C.
Schematic Interpretation
16
1.
Introduction
16
2.
Other EU Directives
16
3.
Article 54 of the TFEU
17
D.
Teleological Interpretation
20
E.
Recommendation
20
1.
Introduction
20
2.
Option 1: Use the Definition of the Term 'Company' in Article 3(1)(b) of the OECD Model Convention
21
3.
Option 2: Replace the Term 'Company' by the Term 'Entity'
22
1.03.
'Listed Form Requirement'
23
A.
Introduction
23
B.
Consequence of Being Listed in Annex I, Part A
23
C.
Annex I, Part A: Limitative or Exemplary Interpretation?
24
D.
Validity of the 'Listed Form Requirement'
26
1.
Introduction
26
2.
Objective of the Merger Directive
27
3.
Freedom of Establishment
28
4.
Freedom of Capital Movement
32
a.
Access to the Freedom of Capital Movement
32
b.
Capital Movement
33
c.
Concurrence with the Freedom of Establishment
33
d.
Restriction
34
e.
Company Level versus Shareholder Level
35
f.
Justification
37
5.
Article 18 of the TFEU
38
6.
Unwritten EU Law Principle of Equality
39
7.
Treaty Non-discrimination Provision
42
a.
Introduction
42
b.
Article 24(1) of the OECD Model Convention
42
E.
Recommendation: Abolition of the 'Listed Form Requirement'
48
F.
Proposed CCCTB Directive
48
G.
SE and SCE
50
1.04.
'Residence Requirement'
51
A.
Introduction
51
B.
Dual Residence within the EU
52
C.
Dual Residence outside the EU
53
D.
Deviations from the 'Place of Effective Management Tie-Breaker'
54
1.
Introduction
54
2.
Mutual Agreement Procedure
54
3.
Place of Incorporation
55
E.
Recommendation: Abolition of the 'Residence Requirement'
57
1.05.
'Subject-to-Tax Requirement'
58
A.
Introduction
58
B.
Taxes Covered by Article 3(c) of the Merger Directive
59
C.
'Subject to Tax'
59
D.
'Without the Possibility of an Option or of Being Exempt'
61
E.
Recommendation: Abolition of the 'Subject-to-Tax Requirement'
62
1.06.
'Involving Companies from Two or More Member States'
62
A.
Introduction
62
B.
'Involving'
62
C.
Company from Which Member State(s)?
63
1.
Introduction
63
2.
Company from One or from Multiple Member States?
64
3.
Company from One Member State: Decisive Criterion?
65
a.
Introduction
65
b.
'Listed form Requirement'
65
c.
'Residence Requirement'
66
d.
'Subject-to-Tax Requirement'
68
4.
Company from Multiple Member States?
68
D.
Partial Application of the Facilities of the Merger Directive
69
E.
Recommendation: Relaxation of the 'Involvement Requirement'
70
1.07.
UCITS
73
1.08.
Conclusions and Recommendations
76
ch. 2
Scope Ration Materiae
81
2.01.
Introduction
81
2.02.
'Merger'
84
A.
Introduction
84
B.
'Non-Liquidation Requirement'
85
C.
Nature of the Consideration
86
1.
Introduction
86
2.
Restriction to Securities
86
3.
'10% Cash Payment Limitation'
88
a.
Introduction
88
b.
Terms 'Nominal Value' and 'Accounting Par Value'
90
c.
Critique
90
d.
Buy-Out of Minority Shareholders
91
4.
'Securities Representing the Capital'
92
5.
'Issuance Requirement'
95
6.
'Triangular Mergers'
97
D.
Value of the Consideration
98
2.03.
'Division' and 'Partial Division'
102
A.
Introduction
102
B.
'Branch of Activity'
103
1.
Introduction
103
2.
Andersen og Jensen Decision
103
3.
Systematic Interpretation
108
a.
Capital Duty Directive
108
b.
VAT Directive
111
4.
Critique on the 'Branch of Activity Requirement'
113
5.
'Leaving at Least One Branch of Activity in the Transferring Company'
115
C.
'Dispute Divisions'
117
2.04.
'Transfer of Assets'
118
2.05.
'Exchange of Shares'
118
A.
Introduction
118
B.
'Voting Rights Requirement'
119
C.
Critique on the 'Voting Rights Requirement'
121
2.06.
Transfer of the Registered Office of an SE or an SCE
123
2.07.
Interplay between Tax Law and Corporate Law
125
A.
Introduction
125
B.
Three Categories of Operations
125
C.
Differences in Interpretation
129
D.
Unnecessarily Restrictive Elements
131
E.
Limited Coverage of Operations by Article 2 of the Merger Directive
132
F.
Bridging the Gap between Tax Law and Corporate Law
133
2.08.
Conclusion
135
ch. 3
Carry-Over of Balance-Sheet Values, Provisions, Reserves and Losses
143
3.01.
Introduction
143
3.02.
Carry-Over of Balance-Sheet Values at Company Level
145
A.
Introduction
145
B.
'Shall Not Give Rise to Any Taxation of Capital Gains' (at Company Level)
147
1.
Which Member State Is Not Allowed to Tax?
147
2.
Which Taxes May Not Be Levied?
147
3.
Is the Taxation of Other Items of Income than Capital Gains at the Time of the Restructuring Operation Still Allowed?
148
4.
Is Non-taxation Mandatory for the Taxpayer?
148
5.
Terms 'Real Value' and 'Value for Tax Purposes'
149
C.
'Permanent Establishment Requirement' and the 'Taxable Income Requirement'
150
1.
Pivotal Roles
150
2.
Literal Interpretation
151
3.
Historical Interpretation
151
4.
Schematic Interpretation
152
a.
Introduction
152
b.
Interplay with the 'Taxable Income Requirement'
152
c.
Interplay with the 'Branch of Activity Requirement'
154
d.
Interplay with the Term 'Permanent Establishment' in the Other Direct Tax Directives
154
e.
Interplay with the Terms 'Agencies' and 'Branches' in Article 49 of the TFEU
156
5.
Teleological Interpretation
157
6.
Deliberation
158
D.
Reconsidering the 'Permanent Establishment Requirement'
159
1.
Introduction
159
2.
Immediate Taxation of Hidden Reserves in the Light of the Freedom of Establishment
161
3.
Unsatisfactory Elements in the National Grid Regime
162
4.
Comparison between the Regime in the Merger Directive and the National Grid Regime
164
5.
Options for Exit Tax Regimes in the Merger Directive
165
6.
Improved Exit Tax Regime A La National Grid
166
7.
'Restrictive' Definition or Allocation of Taxing Rights
168
8.
Allocation of Assets and Liabilities to the Permanent Establishment and the Subsequent Attribution of Profits
170
E.
Perspective of the Member State of the Receiving Company
172
F.
Transfer of a Permanent Establishment
173
1.
Introduction
173
2.
Reinstatement of Losses
174
3.
Free Choice of Legal Form
179
3.03.
Carry-Over of Balance-Sheet Values at Shareholder Level
181
A.
Introduction
181
B.
Description of Article 8 of the Merger Directive
181
C.
Shareholder of Which Company?
182
D.
Which Taxes May Not Be Levied Pursuant to Article 8 of the Merger Directive?
183
E.
Perspective of the Member State of the Shareholder
184
F.
Perspective of the Member State of the Shareholding
185
1.
Introduction
185
2.
Example 1: Cross-Border Merger
185
3.
Example 2: Exchange of Shares
186
4.
Analysis
186
G.
Change of the Regime Applicable to the Shareholding
187
1.
Introduction
187
2.
Articles 8(6) and 14(2) of the Merger Directive
188
3.
Interaction with the Parent-Subsidiary Directive
188
4.
Apportionment of the Capital Gain
189
5.
Tax Treaty Override
191
H.
'Taxable Income Requirement' and Exit Tax Regime in Article 8 of the Merger Directive
192
3.04.
Carry-Over of Provisions or Reserves
193
A.
Introduction
193
B.
Term 'Provisions or Reserves'
194
C.
'Not Derived from Permanent Establishments Abroad'
195
3.05.
Takeover of Losses
197
A.
Introduction
197
B.
Purpose of Article 6 of the Merger Directive
198
C.
Article 6 of the Merger Directive Does Not Cover the Carry-Over of Other Deferred Tax Assets Than 'Losses'
198
D.
Article 6 of the Merger Directive Only Addresses the Losses of the Transferring Company
200
E.
Article 6 of the Merger Directive Provides for Losses to Be Carried Forward, but Not Carried Back
201
F.
Article 6 of the Merger Directive Only Requires a Takeover of Losses If This Would Be Allowed with a Domestic Restructuring Operation
202
G.
Article 6 of the Merger Directive Does Not Clarify Whether (or How) the Losses of the Transferring Company Should Be Apportioned to the Transferred Assets and Liabilities
203
H.
Article 6 of the Merger Directive Does Not Specify against Which Profits the Losses of the Transferring Company Can Be Set Off
207
I.
Article 6 of the Merger Directive Covers the Domestic, but Not the Cross-Border Takeover of Losses
208
1.
Introduction
208
2.
A Oy Decision
210
a.
Facts and Preliminary Questions
210
b.
Restriction and Justification
210
c.
Is the Finnish Measure Proportional?
211
3.
When Are Losses 'Final'?
212
a.
Introduction
212
b.
Distinguishing Marks & Spencer Situations from A Oy Situations
212
c.
Which Amount of Losses of the Transferring Company Can Be Taken into Account in the Member State of the Receiving Company?
214
d.
Conclusion
217
J.
Primary EU Law Does Not Compel Expansion of Article 6 of the Merger Directive
217
K.
Expansion of Article 6 of the Merger Directive Is Preferable
219
L.
Proposal to Expand and Improve Article 6 of the Merger Directive
219
M.
'Comparable Circumstances Test' in Article 13(2) of the Merger Directive
221
3.06.
Hybrid Entities
222
A.
Introduction
222
B.
Overview of Provisions Governing Hybrid Entities in the Merger Directive
224
C.
Different Perspectives on Hybrid Entities
226
D.
Company Level
227
1.
Transferring Company Is a Hybrid Entity
227
2.
Transferring Company Is a Reverse Hybrid Entity
230
3.
Receiving Company Is a Hybrid Entity
231
4.
Receiving Company Is a Reverse Hybrid Entity
233
E.
Shareholder Level
234
1.
Shareholder is a Hybrid Entity
234
2.
Shareholder is a Reverse Hybrid Entity
236
F.
'Opting-Out Regime' of Article 11 of the Merger Directive
237
1.
Transferring or Acquired Company Is a Hybrid Entity
237
2.
Receiving or Acquiring Company Is a Hybrid Entity
240
G.
Reflections
244
3.07.
'Valuation Rules'
246
A.
Introduction
246
B.
Valuation of the Securities Received in the Case of a Transfer of Assets
246
C.
Valuation of the Assets and Liabilities Received in the Member State of the Receiving Company
248
D.
Valuation of the Securities Received by the Acquiring Company
249
3.08.
Conclusion and Recommendations
251
ch. 4
Combat of Tax Avoidance under the Merger Directive
263
4.01.
Introduction
263
4.02.
Combat of Tax Avoidance under Article 15(1)(a) of the Merger Directive
264
A.
Brief Description of the Provision
264
B.
'Principal Objective or as One of Its Principal Objectives'
267
C.
'Valid Commercial Reasons'
268
D.
'Refuse to Apply or Withdraw the Benefit of
270
4.03.
Framework for the Interpretation of Article 15(1)(a) of the Merger Directive
273
A.
Introduction
273
B.
Context of the Merger Directive
273
C.
Purpose of the Merger Directive
274
D.
Fundamental Freedoms
276
E.
Principle of Proportionality
280
F.
Principle of Legal Certainty
282
4.04.
Which Possible Types of Tax Avoidance Can Be Identified?
283
A.
Introduction
283
B.
Deferral of Taxation by Converting, under the Merger Directive's Carry-Over Facilities, an Immediately Taxable Gain to a Gain That Is Taxable in the Future
283
C.
Loss of Taxing Rights
285
D.
Compensation of Losses
286
E.
Obtainment of a Tax Benefit after the Restructuring Operation
288
F.
Avoidance of Taxes Not Covered by the Merger Directive
288
G.
Conclusions
291
4.05.
(How) Should the Merger Directive Be Amended?
292
4.06.
Conclusion
295
ch. 5
Avoidance of Double Taxation under the Merger Directive
303
5.01.
Introduction
303
5.02.
3D I Srl Decision
304
5.03.
Conflicts of Interpretation concerning the Term 'Permanent Establishment'
306
A.
Background
306
B.
Result: Double Taxation and Double Non-taxation
307
1.
Example
307
2.
Scenario 1: PE According to Member State A, No PE According to Member State B
307
3.
Scenario 2: No PE According to Member State A, PE According to Member State B
308
C.
Distinguishing Conflicts of Interpretation concerning the Term 'Permanent Establishment' from Other Conflicts of Interpretation
310
1.
Introduction
310
2.
Conflict of Interpretation concerning the Term 'Securities Representing the Capital'
310
3.
Solution of Conflicts of Interpretation concerning the Term 'Permanent Establishment'
311
a.
Introduction
311
b.
Meaning of the Term 'Permanent Establishment' in Article 5 of the OECD Model Convention
311
c.
Interpretation by the ECJ and the Risk of Diverging Interpretations
313
d.
Interpretation by the ECJ and Bilateral Situations in Which No Conflict of Interpretation Exists
313
e.
Interpretation by the ECJ and the Allocation of Taxing Powers by the Member States
314
D.
Solution for Conflicts of Interpretation concerning the Term 'Permanent Establishment'
314
1.
Solution: The Member State of the Receiving Company Follows the Interpretation by the Member State of the Transferring Company
314
2.
Old Roots of the Solution
314
3.
Solution and the Principle of Good Faith in International Law
317
4.
Duty of Consistent Interpretation in EU Law
320
5.
Counter-Arguments against the Proposed Solution
322
5.04.
Specification of the Exemption Method
325
A.
Different Methods of Avoiding Juridical Double Taxation
325
B.
1969 Proposal Obliged Member States to Apply Either the Exemption Method or the Credit Method
326
C.
Arguments in Favour of the Specification of the Exemption Method
326
D.
Obstacles with the Specification of the Exemption Method
327
5.05.
Merger Directive and 'Triangular Cases'
328
A.
Introduction
328
B.
Taxation of Dividends, Interests and Royalties Attributable to the Permanent Establishment of the Receiving Company
328
C.
Taxation of Dividends That Relate to Profits Realised with the Activities of the (Former) Transferring Company
330
D.
Solutions
331
5.06.
Conclusion
333
ch. 6
Proposal for the Amendment of the Merger Directive
337
ch. 7
Overall Conclusion
347
7.01.
Introduction
347
7.02.
Summary of Conclusions
347
A.
Chapter 1: The Scope Ratione Personae
347
B.
Chapter 2: The Scope Ratione Materiae
351
C.
Chapter 3: Carry-Over of Balance-Sheet Values, Provisions, Reserves and Losses
356
D.
Chapter 4: The Combat of Tax Avoidance under the Merger Directive
366
E.
Chapter 5: The Avoidance of Double Taxation under the Merger Directive
372
7.03.
Main Shortcomings and Possible Solutions
375
Bibliography
381
Table of Cases
393
Table of Treaties, Regulation, Directives and Communication
403
Opinions of the European Economic and Social Committee
407