2015 marcalliance conference
TRANSCRIPT
Titre de la présentation
2015 CARL CONFERENCEBrussels 17-19 DECEMBER 2015
SHARING VISION, ACHIEVING SUCCESS
BUSINESS DAYMARCALLIANCE & MAZARS TAX JOINING FORCES
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CROSS-BORDER MERGERS & CORPORATE MIGRATION WITHIN EUROPE
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OVERVIEW
Date4 Titre de la présentation
What is a cross-border merger? The EC Directive
Reasons for merger
EU Merger Directive for tax
Requirements for a cross-border merger
Issues arising from implementation of Directive
Uses of cross-border mergers
Corporate migration in Europe – the next steps?
ACQUISITION - V - MERGER
Date5 Titre de la présentation
Acquisition
A
1.
2.
A acquires B’s shares
3.
Hive up assets (and liabilities?)
4.
Wind up (or liquidate) B
A B
B
A
B
A
B
ACQUISITION - V - MERGER
Date6 Titre de la présentation
Merger
1. 2.
Transfer of all assets and liabilities….
3.
….and B dissolved without liquidation
A A AB B
FIVE MAIN DRIVERS OF CROSS-BORDER MERGERS
Synergies and business strategy
Reducing organisational costs
Minimising costs of regulatory compliance
Tax planning
Business-friendly regulatory environment
Date7 Titre de la présentation
ACQUISITION OR MERGER?
Acquisition
Transfer at fair market value and immediate taxation over hidden reserves / capital gains are fully taxed
Merger
Roll-over reliefFiscal book values of the assets and liabilities need to be adoptedTransfer of going concern / enterprise may be exempt from VAT
Tips & Tricks
Choice also depends of (i) amount of assets as each asset needs to be transferred separately (sale contract versus ‘legal title’); (ii) industry sector: are there hidden reserves or not; (iii) does the company benefit from higher depreciation potentials?
Date8 Titre de la présentation
EU MERGER DIRECTIVE (1990/434/EEC, 2009/133/EC)
Cross-border mergers, (partial) divisions, transfers of assets and exchanges of shares may be necessary in order to ensure the effective functioning of an internal market
Such operations ought not to be hampered by restrictions, disadvantages or distortions – thus disadvantages are removed within the EU / EEA
Scope of the Directive mergers, (partial) divisions, transfer of exchange of shares
Transformation of the transferring company into a permanent establishment (p.e.) of the company receiving the assets or connected with an existing p.e.
Deferral of taxation of the capital gains until actual disposal
Company of an EU / EEA member state, takes one of the forms in the Annex, tax resident within the EU / EEA and subject to one of the taxes listed in the Annex
Date9 Titre de la présentation
EU MERGER DIRECTIVE (1990/434/EEC, 2009/133/EC)
Definitions of article 2
Payment not exceeding 10% of the nominal value (article 2, paragraph b)
Carry-over of balance-sheet values (article 4)
Carry-over of provisions (article 5)
Transfer of losses (article 6)
No taxation of shareholder in case of transfer of balance-sheet values (article 8)
SE / SCE registered office transfer (article 12)
Anti-abuse measures (article 15) – (one of) its principal objectives is tax evasion or tax avoidance, reduction of employee representation
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EU MERGER DIRECTIVE (1990/434/EEC, 2009/133/EC)
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UK LTD‘receiving company’
Dutchp.e.
NL BV‘transferring
company’
SEVIC SYSTEMS AND THE EC DIRECTIVE
Sevic Systems (ECJ 2003)
Freedom of establishment – Arts. 43 and 48 EC Treaty (now Arts.49 and 54 TFEU)
Third Company Law Directive 78/855/EEC – “Domestic Mergers Directive”
EU Commission’s aim to facilitate carrying out of cross-border mergers
Tenth Company Law Directive 2005/56/EC – implement by 15 Dec 2007
Date12 Titre de la présentation
“cross-border mergers shall only be possible between types of companies which may merge under the national law of the relevant Member States”
Art 4(1)(a) Directive 2005/56/EC
IMPLEMENTATION OF THE EU DIRECTIVE
Date13 Titre de la présentation
GEOGRAPHICAL SCOPE BEYOND THE EU
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THREE TYPES OF CROSS-BORDER MERGER
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1. Merger by absorption
2. Merger by absorption of wholly-owned subsidiary
3. Merger by formation of new company
Newco
A
A
A
B
B
B
OUTLINE OF CROSS-BORDER MERGER
Draft terms of merger
Directors’ report
Independent expert’s report on valuation
Shareholder meeting of each merging company
Pre-merger certificate from “competent authority” in each Member State
Confirmation of merger from competent authority in Member State of surviving entity
Employee participation/special negotiating body – extends the timetableDate16 Titre de la présentation
UK METHOD OF MERGER
Can UK companies merge under domestic law?
UK “scheme of arrangement”
Court can sanction compromise or arrangement between company and (i) class of creditors or (ii) class of members
Requires majority in number representing 75 % in value
Court discretion - “the [scheme] proposal is such that an intelligent and honest man, a member of the class concerned, acting in respect of his interests might reasonably approve” (Re Dorman Long & Co [1934])
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It’s Merger, Jim, but not as we know it …
UK SCHEME OF ARRANGEMENT
Alternative to takeover offer 75% majority, rather than 90% acceptances for “squeeze-out”
“cancellation” scheme avoided stamp duty (but now repealed)
Extra powers for court to make provision (s.900 CA 2006)transfer to transferee company of whole or part of undertaking and of property or
liabilities of transferor“…the dissolution, without winding up, of any transferor company”
Part 27 Companies Act 2006 implements Third Company Law Directive – but relies on scheme of arrangement
Impact Assessment – anticipated take-up of CBMs of “less than 1%”
But ITAU BBA International Ltd [2012] - section 900 and Part 27 a “dead letter”
Date18 Titre de la présentation
UNIVERSAL SUCCESSION
Universal succession not recognised in English law? National Bank of Greece and Athens SA v Metliss [1958]
Can universal succession merger exist between two English companies?
Nokes v Doncaster Amal. Collieries [1940]
Part VII FSMA 2000 – schemes for insurance portfolio transfers
Likely approach of English courts to CBM? Allow the transfer…but
transferee inherits the breaches
Easier for UK company to merge underEU law than under UK law!
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DIFFERENT TYPES OF “COMPETENT AUTHORITY”
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CREDITOR PROTECTION
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EMPLOYEE PARTICIPATION SYSTEMS
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ACCOUNTING TIME FRAMES
Effective legal date (“registration date”) Accounting date (“decisive date”)
Date23 Titre de la présentation
COMMUNICATION BETWEEN NATIONAL REGISTRIES
“[T]he registry for the registration of the company resulting from the cross-border merger shall notify,without delay, the registry in whicheach of the companies was required to file documents that the cross-bordermerger has taken effect. Deletion ofthe old registration, if applicable, shallbe effected on receipt of thatnotification, but not before.”
Article 13, Cross-Border Mergers Directive
Date24 Titre de la présentation
USES OF CROSS-BORDER MERGERS
Avoids taxable distribution to shareholders on liquidation?
Arm’s length commercial mergers? (Not in the UK – Nokes)
Automatic dissolution – no need for parent indemnities etc.
Legal entity rationalisation – remove dormant subsidiaries without winding up: cheaper; more certain; do not require creditor consents
Migrate business from one country to another?
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BARRIERS TO MIGRATION
Incorporation theory - v - real seat theory Daily Mail (1988) – Member State may restrict outbound migration Centros (1999), Uberseering (1999), Inspire Act (2003) – death of real seat theory? Cartesio (2008) affirmed Daily Mail, but possibility for company to convert itself into company governed by another member state Vale Costruzioni (2012) – principle of equivalence for inboundconversions (what is “conversion?”)
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TRANSFER OF CORPORATE SEAT
Result of Cartesio and Vale?Member State can restrictoutbound, but not inbound migration?
Use of a Societas Europaea? Public company Employee participation in management
Draft directive on the cross-border transfer of a company’s registered office 14th Company Law Directive (shelved)
Date27 Titre de la présentation
CROSS-BORDER COMPANY SEAT TRANSFERS
Date28 Titre de la présentation
EUROPEAN COURT OF JUSTICE – TAX DEVELOPMENTS (1)
Date29 Titre de la présentation
Access to the Treaty?
Discriminate or restrict?
Justification?
Necessary?
Adequate to obtain its objective?
No appeal to EU-law
No conflict with EU-law
In conflict with EU-law
In conflict with EU-law
No conflict with EU-law
No
No
No
No
Yes
EUROPEAN COURT OF JUSTICE – TAX DEVELOPMENTS (2)
De Lasteyrie du Saillant (no. C-9/02)N (no. C-470/04)
National Grid Indus (no. C-371/10)European Commission / Republic Portugal (no. C-38/10)European Commission / Kingdom Spain (no. 269/09)
Finanziaria di Diego della Valle & C. SapA – Administration des contributions en matière d’impôts (no. C-380/11)European Commission – Kingdom of the Netherlands(no. C-301/11)European Commission – Kingdom Spain(no. C-64/11)European Commission – Kingdom Denemark (no. C-261/11)
DMC Beteiligungs-gesellschaft mbH – Finanzamt Hamburg-Mitte (no. C-164/12)Arcade Drilling AS (no. E-15/11)
Date30 Titre de la présentation
EUROPEAN COURT OF JUSTICE – TAX DEVELOPMENTS (3)
National Grid Indus
a company that wish to transfer its place of effective management outside the Netherlands is placed at a disadvantage in terms of cash flow compared to a similar company retaining its place of effective management in the Netherlands
Imposing a tax assessment upon the transfer of a seat is justified in order to divided the power to tax between member states and to maintain the coherence of the tax system
HOWEVER; IMMEDIATE TAX COLLECTION WITHOUT THE OPTION OF TAX COLLECTION AT THE MOMENT OF REALISATION COULD NOT BE JUSTIFIED
National legislation should offer the choice between immediate payment or deferred payment, possibly together with (i) interest, (ii) certainties and (iii) administrative conditions
Date31 Titre de la présentation
SEAT TRANSFERS – A TAX POINT OF VIEW – COMPANY LAW
Date32 Titre de la présentation
State RS IS State RS IS State RS IS
Austria x Germany x Poland x
Belgium x Greece x Portugal x
Bulgaria x Hungary x Romania x
Croatia x Ireland x Slovakia x
Cyprus x Italy x Slovenia x
Czech x Latvia x Spain x
Denmark x Lithuania x Sweden x
Estonia x Luxemb. x UK x
Finland x Malta x Iceland x
France x NL x Norway x
SEAT TRANSFERS – A TAX POINT OF VIEW – TAXATION / EU BREACH
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State T EU State T EU State T EU
Austria Maybe Yes Germany Yes Yes Poland No No
Belgium Yes Yes Greece ? ? Portugal Yes Yes
Bulgaria No No Hungary No No Romania No No
Croatia No No Ireland Yes Yes Slovakia Yes Yes
Cyprus No No Italy Yes Yes Slovenia No No
Czech Maybe No Latvia No No Spain Yes Yes
Denmark Yes Yes Lithuania ? ? Sweden Yes Yes
Estonia No No Luxemb. Yes Yes UK Yes Yes
Finland Yes Yes Malta No No Iceland ? ?
France Yes Yes NL Yes Yes Norway Yes Yes
SEAT TRANSFERS – A TAX POINT OF VIEW – DEFERRAL / INSTALL
Date34 Titre de la présentation
State DEF Years State DEF Years State DEF Years
Austria Not al. No Germany No 5 Poland No No
Belgium No No Greece n.a. n.a. Portugal Yes 5
Bulgaria No 7 Hungary No No Romania No No
Croatia No No Ireland Yes 6 Slovakia No No
Cyprus No No Italy Yes 10 Slovenia No No
Czech No No Latvia No No Spain Yes No
Denmark No No Lithuania n.a. n.a. Sweden Yes 5/10
Estonia No No Luxemb. No No UK Yes 6
Finland No No Malta No x Iceland No n.a.
France No 5 NL Yes 10 Norway Not al. No
FRUIT FOR THOUGHTS – GOING TO THE NEXT LEVEL
Transfer of the place of effective management from one country to another (within the EU, EEA and beyond – non-discrimination)
Article 4 paragraph 3 of the OECD Model Tax Convention on Income and on Capital (standard tie breaker clause)
Article 4 paragraph 4 of the tax treaty concluded by and between the United Kingdom and the Netherlands
Mutual Agreement Procedure (MAP) Phases: period before and after Mutual Agreement Procedure (MAP)
Seat transfer from Delaware via Curacao to Netherlands (and vice versa) ?
US Inversions ? Date35 Titre de la présentation
Date36 Titre de la présentation
CROSS-BORDERMERGERS &CORPORATEMIGRATION WITHINEUROPE
Paul LesterCripps [email protected]+44(0)1892 506 336
Dick Van [email protected]+31 (0) 88 277 16 17