University of Augsburg
German and European
Company Law
Prof. Dr. Otmar Thömmes
5 / 6 July 2013
1
Iconography
Entity Symbols
Individual
Branch
Corporation
Partnership
2
Agenda
Part A: Introduction
I. Company Restructuring – Transactions in Practice
II. Funding of Companies
III. Tax Implications of Asset vs. Cash contributions
IV. Single Asset Transfer vs. Universal Succession
V. Relocation of Seat
Part B: Company Restructurings
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
II. Civil Law and Tax Law Issues of Cross-Border Restructurings
of Companies
III. The European Company Law Statute (SE-Statute)
3
Part A: Introduction
Part A: Introduction
I.
Company Restructuring – Transactions in Practice
II.
Funding of Companies
III.
Tax Implications of Asset vs. Cash contributions
IV.
Single Asset Transfer vs. Universal Succession
V.
Relocation of Seat
5
I. Company Restructuring –
Transactions in Practice
I. Company Restructuring – Transactions in Practice
1. Joint Ventures
• Partnerships
• Joint Subsidiaries
2. Holding Companies
3. European Company – Societas Europaea (SE)
4. Further Pan-European Legal Forms of Entities
5. Mergers
6. Division
7
I. Company Restructuring – Transactions in Practice
1. Joint Ventures
A
B
50%
50%
Partnership
A
50%
B
50%
Subsidiary
Other forms of Joint Ventures
• Contractual Joint Ventures (without formation of a partnership or
subsidiary)
• Silent partnerships or participations
8
I. Company Restructuring – Transactions in Practice
1. Joint Ventures - Terminology
Subsidiary:
Corporation in which another
corporation (parent company) owns at
least a majority of the shares
Wholly owned
subsidiary:
If parent owns 100% of the
shares in the subsidiary
Shareholding or
participation:
Ownership of shares in a
subsidiary
(Partnership) interest:
Ownership in a partnership
9
I. Company Restructuring – Transactions in Practice
1. Joint Ventures - Legal Terms of Subsidiaries
•
Generally all forms of corporations possible
•
In practice, most commonly: GmbH or limited liability companies
e.g.
– in UK Ltd
– in F
SARL
– in NL BV
Limited company
Société à
responsabilité limitée
Besloten vennootschap
10
I. Company Restructuring – Transactions in Practice
1. Joint Ventures - Legal Terms of joined partnerships
English Terms
Legal Forms in Germany
•
•
•
•
•
•
•
•
Civil Law Partnership
General Partnership
Limited Partnership
Limited Partnership on shares
GbR
OHG
KG (in particular GmbH & Co. KG)
KGaA
For JV most commonly GbR or OHG
11
I. Company Restructuring – Transactions in Practice
1. Joint Ventures - Classification (I)
How to classify foreign entities in Germany – Classification Criteria
according the BMF (March 19, 2004, BStBl. I 2004, 411)
The foreign entity needs to be examined wether it resembles a German
legal entity from with respect to ist legal and economic structure
• Examiation of the legal specific features under the foreign civil law
• Examination wether the assorted legal features resemble a German
legal form or not
• Eventually the economic structure may also be taken into account
12
I. Company Restructuring – Transactions in Practice
1. Joint Ventures - Classification (II)
Structural
characteristics
Corporation
Partnership
1. Centralization
Centralized; Managed and
of management in represented by a non-member
representive
capacity
Decentralized; Members manage
company on their own behalf
2. Limited liability
None of the members is
personally liable for claims of
the company´s creditors
At least one member ist personally
liable
3. Free
transferability of
interests
Free assignment without
consent of the other members
Assignment is subject to the
consent of one or more members;
Assignment is limited
4. Discretion to
access profits
Distribution of profits is subject
to a formal resolution of the
members
Distribution or retention of profits
allocated to the members is at the
members´discretion
13
I. Company Restructuring – Transactions in Practice
1. Joint Ventures - Classification (III)
Structural
characteristics
Corporation
Partnership
5. Equity
contributions
The members must subscribe
to the company´s share capital
and make equity contributions
Equity contributions are not
required; members may contribute
services instead
6. Continuity of
life
Unlimited life
Limited life, i.e. the company is
dissolved upon the occurrence of
certain events without any further
actions by ist members
7. Profit allocation Profit allocation based on
subscribed equity
Formula for profit allocation not
only based on subscribed or
contributed capital/deposit
8. Formation
requirements
Agreement among associates
creates partnership; registration
relevant with respect to legal
relationship vis-a-vis third parties
Incorporation/registration
required to create association
among members
14
I. Company Restructuring – Transactions in Practice
2. Holding Companies (I)
A
A
Holding
Sub
Sub
Sub
Sub
• Joint ownership in subs through intermediary holding company
• Term Holding: A company where sole or primary purpose it is to own
shares in other companies (at least two) and exercise the
shareholder rights. Holding can also be engaged in the financing of
its subsidiaries (so-called “Finance Holding”).
15
I. Company Restructuring – Transactions in Practice
2. Holding Companies (II)
US Parent
EU Holding
D
FR
I
LACRO Hold.
MEX
BRA
ARG
AP Holding
CH
IND
Africa Hold.
MAL
SA
ANG
KEN
Use of Holdings for purposes of coordinating shareholder rights in
regional subsidiaries, so-called regional holdings.
16
I. Company Restructuring – Transactions in Practice
2. Holding Companies (III)
US Parent
German
HoldCo
German Subs
UK HoldCo
UK Subs
French
HoldCo
French Subs
Italian
HoldCo
Italian Subs
Use of Holdings for purposes of coordinating shareholdings in same
country subsidiaries, so-called country holdings.
17
I. Company Restructuring – Transactions in Practice
2. Holding Companies (IV) - Tax Reasons
• Alienation (e.g. sale) of shares often tax exempt at holding level
• Group financing: Holding takes out a loan and provides financing to
its subsidiaries
• Tax consolidation – Group taxation Aggregation of profits and losses
for tax purposes
18
I. Company Restructuring – Transactions in Practice
3. European Company - Societas Europaea (SE)
• Joint Holding Company
(see Art. 2 (2), Art. 32 et seq. SE Statute)
• Joint Subsidiary Company
(see Art. 2 (3), Art. 35 et seq. SE Statute)
19
I. Company Restructuring – Transactions in Practice
4. Further Pan-European Legal Forms of Entities
•
European Economic Interest Grouping (EEIG)
(Council Regulation (EEC) No 2137/85 of 25 July 1985 on the European
Economic Interest Grouping (EEIG).
•
European Cooperative Society (SCE)
(Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for
a European Cooperative Society (SCE). Council Directive 2003/72/EC of
22 July 2003 supplementing the Statute for a European Cooperative
Society with regard to the involvement of employees.)
•
Not yet available: European Private Company Statute (SPE)
(Proposal for a Council Regulation of 25 June 2008 on the Statute for a
European Private Company.)
•
Not yet available: Fundatio Europaea (FE)
(Proposal for a Council Regulation of 08 February 2012 on the Statute for
a European Foundation Statute (FE).)
20
I. Company Restructuring – Transactions in Practice
5. Mergers
Increasing intensity of collaboration
• Joint Ventures
• Holding Companies
• Legal Merger
21
I. Company Restructuring – Transactions in Practice
5. Mergers
a) Terminology
• The term “Merger” is in Anglo-Saxon countries often used to
describe the acquisition by one company of the majority of the
shares in another company
• “Mergers and Acquisitions” (M&A), in these countries, means the
acquisition of an enterprise by another enterprise
• “Legal Merger” is frequently used to distinguish a European type of
merger, i.e. the amalgamation of two companies into one, from the
Anglo-Saxon type of merger by acquisition
22
I. Company Restructuring – Transactions in Practice
5. Mergers
b) Legal Mergers (I)
Pre-Merger-Situation
SH 1
SH 2
Company A
SH 3
SH 4
Company B
23
I. Company Restructuring – Transactions in Practice
5. Mergers
b) Legal Mergers (II)
Post-Merger-Situation: Merger by acquisition
SH 1
SH 2
SH 3
SH 4
Company A
Branch B
Transferring company B ceases to exist, company A receives the assets of
company B and operates the branch(es) formerly operated by company B.
24
I. Company Restructuring – Transactions in Practice
5. Mergers
b) Legal Mergers (III)
Post-Merger-Situation: Merger by formation of a new company
SH 1
SH 2
SH 3
SH 4
Company C
Branch A
Branch B
Transferring company A and B cease to exist, new company C receives
the assets of companies A and B and operates the branch(es) formerly
operated by A and B.
25
I. Company Restructuring – Transactions in Practice
5. Mergers
b) Legal Mergers (IV)
Upstream-merger
Pre-merger-situation
Company A
Post-merger-situation
Company A
Company B
The parent company receives the assets of the subsidiary, the subsidiary
ceases to exist.
26
I. Company Restructuring – Transactions in Practice
5. Mergers
b) Legal Mergers (V)
Downstream-merger
Pre-merger-situation
Post-merger-situation
Company A
Company B
Company B
Branch
The subsidiary receives the assets of the parent company, the parent company
ceases to exist.
27
I. Company Restructuring – Transactions in Practice
5. Mergers
b) Legal Mergers (VI)
•
•
•
•
Characteristics of a “legal merger”
Transferring company(ies) cease(s) to exist as legal entity(ies)
No liquidation
Absorption by the receiving company of the assets and liabilities of
the transferring company
• No requirement of single asset transfers
• Universal succession
28
I. Company Restructuring – Transactions in Practice
5. Mergers
c) European Company Law Measures
relative to Mergers
• Company Law Directive of 5 April 2011, 2011/35/EU (OJ L 110 of
29.04.2011, p. 1) concerning mergers of public limited liability
companies (replacing Third Company Law Directive of 9 October
1978, 78/855/EEC (OJ L 295 of 20.10.1978, p. 36) regarding
domestic merger)
• Directive of 26 October 2005, 2005/56/EC (OJ L 310, p. 1) on crossborder mergers of limited liability companies
• SE-Statute of 8 October 2001 (OJ L 294 of 10.11.2001, p. 1):
Formation of a SE through a merger of two public limited
companies, see Art. 2 (1) of the Statute
29
I. Company Restructuring – Transactions in Practice
6. Division (I)
Pre-division-situation
Post-division-situation
“splitoff”
SH 1
SH 2
Company A
SH 1
Company A
“splitup”
SH 1
Company B
SH 2
Company B
SH 2
Company C
30
I. Company Restructuring – Transactions in Practice
6. Division (II)
Two forms of Division:
• Complete division of company A into two companies B and C; also
called “split-up”
• Incomplete division of company A, i.e. company A does not cease to
exist; also called “split-off”
31
I. Company Restructuring – Transactions in Practice
6. Division (III)
• Sixth Company Law Directive 82/891/EEC of 17 December 1982 on
(domestic) divisions of public limited companies (i.e. within one
Member State), OJ L 378, 31.12.1982, p. 47
• No proposal yet for cross-border division i.e. concerning companies
from different Member States
32
II. Funding of Companies
Part A: Introduction
I.
Company Restructuring – Transactions in Practice
II.
Funding of Companies
III.
Tax Implications of Asset vs. Cash contributions
IV.
Single Asset Transfer vs. Universal Succession
V.
Relocation of Seat
34
II. Funding of Companies
1. Funding of Companies - Overview
• Asset Contribution versus Cash Contribution
• Funding of Contributions – Equity or Cash
Funding of companies
Equity
Asset
Contribution
Cash
Contribution
Debt
- against new shares
- against increase of reserves
35
II. Funding of Companies
1. Funding of Companies - Overview
•
•
Equity (Shareholder Capital)
Debt (loans)
Equity Funding requires either increase in share capital or (deemed)
contribution to the capital reserves.
Debt Funding requires a loan agreement between the receiving
company and the funding company.
36
II. Funding of Companies
2. Key features of Equity vs. Loan Financing
• Equity Funding does not require the receiving company to pay
interest
• Loan funding requires interest to be paid by recipient company
• Interest free Loans can pose severe tax issues, e.g. deemed income
recognition
• Hybrid Forms of Equity/Loan Financing e.g. profit participation loans,
silent partnerships, jouissance rights (Genussrechte), convertible
loans
37
II. Funding of Companies
3. Asset vs. Cash Contribution
• Cash contribution is simple, quick and does not raise specific
requirements
• Asset contribution requires valuation of assets if made in exchange
for (new) shares – Increase of stated share capital
• Principle of Maintenance of Capital
38
II. Funding of Companies
3. Asset vs. Cash Contribution
a) Company law treatment of
asset contribution (I)
• Legal basis: Sec. 27, 183 AktG, Sec. 5, 56 GmbHG
• In return shares are issued to the contributing company
• Acquisition costs: Sec. 255 para. 1 HGB:
 Acquisition costs are all expenses made to acquire assets and
liabilities of a company
 No specific legal provisions for the evaluation of a contribution in
kind
39
II. Funding of Companies
3. Asset vs. Cash Contribution
a) Company law treatment of
asset contribution (II)
• Literature developed principles for evaluation – basis for evaluation
is the value of the issued shares
• Value of the issued shares and therefore acquisition costs of the
shares equals the Fair Market Value (FMV) of the contributed assets
• Difference between FMV and book value of asset = capital gain
40
II. Funding of Companies
3. Asset vs. Cash Contribution
b) Company law treatment of
cash contribution (I)
• Cash contribution in exchange for new shares – Increase of stated
share capital
• Formal requirement: Notarization under German Law (see Sec. 23
AktG, Sec. 2 GmbHG)
• Cash injection requirements: complete injection (Volleinzahlung),
partial injection (Teileinzahlung), Sec. 36, 36a AktG, Sec. 7 (2),(3)
GmbHG
41
II. Funding of Companies
3. Asset vs. Cash Contribution
b) Company law treatment of
cash contribution (II)
• Cash contribution without issuance of new shares
• No increase of stated share capital
• So-called deemed contribution (verdeckte Einlage)
• Mere increase of value of existing shares
• No notarization required
42
III. Tax Implications of Asset
vs. Cash contributions
Part A: Introduction
I.
Company Restructuring – Transactions in Practice
II.
Funding of Companies
III.
Tax Implications of Asset vs. Cash contributions
IV.
Single Asset Transfer vs. Universal Succession
V.
Relocation of Seat
44
III. Tax Implications of Asset vs. Cash contributions
1. Cash Contribution (I)
• Receiving company receives cash payment
• Cost of acquisition of the shares determined by the amount of cash
contributed
• Cash does not contain built-in-gains
45
III. Tax Implications of Asset vs. Cash contributions
1. Cash Contribution (II)
Before the contribution:
Company A
Fixed assets: 5,0 Mio
Current assets
Cash:
5,0 Mio
Total:
10,0 Mio
Equity:
10,0 Mio
Total:
10,0 Mio
After the contribution:
Company B (subs)
(Parent) Company A
Fixed assets: 5,0 Mio
Shares in affiliated
companies
0,5 Mio
Cash:
4,5 Mio
Total:
10,0 Mio
Equity:
Total:
10,0 Mio
Cash:
0,5 Mio Equity:
0,5 Mio
Total:
0,5 Mio Total:
0,5 Mio
10,0 Mio
46
III. Tax Implications of Asset vs. Cash contributions
2. Asset Contribution (I)
Shares granted in exchange for contribution of single assets:
• undisclosed reserves of assets contributed are generally subject to
income taxation
• acquisition costs of the shares granted are amounting to the fair
market value of the assets contributed (Sec. 6 para. 6 EStG)
• fair market value is determined in Sec. 9 BewG
47
III. Tax Implications of Asset vs. Cash contributions
2. Asset Contribution (II)
Before the contribution:
Company A
Fixed assets: 5,0 Mio
Current assets
Cash:
5,0 Mio
Total:
10,0 Mio
Equity:
10,0 Mio
Total:
10,0 Mio
Contribution of assets with book value of 0,5 Mio and market value of 2,0 Mio
After the contribution:
(Parent) Company A
Company B (subs)
Assets:
2,0 Mio Equity: 2,0 Mio
Fixed assets: 4,5 Mio Equity:
10,0 Mio
Shares in affiliated
Profit/Gain: 1,5
Mio
Total:
2,0 Mio Total:
2,0 Mio
companies:
2,0 Mio
Cash:
5,0 Mio
Total:
11,5 Mio Total:
11,5 Mio
The assets contributed do not form a branch of activity/participation interest within the
sense of Sec. 20 (1) UmwStG ➔ disclosure of built-in-gains
48
III. Tax Implications of Asset vs. Cash contributions
2. Asset Contribution (III)
• Shares granted in exchange for contribution of
– a branch of activity
– a participation interest or
– shares granting a majority of voting rights to the recipient of the
shares
• Receiving company may choose between the book value or the fair
market value if the conditions of Sec. 20 (2) s. 2 or 21 (1) s. 2
UmwStG respectively are met
– Book value: contribution is tax neutral
– Fair market value: undisclosed reserves are subject to corporate
income tax
49
III. Tax Implications of Asset vs. Cash contributions
2. Asset Contribution (IV)
Company A
Before the contribution:
Fixed assets: 5,0 Mio
Current assets
Cash:
5,0 Mio
Total:
10,0 Mio
Equity:
10,0 Mio
Total:
10,0 Mio
Contribution of assets with book value of 0,5 Mio and market value of 2,0 Mio
After the contribution:
Company B (subs)
(Parent) Company A
Fixed assets: 4,5 Mio
Shares in affiliated
companies
0,5 Mio
Cash:
5,0 Mio
Total:
10,0 Mio
Equity:
Total:
10,0 Mio
Assets:
0,5 Mio Equity:
0,5 Mio
Total:
0,5 Mio Total:
0,5 Mio
10,0 Mio
The assets contributed form a branch of activity/participation interest within the sense of
Sec. 20 (1)/21 (2) UmwStG ➔ no disclosure of built-in-gains under the conditions of Sec.
50
20 (2) s. 2 / Sec. 21 (2) UmwStG
IV. Single Asset Transfer vs.
Universal Succession
Part A: Introduction
I.
Company Restructuring – Transactions in Practice
II.
Funding of Companies
III.
Tax Implications of Asset vs. Cash contributions
IV.
Single Asset Transfer vs. Universal Succession
V.
Relocation of Seat
52
IV. Single Asset Transfer vs. Universal Succession
Two forms of single asset transfers:
1. Contribution in kind
2. Share for share exchange transactions
53
IV. Single Asset Transfer vs. Universal Succession
1. Contribution in kind
• Each asset has to be transferred individually
• Contracts between the transferring company and a third party
concerning the assets (i.e. rental contracts) have to be adapted in
order to replace the transferring company with the receiving company
• The third party of a contract may object the transfer of the obligations
resulting from a contract
• Tax neutral only if the asset contributed is a partnership interest or the
assets contributed form a branch of activity (Betrieb oder Teilbetrieb)
according to Sec. 20 (1) UmwStG
54
IV. Single Asset Transfer vs. Universal Succession
2. Share-for-share-exchange-transactions (I)
• Acquiring company issues new shares to the transferring company
in exchange for a shareholding in the acquired company
• Tax neutral only under the conditions of Sec. 21 (1) s. 2 UmwStG
• The majority of shareholders in the acquired company has to accept
the offer of the acquiring company in order to achieve a qualifying
shareholding (i.e. the majority of voting rights) in the acquired
company
• A subsequent (legal) merger may be necessary in order to combine
the undertakings of the acquired and the acquiring company
55
IV. Single Asset Transfer vs. Universal Succession
2. Share-for-share-exchange-transactions (II)
Before the share-for
share transaction
After the share-for share
transaction
Company A
Company A
Company B
Company B
Company C
Company C
Company A transfers its shareholding in company C to company B and
receives (new) shares in exchange for the shareholding transferred.
56
IV. Single Asset Transfer vs. Universal Succession
3. Universal Succession (I)
Three forms of universal succession transactions:
• Legal merger (see above)
• Division (see above)
• Partnership collapsing into a single partner
57
IV. Single Asset Transfer vs. Universal Succession
3. Universal Succession (II)
Legal and tax consequences of a universal succession:
• Successor takes over the legal position of the transferring company
concerning the assets that are subject to the universal succession
• As a general rule: Carry-over of book values
• All rights and obligations are transferred to the new owner
58
IV. Single Asset Transfer vs. Universal Succession
3. Universal Succession (III)
Partnership collapsing into a single partner (1)
• Retirement of a partner results in a partnership with only one single
partner
• Partnership ceases to exist
• All assets and liabilities collapse into the remaining partner
• The remaining partner takes over the legal position of the
partnership
• All rights and obligations are transferred to the single partner
59
IV. Single Asset Transfer vs. Universal Succession
3. Universal Succession (IV)
Partnership collapsing into a single partner (2)
Partner 1
Partner 2
Partner 1
Partner 2
cancellation
of
partnership
OHG/KG
Branch of Activity
Partnership ceases to exists, if only one partner remains. Assets are
directly attributed to the partner.
60
V. Relocation of Seat
Part A: Introduction
I.
Company Restructuring – Transactions in Practice
II.
Funding of Companies
III.
Tax Implications of Asset vs. Cash contributions
IV.
Single Asset Transfer vs. Universal Succession
V.
Relocation of Seat
62
V. Relocation of Seat
1. Terminology – Term “Seat”
• Statutory Seat or Registered Seat
• Place of Management (and Control) or Head Office
• Use of term in practice often ambiguous
• Most commonly “transfer of seat” refers to a company whose place
of management is relocated to a state other than that of its
incorporation
63
V. Relocation of Seat
2. Determination of statutory seat
• Statutory Seat is determined by articles of association, Sec. 4a
GmbHG; Sec. 5 AktG
– must be located within Germany
– no connection to the place of management and control
necessary (as it was the case prior to 1 November 2008)
• Art. 7 SE-Statute: The statutory seat of an SE shall be located in the
same MS as its head office (“Hauptverwaltung”)
64
V. Relocation of Seat
3. Relocation of statutory seat
• Sec. 45 AktG limited to relocations of statutory seat within Germany
• Change of statutes
• Decision of general meeting
• Registration
• No specific provision governing domestic relocation of GmbH and
SE
65
V. Relocation of Seat
4. Relocation of head office
• No formal decision by general meeting required
• Domestic relocation of head office does not require the company to
also relocate statutory seat any more (Sec. 5 (2) AktG, 4a (2)
GmbHG and 2 SEAG abolished)
• In case of an outbound transfer of the head office the “Real seat
doctrine” should no longer apply
66
V. Relocation of Seat
5. “Real seat doctrine” and “Incorporation doctrine” (I)
“Real seat doctrine”
• Applicable company law depends on the jurisdiction where the
actual center of administration (“headquarter”) of a company is
located
• Severe consequences may arise for dual-resident companies
“Incorporation doctrine”
• Determines the applicable law according to the statutory seat of a
company
67
V. Relocation of Seat
5. “Real seat doctrine” and “Incorporation doctrine” (II)
The “real seat doctrine” was developed for
• Fraudulent activities
It has been applied in practice for the following reasons
•
•
•
•
Prevent the undermining of capitalization requirements
Prevent undermining of the German workers participation rules
Protection of creditors
Protection of the public
68
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
a) Art. 49 TFEU
Freedom of establishment and transfer of seat
• Art. 49 TFEU:
“Within the framework of the provisions set out below, restrictions on the
freedom of establishment of nationals of a Member State in the territory of
another Member State shall be prohibited. Such prohibition shall also apply
to restrictions on the setting-up of agencies, branches or subsidiaries by
nationals of any Member State established in the territory of any Member
State.
Freedom of establishment shall include the right to take up and pursue
activities as self-employed persons and to set up and manage undertakings,
in particular companies or firms within the meaning of the second paragraph
of Article 48, under the conditions laid down for its own nationals by the law
of the country where such establishment is effected, subject to the provisions
of the chapter relating to capital.”
69
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
a) Art. 54 TFEU
Freedom of establishment and transfer of seat
• Art. 54 TFEU:
“Companies or firms formed in accordance with the law of a Member State
and having their registered office, central administration or principal place of
business within the Community shall, for the purposes of this Chapter, be
treated in the same way as natural persons who are nationals of Member
States.
‘Companies or firms’ means companies or firms constituted under civil or
commercial law, including cooperative societies, and other legal persons
governed by public or private law, save for those which are non-profitmaking.”
70
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
a) 2005/19/EC
Recital 6 of the Directive 2005/19/EC of 17 February 2005 amending
Directive 90/434/EEC 1990 on the common system of taxation
applicable to mergers, divisions, transfers of assets and exchanges
of shares concerning companies of different Member States, OJ L
58 of 4.3.2005, p. 19:
“The transfer of the registered office is a means of exercising
freedom of establishment as provided for in Articles 43 and 48 [now:
Art. 49 and 54] of the Treaty. No assets are transferred and the
company and its shareholders do not derive any income, profits or
capital gains from it. …”
71
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
b) Daily Mail
Case law of the European Court of Justice in the cases
•
Daily Mail
ECJ of 27.9.1988, Case 81/07, The Queen v H. M. Treasury and Commissioners of
Inland Revenue, ex parte Daily Mail and General Trust plc., ECR 1988, p. 5483
United Kingdom
The Netherlands
Daily Mail plc.
Daily Mail
Place of management
and control to be shifted
to The Netherlands
SubCo 1
SubCo 2
SubCo 3
72
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
•
•
•
b) Daily Mail
Facts:
Daily Mail plc., a British holding company, wanted to transfer its place of
central management and control to The Netherlands and applied for
permission of the British Treasury. According to the applicable UK Income
and Corporation Taxes Act 1970 a corporation resident for tax purposes in
the UK may cease to be resident only with the consent of the Treasury.
Legal background:
Tax residency for UK tax purposes is determined by the place of central
management and control. Built-in gains in shares held by that company are
no longer subject to UK corporation tax in case of cessation of the tax
residency. For Dutch tax purposes, capital gains taxation is calculated on
the basis of the value of the shares at the time of beginning of tax residency
in the Netherlands.
Decision:
Denial of consent is compatible with the freedom of establishment. The
freedom of establishment does not confer the right on a company
incorporated under the legislation of a Member State and having its
registered office there to transfer its central management and control to
another Member State.
73
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
c) Centros
• Centros
ECJ of 9.3.1999, Case C-212/97, Centros Ltd. v Erhvervs- og Selskabsstyrelsen,
ECR 1999, p. I-1459
United Kingdom
Denmark
Mr.B
Mrs.B
Centros Ltd.
Branch
74
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
c) Centros
• Facts:
A Danish couple formed Centros Ltd. under UK law in order to avoid
Danish minimum capital requirements applying on formation of a
Danish private limited company.
No business to be conducted in the UK.
Centros Ltd. applied for registration of a branch in Denmark. The
Danish authorities refused to register the branch on grounds of
circumvention of national law
• Decision:
Refusal of registration infringes freedom of establishment of the
Centros Ltd. Avoidance of national provisions on minimum capital
requirements not a valid justification for a discrimination of a
company formed under the laws of another Member State.
75
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
d) Überseering
• Überseering
ECJ of 5.11.2002, Case C-208/00, Überseering BV v Nordic Construction
Company Baumanagement GmbH (NCC), ECR 2002, p. I-9919
The Netherlands
Germany
A
Überseering BV
B
NCC GmbH
Legal Proceedings
76
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
d) Überseering
• Facts:
In legal proceedings between Überseering BV and NCC GmbH
before a German Civil Court the latter questioned the legal capacity
of Überseering BV due to a deemed transfer of the head office from
The Netherlands to Germany on application of the “real seat
doctrine”.
• Decision:
A Member State may not disregard the legal capacity of a company
that was established properly under the laws of another Member
State and according to the laws of that State a transfer of the head
office to abroad does not have legal consequences for that
company.
77
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
e) Inspire Art
• Inspire Art
ECJ of 30.9.2003, Case C-167/01, Kamer van Koophandel en Fabrieken voor
Amsterdam v. Inspire Art. Ltd, ECR 2003, p. I-10155
United Kingdom
The Netherlands
A
Sole shareholder and
director of Inspire Art
Dutch resident
Inspire Art Ltd.
No business activities
at the place of
registration
Branch
78
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
•
•
e) Inspire Art
Facts:
The Amsterdam Chamber of Commerce and Industry wanted to subject
Inspire Art. Ltd. according to the WFBV, the Dutch Law on pseudo foreign
companies. The status of a pseudo foreign company would have brought
about for Inspire Art Ltd. the obligation to comply with minimum capital and
disclosure requirements. In case of failing to fulfill these requirements, the
directors would be liable for the company’s liabilities.
The single purpose for the establishment of Inspire Art und UK laws was to
make use of the more liberal minimum capitalization rules under UK
company law.
Decision:
According to the ECJ further requirements set up for registration of a branch
and obligations for foreign corporations as contained in the WFBV infringe
the freedom of establishment
79
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
f) SEVIC
• SEVIC Systems
ECJ of 13.12.2005, Case C-411/03, SEVIC Systems AG, ECR 2005, p. I-10805
Germany
SEVIC Systems
AG
Luxembourg
Security Vision
Concept SA
Application for registration of cross-border merger to German Local
Court of Neuwied
80
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
f) SEVIC
•
Facts:
SEVIC applied for registration in the commercial register, in accordance with the
UmwG. The German Local Court of Neuwied refused to register the merger
between SEVIC and Security Vision, a subsidiary established in Luxembourg, on
the ground that the German law on company restructurings provided for mergers
between companies established in Germany only.
•
Judgment:
Articles 43 EC and 48 EC preclude Member States from restricting merger
transactions to domestic entities only. A merger by dissolution without liquidation
of one company and transfer of the whole of its assets to another company must
be open also to entities which are established in another Member State if in a
comparable domestic situation a merger would be feasible.
81
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
g) Cartesio
• Cartesio
ECJ of 16.12.2008, Case C-210/06, Cartesio Oktató és Szolgáltató bt,
ECR 2008, p. I-9641
Hungary
Italy
A
A
Cartesio
Application to Hungarian commercial court to
record new “operational headquater“ in Italy.
82
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
g) Cartesio
•
Facts:
Cartesio is a limited partnership constituted in accordance with Hungarian law
and registered in Hungary. It submitted an application to the commercial court to
amend its registration in the local commercial register so as to record an Italian
address as new operational headquarters. The commercial court rejected
Cartesio’s application. It hold that Hungarian law did not offer companies the
possibility of transferring their operational headquarters to another Member State
while retaining their legal status as a company governed by Hungarian law. In
order to change its operational headquarters, Cartesio would first have to be
dissolved in Hungary and then reconstituted under Italian law.
•
Opinion of AG Poiares Maduro:
Relocation to another MS should fall within the scope of the freedom of
establishment; grounds of general public interest may justify restrictions but not
dissolution of the company in each case of relocation.
83
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
•
g) Cartesio
Judgment:
MS are not prohibited from disregarding legal entities upon a mere relocation of
head office to another MS.
A simultaneous relocation of head office and statutory seat in another MS falls
within the scope of the freedom of establishment.
Provided that the MS where the new seat shall be located, provides for the
necessary legal framework, the former home state of the relocating company
may not deny the legal capacity of the entity.
Winding up of an entity upon a relocation to another company is tolerable only if
is serves overriding requirements in the public interest.
84
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
h) VALE
• VALE
ECJ of 12.7.2012, Case C-378/10, VALE Építési Kft., NJW 2012, 2701
Italy
VALE
Hungary
VALE
Application to Hungarian commercial court to register VALE after having
been deleted from the trade registry in Italy. VALE also applied to show
deleted (Italian) entity as predecessor of new Hungarian entity in trade
register.
85
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
•
h) VALE
Facts:
VALE COSTRUZIONI S.r.l., an Italy-based entity, intended to transfer its legal and factual
seat to Hungary while terminating all its activities in Italy as well as its legal existence under
Italian law. By relocation to Hungary, VALE intended to become a Hungarian company
operating under the name of VALE Építési Kft. and governed by Hungarian company. In its
application for registration to the Hungarian company register, it requested to enter VALE
COSTRUZIONI S.r.l. as legal predecessor of VALE Építési Kft. in the trade register.
The court of registration rejected the application arguing that under Hungarian law the
registration of a foreign company as a legal predecessor of a Hungarian company is not
possible.
The Hungarian Supreme Court requested a preliminary ruling from the ECJ asking whether
the Hungarian company law not allowing for a conversion of a company of another MS into
a Hungarian company are compatible with the freedom of establishment as set out in the
former Articles 43 and 48 EC (now Articles 49 and 54 TFEU).
•
Opinion of AG Jääskinen delivered on 15 December 2011
AG: VALE can rely on the freedom of establishment. He indentified the transfer of seat as a
‘cross-border new establishment’ situation and held that the rejection constituted an
infringement of the freedom of establishment which is not justified.
86
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
•
h) VALE
Judgment:
Articles 49 and 54 TFEU must be interpreted as precluding national legislation which
enables companies established under national law to convert, but does not allow, in a
general manner, companies governed by the law of another MS to convert to companies
governed by national law by incorporating such a company.
Articles 49 and 54 TFEU must be interpreted, in the context of cross-border company
conversions, as meaning that the host MS is entitled to determine the national law
applicable to such operations and thus to apply the provisions of its national law on the
conversion of national companies governing the incorporation and functioning of
companies, such as the requirements relating to the drawing-up of lists of assets and
liabilities and property inventories. However, the principles of equivalence and
effectiveness, respectively, preclude the host MS from
- refusing, in relation to cross-border conversions, to record the company which has applied
to convert as the ‘predecessor in law’, if such a record is made of the predecessor
company in the commercial register for domestic conversions, and
- refusing to take due account, when examining a company’s application for registration, of
documents obtained from the authorities of the MS of origin.
87
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
i) OLG Nürnberg
• Higher Regional Court Nürnberg, 13.2.2012, Case 12 W 2361/11
(The Higher Regional Court (OLG) in Nürnberg is one of three appellate courts in civil, family and
criminal matters for the State of Bavaria.)
Luxembourg
Sarl
Germany
GmbH
Application for registration of cross-border transfer of seat to Germany
to the Local Court of Fürth.
88
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
i) OLG Nürnberg
•
Facts:
A Luxembourg limited liability company intended to relocate head office and
statutory seat from Luxembourg to Germany and to take the form of a German
GmbH. The German local court Fürth refused the registration of the GmbH in
the commercial register.
•
Judgement:
German company law does not allow a relocation of head office and statutory
seat under change of legal form.
Sec. 4a GmbHG does not mention the transfer to Germany of a company under
foreign law in Germany.
Sec. 122a et seq UmwG provides for a cross-border merger only.
A change of legal form is provided in Sec. 1 (1) No. 4, 190 et seq UmwG only
for domestic entities.
The 14th EU Company Law Directive has not been adopted.
ECJ Cartesio contains requirements for the emigration State but not for the host
State.
Thus, no possibility for a foreign entity to relocate to Germany.
89
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
j) National Grid Indus
• National Grid Indus
ECJ of 29.11.2011, Case C-371/10, National Grid Indus BV v. Inspecteur van de
Belastingdienst Rijnmond (kantoor Rotterdam), IStR 2012, 282
Netherlands
National Grid
Indus BV
United Kingdom
National Grid
Indus BV
Place of management and
control shifted to UK
Transfer of place of management and control of Dutch National Grid
Indus to UK. No p.e. remains in The Netherlands. Immediate taxation of
built-in-gains in the assets by Dutch tax authorities in line with freedom
of establishment of National Grid Indus BV?
90
V. Relocation of Seat
6. Cross-Border Mobility of Companies and EC Law
j) National Grid Indus
•
Facts:
National Grid Indus (NGI) involved a Dutch resident company that transferred its
place of effective management to the U.K. in 2000. At the time of the transfer,
NGI held a sterling receivable with built-in gains due to an increase in the
exchange rate for the British pound. Under Dutch corporate law, the move to the
U.K. did not affect the company’s legal personality. After the move, NGI qualified
as a U.K. tax resident under the Netherlands-U.K. tax treaty. NGI ceased to be a
Dutch tax resident and the Dutch tax authorities levied an immediate exit charge
on the unrealized gains on the company’s assets, i.e. on its currency gains.
•
Judgement:
ECJ ruled on 29 November 2011 that EU MS, in principle, may impose an exit
charge on unrealized gains upon the transfer of a company’s place of effective
management to another MS. However, the exit charge infringes the freedom of
establishment if it is levied at the time of emigration, without offering the
emigrating company the option to request a deferment of tax collection.
Two statements of the Court relating to a MS’s ability to charge interest and to
require a bank guarantee have caused some confusion.
91
V. Relocation of Seat
6. Cross-Border Mobility …
k) Scope of application of the “real seat
doctrine” after the Überseering decision
•
According to the reasoning of the ECJ in its Überseering-decision every
Member State has to acknowledge the legal order of other Member States.
The location of its registered office, central administration or principal
business constitutes the connecting factor with the legal system of a
Member State. A company established properly under the laws of that
Member State and exercising the rights granted by the freedom of
establishment, has to be recognized by any other Member State.
•
The Member State where a company is established and registered is
therefore free to apply its own legal principles determining the applicable
law for the company. Other Member States (i.e. also the Member State
where the central management and control is located) have to recognize
that decision. Therefore only the State of incorporation is free to apply the
real seat doctrine to companies incorporated under its laws. The state of the
head office may apply the real seat doctrine by reference to the laws of the
state of incorporation only if the state of incorporation applies the real seat
doctrine.
NOTE: The real seat doctrine may not prohibit legal entities to leave a
Member State by relocating both its head office and its statutory seat to
another Member State.
92
V. Relocation of Seat
6. Cross-Border Mobility …
l) Recent developments
Recent developments – further restrictions of the real seat doctrine’s
scope?
•
•
•
Regulation No 2157/2001 of 8 October 2001 on the Statute for a European
company (SE), OJ L 294, of 10.11.2001, p. 1 requires in its Art. 7 an SE to
keep its head office in the State where its registered office is located (see also
Art. 64 of the Statute for legal consequences for an SE that does not comply
with the obligation or Art. 7). Therefore, an SE may only transfer its registered
office and its head office only simultaneously to another Member State. The
Statute therefore does not question the real seat doctrine that may still be
applied by certain Member States.
The same is true for an European Cooperative Society (see Art. 6 of the
Regulation No 1435/2003 of 22 July 2003 on the Statute for a European
Cooperative Society (SCE), OJ L 207, 18.8.2003, p. 1).
According to Art. 11 para 2 of the pre-draft of a Directive regarding the transfer
of seat of companies (a German version was published in ZIP 1997, 1727) the
concept of the abovementioned regulations will also be used for that Directive.
However, work on proposal of the Commission has been stopped in 2007.
93
V. Relocation of Seat
6. Cross-Border Mobility …
m) Relocation from abroad
Simultaneous relocation of statutory seat and head office and its company
law and tax law treatment
• Relocation from abroad
– Company law treatment
According to settled German case law a relocation of registered office cannot
be registered as the corporation has not been formed properly under German
company law (see OLG Zweibrücken, decision of 27.6.1990, DB 1990, 1660).
Such a company may invoke Art. 49, 54 TFEU to achieve registration
maintenance of legal capacity.
– Tax law treatment
A relocation of a company to Germany may result in a capital gains taxation of
a German PE, if any, if the identity of the corporation changes in the course of
the relocation. In case of a registration of a foreign corporation in the German
trade register, i.e. a cross-border conversion (already executed by some
registration offices), the legal capacity of the corporation is maintained, no
capital gains taxation will take place. Assets which are transferred to Germany
(“Verstrickung”) are recorded in the companies tax balance sheet at fmv (sec.
94
4 (1)7; Sec. 6 (1) No. 5a EStG).
V. Relocation of Seat
6. Cross-Border Mobility …
n) Relocation to abroad
• Relocation to abroad
– Company law treatment:
According to settled case law the transfer of the registered office and head office of a
German corporation results in a winding-up of the corporation irrespective whether the new
State of residency follows the real seat doctrine or the incorporation doctrine. The decision
of the general meeting is deemed to be a decision of winding-up (see, for example, decision
of BayObLG of 7.5.1992, GmbHR 1992, 529). The relocating company needs to invoke the
ECJ’s principles developed in the Cartesio-decision in order to maintain its legal capacity.
– Tax law treatment:
The transfer of a companies registered office and head office results in a taxation of built-ingains as far as Germany loses the right to tax profits from the alienation of assets of the
relocating company, Sec. 12 para 1 KStG. In case of a relocation to a third country,
liquidation taxation takes place, Sec. 12 para 3 KStG. All built-in gains are subject to capital
gains taxation upon the time of the relocation.
The German Federal Tax Court ruled in its decision of 17.7.2007 that Germany does not
loose taxing rights upon a transfer of assets to abroad. The decision may render Sec. 12 (1)
KStG inapplicable in cases where a company relocates to abroad. Germany has amended
its legislation stating that a transfer of an asset to a foreign PE actually results in a loss of
taxing right (Sec. 4 para 1 s. 4 EStG)
95
V. Relocation of Seat
7. Future developments – abolition of “real seat doctrine”?
• From 1 Jan 2006 the Amendment Directive to the Merger Directive
had to be implemented by Member States in domestic law.
• The Amendment Directive covers also the transfer of the registered
office. According to the new Art. 10b-d (now: Art. 12-14) of the
Merger Directive in its amended version tax deferral credit is granted
as far as the assets of the relocation company are still attributed to a
PE in the State of former residency.
• Implementation took place (SEStEG) effective as of 1 Jan 2006.
• Note: These provisions do only apply to the transfer of the
registered seat of an SE or an SCE. National kinds of companies
are not covered. These companies need to invoke the freedom of
establishment principle.
96
Part B: Company
Restructurings
Part B: Company Restructurings
I.
Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1.
2.
II.
Civil Law and Tax Law Issues of Cross-Border Restructurings
of Companies
1.
2.
III.
Civil Law Treatment
Tax Law Treatment
Civil Law Treatment
Tax Law Treatment
The European Company Law Statute (SE-Statute)
98
I. Civil Law and Tax Law
Issues of Company
Restructurings at a Domestic
Level
I.
Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
a) Issues to be resolved
aa) Protection of the shareholders
bb) Protection of the creditors
cc) Employee rights
b) Legal provisions applying to Company Restructurings at
domestic level
aa) Community Law framework
bb) Domestic Civil Law
2. Tax Law Treatment
a) Tax Issues to be resolved
b) Tax Law Provisions applying to Company Restructurings
aa) Regulations in EStG / KStG
bb) Types of Reorganizations covered by the UmwStG
100
1. Civil Law Treatment
a) Issues to be resolved
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
a) Issues to be resolved
aa) Protection of minority shareholders
• Conflicting interests may exist:
Minority shareholders  majority shareholders
• Dilution of the portfolio due to issuing of new shares (relative interest
in the new company decreases)
• Economic value of the shares may decrease due to insufficient
consideration (granted on the basis of valuation report)
• Countermeasures: legal proceedings according to German
Spruchverfahrensgesetz (SpruchG)
102
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
a) Issues to be resolved
bb) Protection of creditors
• In case of restructuring with universal succession: old debtor
automatically replaced with new debtor (creditor has no say)
• Assets subject to liability may be reduced
• Consequence: possibly lower chances to claim the outstanding debt
cc) Employee rights
• New contract partner / employer
• In case of restructuring without universal succession:
– working contracts have to be individually transferred (Transfer of
assets)
– Company worker participation may be endangered:
• Transfer of a branch of activity
• Fall below threshold values determining duty to implement
103
worker participation
1. Civil Law Treatment
b) Legal Provisions applying to company
restructurings at domestic level
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying to company
restructurings at domestic level
aa) Community Law framework
i) Company Law Directive 2011/35/EU of 5 April 2011
concerning mergers of public limited liability companies, OJ L 110 of 29.04.2011, p.
1 replacing Third Council Directive 78/855/EEC of 9 October 1978 concerning
mergers of public limited liability companies (OJ L 295 of 20.10.1978, p. 36), as
amended by the various Acts of Accession and Directive 2007/63/EC of 13.11.2007
ii) Sixth Council Directive 82/891/EEC of 17 December 1982
concerning the division of public limited liability companies, OJ L 378 of 31.12.1982,
p. 47 and Directive 2007/63/EC of 13.11.2007
iii) Council Directive 2001/23/EC of 12 March 2001
on the approximation of the laws of the Member States relating to the safeguarding of
employees' rights in the event of transfers of undertakings, businesses or parts of
undertakings or businesses, OJ L 82 of 22.03.2001, p. 16 (replacing Directive
77/187/EEC of 14 February 1977)
105
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying to company
restructurings at domestic level
bb) Domestic Civil Law
UmwG
Types of restructurings
AktG
Four Types of
Restructurings
GmbHG
MitbestG
(“Umwandlungen”) according to the
German Reorganization Act (UmwG):
• Merger
• Division
• Conversion
• Transfer of Property
DrittelbG
106
1. Civil Law Treatment
b) Legal Provisions applying to
restructurings at domestic level
Merger
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (I)
Types of restructurings: merger (“Verschmelzung”)
Transferring entity(ies) transfers all its assets to
 an already existing entity (“Verschmelzung durch Aufnahme”)
 a newly formed entity (“Verschmelzung zur Neugründung”).
Dissolution of the transferring company(ies) without liquidation.
Shareholding/Interest in the transferring company is eliminated and
is replaced by a shareholding in the receiving company.
108
Merger by Acquisition
Pre-Merger Situation
SH A
SH B
Corporation
X
Corporation
Y
SH A
SH B
Post-Merger Situation
Corporation X
(operating also the business
of former Corp. Y)
109
Merger by forming a new entity
Pre-Merger Situation
SH A
SH B
Corporation
X
Corporation
Y
SH A
SH B
Post-Merger Situation
Corporation Z
(operating the businesses of
former Corp. Y and former Corp. X)
110
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (IV)
Procedure:
• Merger Contract, sec. 4 UmwG
• Key features pursuant to sec. 5 UmwG
• Merger Report, sec. 8 UmwG, Art. 9 Merger Directive (2011/35/EU)
• Audit of the Merger, sec. 9 et seq. UmwG, Art. 10 Merger Directive
• Shareholders resolution, sec. 13 UmwG, Art. 7 Merger Directive
• Registration, Publication, Art. 18 Merger Directive
• Legal consequences of registration, sec. 20 UmwG,
Art. 19 Merger Directive
111
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (V)
Merger Contract, sec. 4 UmwG
To be signed by the representative bodies
• To be notarized
• Needs approval (previously or subsequently to the signature)
of the shareholders of the entities involved in order to come
into effect
Key features pursuant to sec. 5 UmwG
• Name or business name and the seat of each of the entities involved
• Terms agreed regarding the transfer of assets as a whole and the
consideration in form of interest in the receiving company
• The ratio of exchange of interests and, where relevant, the
consideration in cash or information about the membership in the
receiving company
112
• Effective date of the merger
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (VI)
Merger Report: sec. 8 UmwG, Art. 9 Merger Directive (2011/35/EU)
•
•
•
•
•
To be drafted by the representative bodies
Aims at providing information about the merger to the shareholders
Shall explain the merger in detail
Shall especially address the ratio of the exchange of shares
Not necessary if shareholders waive it or if all shares in the
transferring company are held by the receiving company (upstream
merger)
113
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (VII)
Audit of the Merger: sec. 9 et seq. UmwG, Art. 10 Merger Directive
•
•
•
•
Independent auditors must examine the merger
Auditors are appointed by the representative bodies or upon application, by
the court where one of the involved entities has its seat
Audit report has to address (sec. 12 UmwG):
- whether the exchange ratio is appropriate
- whether a possible cash consideration is sufficient
- which methods were used for examination of appropriateness of the
consideration
From 2009 onwards: Shareholders may waive the audit (Directive
2007/63/EC of 13 November 2007 amending Council Directives
78/855/EEC and 82/891/EEC as regards the requirement of an independent
expert’s report on the occasion of merger or division of public limited liability
companies, OJ L 300 of 17.11.2007, p. 47)
114
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (VIII)
Shareholders’ resolution
• Shareholders’ resolution has to approve the merger contract
• Three-quarter majority of the shareholder meeting needed
• Approval must be certified by a notary
Registration, Publication, Art. 18 Merger Directive
• Representative bodies of the entities involved may apply for
registration in the commercial register where the entities are
registered, Sec. 16 UmwG
• Prior to the registration of the merger in the register of the receiving
entity the registration in the commercial register of the transferring
entity has to take place, Sec. 19 UmwG
• Publication of the registration, Sec. 19 (3) UmwG
115
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
MERGER (IX)
Legal consequences of registration,
sec. 20 UmwG, Art. 19 Merger Directive:
• Transfer of the assets as a whole takes effect (“universal
succession”)
• The transferring company ceases to exist
• The shareholders of the transferring company become shareholder
of the receiving company
• Rights and obligations of third parties are transferred to the receiving
company
116
1. Civil Law Treatment
b) Legal Provisions applying to
restructurings at domestic level
Division
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
DIVISION (I)
Types of restructurings: Division (“Spaltung“)
(1) Split-up (“Aufspaltung“)
Sec. 123 (1) UmwG, Art. 1, 2 (1), 21 (1) Division Directive (82/891/EEC)
Transferring entity divides up its assets and transfers these assets to
two or more
– already existing entities (“Aufspaltung zur Aufnahme“) and/or
– newly formed entities (“Aufspaltung zur Neugründung“).
Dissolution of the transferring company without winding up.
118
Split-up
Pre-Division Situation
SH A
SH B
Corporation
Y
Post-Division Situation
SH A
SH B
Corporation
X
Corporation
Z
119
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
DIVISION (III)
(2) Split-off (“Abspaltung”)
Sec. 123 (2) UmwG, Art. 25 Division Directive (82/891/EEC)
Transferring entity divides up its assets and transfers only one or more
parts of it to
– already existing entities (“Aufspaltung zur Aufnahme”) and/or
– newly formed entities (“Aufspaltung zur Neugründung“).
The receiving entity issues new shares to the shareholder of the
transferring entity.
The transferring company continues to exist.
120
Split-off
Pre-Division Situation
SH A
SH B
Corporation
Y
Post-Division Situation
SH A
SH B
Corporation
Y
Corporation
Z
121
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
DIVISION (V)
(3) Hive down (“Ausgliederung”)
Sec. 123 (3) UmwG, no match in Division Directive (82/891/EEC)
Transferring entity divides up its assets and transfers only one or more
parts of it to
– already existing entities (“Aufspaltung zur Aufnahme”) and/or
– newly formed entities (“Aufspaltung zur Neugründung“).
The receiving entity issues new shares to the transferring entity.
The transferring company continues to exist.
122
Hive Down
Pre-Division Situation
SH A
Corporation
X
Post-Division Situation
SH A
Corporation
X
Corporation
Y
123
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
DIVISION (VII)
Procedure of a Division
• No differences to the procedure for a merger
• Many of the provisions governing a merger apply by way of
reference
• Conclusion of a division and takeover contract, Sec. 126 UmwG (or
plan in case of a division by forming a new entity) -> must determine
which assets are to be transferred to which entity or remain in the
transferring entity (Art. 3 Division Directive)
• Division report, Sec. 127 UmwG, Art. 7 Division Directive
• Audit requirement (exception: hive down), Sec. 125 UmwG; from
2009 on shareholder may waive the audit
• Approval of the shareholders’ meetings
• Registration in the register and publication
124
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
DIVISION (VIII)
Legal consequences of the registration of a Division
• The transfer of assets as a whole takes effect (“universal
succession”)
• The transferring entity ceases to exist in case of a split-up
• The interest in the receiving company is issued to its new owner
(shareholder of the transferring company or transferring company
itself respectively)
125
1. Civil Law Treatment
b) Legal Provisions applying to
restructurings at domestic level
Conversion
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
CONVERSION
Types of restructurings: Conversion (“Formwechsel”)
• The entity continues to exist but changes its legal form Identity
before and after the conversion
• No transfer of property to another entity
127
1. Civil Law Treatment
b) Legal Provisions applying to
restructurings at domestic level
Transfer of Property
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
Transfer of Property
Types of restructurings: Transfer of property
(“Vermögensübertragung”)
Applicable in cases where a capital company transfers property to a
public entity or property is transferred between insurance companies
where one of the companies is a mutual or a public insurance
company. No possibility to issue shares or a participation in the
receiving company in consideration for the shares issued.
129
1. Civil Law Treatment
b) Legal Provisions applying to
restructurings at domestic level
Contribution of Assets
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
Contribution of assets
Types of restructurings: Contribution of assets
Can be effected by way of
– a split-up, split-off or a hive-down resulting in a universal
succession
– a contribution of assets by way of transfer of single assets
– major importance in practice for reorganizations as especially in
cross-border situations the only feasible way to effect a tax
neutral reorganization
– the exchange of shares is one form of a contribution of assets
131
1. Civil Law Treatment
b) Legal Provisions applying to
restructurings at domestic level
Certain Aspects of Interest
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
Certain aspects of interest: Protection of minority shareholders
•
•
•
•
Legitimate claim for cash compensation of the shareholders in case of the
change of the legal form of shares (e.g. GmbH converted into AG) - (sec. 2931, 34, 36 (1) (1), 125, 135 (1) (1), 176 (1), 177 (1) 207-212 UmwG). A cash
compensation offer must already be included in the underlying transformation
contract (e.g. merger contract) and is subject to legal revision (sec. 34, 212
UmwG). Prerequisite for the legitimate claim is the raise of objections in the
general meeting of the shareholders against the transformation resolution.
Shareholder of transferring company may claim cash compensation if the
conversion ratio of the shares is considered to be to low (sec. 15, 125, 176 (1)
177 (1) 196 UmwG).
Owner of rights in transferring company must receive comparable rights in
acquiring company (sec. 23, 36 (1) (1), 125, 176 (1) 177 (1), 205, 206 UmwG).
Members of management may be hold liable for damages to shareholders due
to the transformation (sec. 25-27, 36 (1), 125, 176 (1), 177 (1) 205, 206
UmwG).
133
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
Further factors to pay attention to
•
•
•
•
•
Information duties (minimum content of the transformation contract (sec. 5
(1), 126 (1), 194 UmwG); Publication duties and duties to provide access to
the contracts for information and revision purposes (sec. 42, 47, 63, 216,
251 UmwG); Transformation report has to be drawn up (sec. 8, 127, 192
UmwG); Information duties concern: transformation contract, exchange ratio
of the shares, amount of the cash compensation); sometimes the last three
balance sheets have to be made accessible to the shareholders (sec. 49
(2), 63 (1) (2) UmwG).
Transformation contract has to be revised by independent auditors sec. 12,
30 UmwG (from 2009 on shareholders may waive the audit, see above).
Majority of ¾ for the transformation resolution in the general meeting of the
shareholders required (sec. 50, 65 UmwG).
Only objecting shareholders may claim cash compensation.
If the exchange ratio is not proportionate, shareholders may have the right
to a claim cash supplementary compensation.
Legal protection: Legal proceedings according to sec. 246, 249 AktG
(Anfechtungs- bzw. Nichtigkeitsklage) result in a registration ban for the
term of the proceedings.
134
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
• Protection of creditors (Art. 12 Division Directive)
In case of a merger, the provisions concerning the company
foundation report as well as specific foundation rules (sec. 58 (1), 75
(1), 67 UmwG) are applicable.
• Creditor may demand a security deposit from debtor, if the
circumstances suggest the endangerment of repayment (sec. 22,
209 UmwG).
Members of management of the transferring company may be hold
jointly and severally liable (sec. 25, 205 UmwG).
Members of management of the acquiring company are as well
obligated to indemnification payments in case of damages (sec. 27
UmwG).
Contribution in kind is subject to audit.
Division: jointly and severally liability of the involved companies.
135
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
Employee rights
Working conditions
Business transfer, sec. 613a BGB (legal background: Directive
2001/23/EC of 12 March 2001 on the approximation of the laws of
the Member States relating to the safeguarding of employees’ rights
in the event of transfers of undertakings, businesses or parts of
undertakings or businesses, OJ L 82 of 22.3.2001 p. 16):
• Transfer of employment contracts or objection to it respectively
• Collective agreement applicable prior to the transfer remains
applicable until the date of expiration or termination
• Liability of the former employee for wages and salaries
• Information and participation rights of the works council
136
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
1. Civil Law Treatment
b) Legal provisions applying …
bb) Domestic Civil Law
Workers’ participation
German system of worker’s participation consists of two elements: The worker’s
participation at the level of the company and at the level of the (domestic) branches
of a company (“betriebliche Mitbestimmung”).
Under Germany’s “One-Third Workers’ Participation Act” and the “Participation Act
1976” German stock corporations (Aktiengesellschaften), limited liability companies
(Gesellschaften mit beschränkter Haftung) and limited partnerships with share capital
(Kommanditgesellschaften auf Aktien) must grant to their employees various
participation rights, notably on their supervisory board (Aufsichtsrat), if the size of the
individual company or group of company in terms of the number of employees is
greater than laid down in the relevant act.
According to Sec. 21a German Works Constitution Act (Betriebsverfassungsgesetz,
BetrVG) the works council continues to exists in case of the division of an
undertaking (see also Art. 6 of the Directive 2001/23/EC of 12 March 2001).
Sec. 325 UmwG: In case of a split-off or a hive-down the provisions governing the codetermination at the company’s level basically remain applicable for a period of 5
years for the transferring entity unless the relevant number of workers at the level of
the transferring company falls below a minimum number of ¼ of the minimum number
required by the Co-Determination Act or the One-Third Workers’ Participation Act.
Sec. 97-99 AktG: The composition of the supervisory board has to be
adapted to the new workers participation regime.
137
2. Tax Law Treatment –
Tax Issues to be resolved
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
a) Tax issues to be resolved
a) Tax Issues to be resolved
Taxation of so-called “hidden reserves” (built-in gains)
Hidden reserves:
Deferred taxation of capital gains that are not yet realized
Realization principle leads to deferral of gains
Alienation of assets is one form of realization of gains
Reorganizations include the transfer of assets to another entity
Reorganization Tax Act aims at a further deferral of taxation by
continuing/maintaining book values of the transferred assets
Only certain cases of a transfer of assets shall enjoy such
preferential tax treatment as the realization principle shall not
impede from an economic viewpoint reasonable company
restructurings. A mere alienation of assets or shares shall not
benefit. Therefore the transfer of assets that form an undertaking or
a branch of activity is required.
For 2002 and 2003 the alienation of shares is tax exempt according
to sec. 8b para 2 KStG; as from 2004 the exemption amounts to
139
95%.
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
a) Tax issues to be resolved
Tax loss utilization (loss carry-forward) / interest-carry forward
(I)
Carry forward of tax losses are generally directly linked to the entity
that has incurred the losses.
A mere transfer of assets may therefore not result in a transfer of
losses of the transferring entity to the receiving entity.
A restructuring resulting in universal succession in all rights of the
transferring company (i.e. merger and division) does not result in a
transfer of losses.
140
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
a) Tax issues to be resolved
Tax loss utilization (loss carry-forward) / interest-carry forward
(II)
Transfer of shareholding in loss-making companies may trigger
forfeiture of loss carry forwards of that entity according to sec. 8c
KStG.
A direct or indirect acquisition of more than 25% up to 50% of
shares in a companies triggers a pro-rata forfeiture of loss carry
forwards. A transfer of more than 50% results in a forfeiture of the
entire loss-carry forwards.
Exception for ailing companies has recently been qualified as illegal
state aid by the Commission. Germany announced to litigate against
the Commission’s decisions.
141
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
a) Tax issues to be resolved
Tax loss utilization (loss carry-forward) / interest-carry forward
(III)
Further exception exists for intra-group transactions (as of 1 January
2010).
To the extent built-in-gains in the assets of the loss-making
company exist, loss carry forwards will not forfeited upon a change
of ownership that would otherwise be deemed harmful (as of 1
January 2010).
Change-in-ownership-rule also affects interest carry-forward.
142
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
a) Tax issues to be resolved
Real estate transfer tax
A transfer of assets in the course of a restructuring may include real
estate.
Real estate transfer tax is generally levied on the transfer of real
estate to another person or entity.
Basically a merger, division and the transfer of assets fulfill these
criteria.
As from 1 Jan. 2010, an exception for certain intra-group transfers
applies (Sec. 6a RETTC).
143
2. Tax Law Treatment –
Regulations in EStG / KStG
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
b) Regulations in EStG / KStG
Tax Law Provisions applying to Company Restructurings
Regulations in EStG / KStG
Exchange of shares:
– Leads to realization of hidden reserves and is subject to tax
– sec. 6 para. 6 EStG in conjunction with sec. 17 para. 1 EStG 
half income method, if >1% share is transferred
– sec. 8b para. 2, 3 KStG: 95 % tax free for corporations
145
2. Tax Law Treatment –
UmwStG
c) Types of reorganizations covered by the UmwStG
Reorganisations regulated in
UmwStG
with
Transfer of assets
without
Transfer of assets
Single sucession
Universal
sucession
Hive-down
Merger
Conversion
Split-up /
Split-off
147
2. Tax Law Treatment –
UmwStG, Merger
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG
aa) Merger
•
•
•
•
From a corporation to a partnership: sec. 3 – 10, 18 UmwStG
From a corporation to a corporation: sec. 11 – 13, 19 UmwStG
From a partnership to a corporation: sec. 20 – 23 UmwStG
From a partnership to a partnership: sec. 24 UmwStG
149
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (II)
• Merger from a corporation to a partnership
Transferring Company:
• Closing tax balance sheet: Fair market value (Sec. 3 Para 1
UmwStG) or - under the conditions of Sec. 3 Para 2 UmwStG lower value down to book value.
• Duty to take up fair market value if:
– not assured that hidden reserves are subsequently subject to
corporation tax in the hand of the acquiring company
– Germany looses its right to tax the hidden reserves
– consideration in cash is granted.
• Possible gain is subject to trade tax and corporate income tax.
• Deemed distribution of reserves to shareholders (§ 7 UmwStG).
• Carry forward of tax losses may be offset with income from
(discretionary) step-up. Remaining tax losses cannot be transferred
to acquiring partnership (sec. 4 para. 2 UmwStG).
150
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (III)
Acquiring Partnership
• Must take up the transferred assets at the values shown in the
closing tax balance sheet of the transferring company.
• Transfer gain / loss: amount of the difference between the value at
which the assets transferred are to be taken up and the book value
of the shares in the transferring company.
• Taxation of transfer gain:
– If interest in receiving partnership is held by a corporation: 95%
tax free (sec. 4 para. 7 sentence 1 UmwStG)
– If interest in receiving partnership is held as business asset of
individual person: half income method (sec. 4 para. 7 sentence
2 UmwStG).
• Taxation of transfer loss: treatment depending on origin of transfer
loss; generally not taken into account for corporations and 50%
deductible for individuals.
151
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (IV)
Merger of a corporation with another corporation:
• regulations comparable to merger of a corporation with a
partnership
• Transferring Company:
• Book values may be carried over under certain conditions.
Duty to take up higher values if:
– not assured that hidden reserves are subsequently
subject to corporation tax in the hand of the acquiring
company
– Germany looses its right to tax the hidden reserves
– consideration in cash is granted
• Remaining tax losses carried forward cannot be transferred
to acquiring company (sec. 12 para. 3 UmwStG)
152
2. Tax Law Treatment –
UmwStG, Division
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (V)
bb) Division: Split-up and Split-off
• from a corporation to a partnership:
sec. 16, 18 UmwStG
• from a corporation to a corporation:
sec. 15, 19 UmwStG
• from a partnership to corporation:
sec. 20 - 23 UmwStG
• from a partnership to a partnership:
sec. 24 UmwStG
154
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (VI)
Split-up and Split-off from a corporation into a corporation
• Prerequisites for preferential tax treatment:
 Transfer of a branch of activity
 Remaining business unit must also be branch of activity
• Transferring entity and acquiring company
 Reference to sec. 11 – 13 UmwStG
 Tax consequences corresponding to merger case
 Anti-abuse rule in sec. 15 para. 2 UmwStG
155
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (VII)
• Split-up and Split-off from a partnership to corporation(s)
– Tax neutral transfer possible under the conditions of sec. 20
Para 1, 2 UmwStG
• Hive-down
– from a corporation to a partnership: sec. 24 UmwStG
– from a corporation to a corporation: sec. 20 - 23 UmwStG
– from a partnership to a corporation: sec. 20 – 23 UmwStG
– from a partnership to a partnership: sec. 24 UmwStG
156
2. Tax Law Treatment –
UmwStG, Conversion
I. Civil Law and Tax Law Issues of Company Restructurings at a
Domestic Level
2. Tax Law Treatment
c) UmwStG (VIII)
cc) Conversion
• from a corporation to a partnership:
sec. 3 - 8, 10, 18 UmwStG
• from a corporation to a corporation:
no tax relevance
• from a partnership to a corporation:
sec. 20 - 23, 25 UmwStG
• from a partnership to a partnership:
no tax relevance
158
II. Civil Law and Tax Law
Issues of Cross-Border
Restructurings of Companies
II.
Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
a) Special Issues of Cross-Border Reorganizations
aa) Protection of the shareholders
bb) Protection of the creditors
cc) Employee rights
b) The European legal framework for cross-border mergers and
divisions
aa) Community Law framework
bb) Domestic Civil Law
2. Tax Law Treatment
a) Tax Issues to be resolved
b) Tax Law Provisions applying to Company Restructurings
aa) Regulations in EStG / KStG
bb) Types of reorganizations covered by the UmwStG
160
1. Civil Law Treatment –
a) Special Issues of Cross-Border
Reorganizations
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
a) Special issues of cross-borderreorganizations
a) Special issues of cross-border-reorganizations:
• Transferring and receiving companies belong to different
jurisdictions
• Cross-Border Merger Directive of 26 October 2005 (2005/56/EC)
aa) Minority Shareholders
• Will be faced by a different legal entity from a foreign jurisdiction
• Enforcement of shareholders’ rights requires legal action before a
foreign court
• Language can be a problem
• Lack of familiarity with a foreign legal system
162
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
a) Special issues of cross-borderreorganizations
bb) Creditors
• Domestic debtor will be replaced by a foreign debtor
• Enforcement of claims requires legal action before a foreign court
• Different capitalization requirements in the various countries
cc) Employees
• Different levels of protection of employees
• Directive 2001/86/EC of 8 October 2001 supplementing the Statute
for a European Company with regard to the involvement of
employees provide for a solution for conflicting provisions on
employee rights in cross-border situations
• The Cross-Border Merger Directive contains similar provisions
163
1. Civil Law Treatment –
b) The European Legal Framework
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
b) The European legal framework
aa) Goldman-Report
b) The European legal framework for cross-border mergers and
divisions
aa) Goldman-Report
• “Draft Convention on the international merger of sociétés anonymes
and Report on the Draft”
• submitted to the Council by the Commission on 29 June 1973,
Bulletin of the European Communities Supplement 13/73
165
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
b) The European legal framework
bb) Draft 10th Company Law Directive
bb) Draft 10th Company Law Directive
• Proposal of a 10th Company Law Directive on cross-border merger
of companies of 14 December 1984, OJ C 23 of 25.1.1985, p. 11
• Scope: Only public limited companies
• Status: Withdrawn in 2001 due to disagreement on the question of
worker’s participation
166
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
b) The European legal framework
cc) The Cross-Border Merger Directive
cc) The Cross-Border Merger Directive of 26 October 2005
• Economic need: There is an increasing need today in the
Community of twenty-seven for cooperation between companies
from different Member States, as there will be in a future
enlarged Union, not forgetting the EFTA countries.
• Purpose: to fill a significant gap in company law left by the need
to facilitate cross-border mergers of commercial companies
without the national laws governing them – as a rule the laws of
the countries where their head offices are situated – forming an
obstacle.
• The aim: is to approximate the cross-border merger procedure
with the domestic merger procedures with which operators are
already familiar through use.
167
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
b) The European legal framework
cc) The Cross-Border Merger Directive
• Implementation: “All companies, whether they be public limited
liability companies or any other type of company with share capital,
must have at their disposal a suitable legal instrument enabling them
to carry out cross-border mergers under the most favourable
conditions. The costs of such an operation must therefore be
reduced, while guaranteeing the requisite legal certainty and
enabling as many companies as possible to benefit. The scope of
the Directive is therefore drawn in such a way as to cover above all
small and medium-sized enterprises, which stand to benefit because
of their smaller size and lower capitalization compared with large
enterprises and for which, for the same reasons, the European
company Statute does not provide a satisfactory solution.”
• Scope: All companies with share capital (aimed primarily at
companies which are not interested in forming a SE).
168
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
b) The European legal framework
cc) The Cross-Border Merger Directive
Article 2:
For the purposes of this Directive:
1) “limited liability company”, hereinafter referred to as “company”,
means:
(a) a company as referred to in Article 1 of Directive 68/151/EEC, or
(b) a company with share capital and having legal personality,
possessing separate assets which alone serve to cover its debts
and subject under the national law governing it to conditions
concerning guarantees such as are provided for by Directive
68/151/EEC for the protection of the interests of members and
others;
169
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
1. Civil Law Treatment
b) The European legal framework
cc) The Cross-Border Merger Directive
dd) Cross-Border Divisions
2) "merger" means an operation whereby:
(a) one or more companies, on being dissolved without going into liquidation, transfer all
their assets and liabilities to another existing company - the acquiring company - in
exchange for the issue to their shareholders of securities or shares representing the
capital of that other company and, if applicable, a cash payment not exceeding 10%
of the nominal value, or, in the absence of a nominal value, of the accounting par
value of those securities or shares; or
(b) two or more companies, on being dissolved without going into liquidation, transfer all
their assets and liabilities to a company that they form - the new company - in
exchange for the issue to their shareholders of securities or shares representing the
capital of that new company and, if applicable, a cash payment not exceeding 10% of
the nominal value, or in the absence of a nominal value, of the accounting par value
of those securities or shares; or
(c) a company, on being dissolved without going into liquidation, transfers all its assets
and liabilities to the company holding all the securities or shares representing its
capital;
dd) No EU Directive exists for cross-border divisions
170
2. Tax Law Treatment –
Tax issues arising for cross-border
restructurings
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
a) Tax issues arising for cross-border
restructurings
a) Tax issues arising for cross-border restructurings
Transferring and receiving company belong to different tax jurisdictions
• State of transferring company may loose its subject of taxation
• Termination of unlimited tax liability
• Potentially loss of taxing right in case of a transfer of assets to
abroad
• Solution provided by Directive 2009/133/EC (formerly: Directive
90/434/EEC): Deferral of taxation of built-in-gains based on taxation
of Permanent Establishment (PE)
172
Pre-merger situation
SH X
Corporation A
B
O
R
D
E
R
SH Y
Corporation B
Post-merger situation
SH X
Formerly:
Corp. A
Now: PE
SH Y
B
O
R
D
E
R
Corporation B
173
2. Tax Law Treatment –
The European tax framework for crossborder mergers
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (I)
b) The European tax framework for cross-border mergers
The Tax Directive 2009/133/EG regarding cross-border reorganizations
•
•
•
Economic need: mergers, divisions, transfers of assets and exchanges of shares
concerning companies of different Member States may be necessary in order to
create within the Community conditions analogous to those of an internal market and
in order thus to ensure the establishment and effective functioning of the common
market.
Purpose: such operations ought not to be hampered by restrictions, disadvantages or
distortions arising in particular from the tax provisions of the Member States; whereas
to that end it is necessary to introduce with respect to such operations tax rules which
are neutral from the point of view of competition, in order to allow enterprises to adapt
to the requirements of the common market, to increase their productivity and to
improve their competitive strength at the international level.
The aim: an extension at the Community level of the systems presently in force in the
Member States, since differences between these systems tend to produce
distortions; whereas only a common tax system is able to provide a satisfactory
solution in this respect.
175
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (II)
Objective scope
• Mergers
• Divisions
• Partial Divisions,
• Transfer of Assets
• Exchanges of Shares
 Concerning companies of different Member States
• Transfer of the registered office of an SE or SCE
176
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (III)
Article 1:
“Each Member State shall apply this Directive to the following:
(a) mergers, divisions, partial divisions, transfers of assets and
exchanges of shares in which companies from two or more Member
States are involved,
(b) transfers of the registered office from one Member State to another
Member State of European companies (Societas Europaea or SE),
as established in Council Regulation (EC) No 2157/2001 of 8
October 2001, on the statute for a European Company (SE) (1), and
European Cooperative Societies (SCE), as established in Council
Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a
European Cooperative Society (SCE)”
177
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (IV)
Article 2:
For the purposes of this Directive:
(a) ‘merger’ shall mean an operation whereby: — one or more companies, on being
dissolved without going into liquidation, transfer all their assets and liabilities to
another existing company in exchange for the issue to their shareholders of securities
representing the capital of that other company, and, if applicable, a cash payment not
exceeding 10 % of the nominal value, or, in the absence of a nominal value, of the
accounting par value of those securities, — two or more companies, on being
dissolved without going into liquidation, transfer all their assets and liabilities to a
company that they form, in exchange for the issue to their shareholders of securities
representing the capital of that new company, and, if applicable, a cash payment not
exceeding 10 % of the nominal value, or in the absence of a nominal value, of the
accounting par value of those securities, — a company, on being dissolved without
going into liquidation, transfers all its assets and liabilities to the company holding all
the securities representing its capital;
(b) ‘division’ shall mean an operation whereby a company, on being dissolved
without going into liquidation, transfers all its assets and liabilities to two or more
existing or new companies, in exchange for the pro rata issue to its shareholders of
securities representing the capital of the companies receiving the assets and
liabilities, and, if applicable, a cash payment not exceeding 10 % of the nominal value
or, in the absence of a nominal value, of the accounting par value of those securities;
178
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (V)
Article 2:
(b)(a) ‘partial division’ shall mean an operation whereby a company transfers, without
being dissolved, one or more branches of activity, to one or more existing or new
companies, leaving at least one branch of activity in the transferring company, in
exchange for the pro-rata issue to its shareholders of securities representing the
capital of the companies receiving the assets and liabilities, and, if applicable, a cash
payment not exceeding 10 % of the nominal value or, in the absence of a nominal
value, of the accounting par value of those securities;
(c) ‘transfer of assets’ shall mean an operation whereby a company transfers without
being dissolved all or one or more branches of its activity to another company in
exchange for the transfer of securities representing the capital of the company
receiving the transfer;
(d) ‘exchange of shares’ shall mean an operation whereby a company acquires a
holding in the capital of another company such that it obtains a majority of the voting
rights in that company in exchange for the issue to the shareholders of the latter
company, in exchange for their securities, of securities representing the capital of the
former company, and, if applicable, a cash payment not exceeding 10 % of the
nominal value or, in the absence of a nominal value, of the accounting par value of
the securities issued in exchange.
(j) ‘transfer of the registered office’ shall mean an operation whereby an SE or an
SCE, without winding up or creating a new legal person, transfers its registered office
from one Member State to another Member State.
179
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (VI)
Personal scope:
Only forms of companies
• that are mentioned in the Annex of the Directive,
• that are, according to the tax law of a Member State or a Double Tax
Treaty, resident in a Member State and
• that are subject to a corporate tax as mentioned in the Directive.
180
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (VII)
Article 2:
•
•
•
•
•
(e) ‘transferring company’ shall mean the company transferring its assets
and liabilities or transferring all or one or more branches of its activity;
(f) ‘receiving company’ shall mean the company receiving the assets and
liabilities or all or one or more branches of the activity of the transferring
company;
(g) ‘acquired company’ shall mean the company in which a holding is
acquired by another company by means of an exchange of securities;
(h) ‘acquiring company’ shall mean the company which acquires a holding
by means of an exchange of securities;
(i) ‘branch of activity’ shall mean all the assets and liabilities of a division
of a company which from an organizational point of view constitute an
independent business, that is to say an entity capable of functioning by its
own means.
181
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
-The Tax Merger Directive 2009/133/EC (VIII)
Technique:
Mergers, divisions, partial divisions or transfers of assets normally
result either in the transformation of the transferring company into
a permanent establishment of the company receiving the assets or
in the assets becoming connected with a permanent establishment
of the latter company. The same is true for companies relocating
its statutory seat to abroad
Deferral of the taxation of the capital gains relating to the assets
transferred until their actual disposal, applied to such of those
assets as are transferred to a permanent establishment, permits
exemption from taxation of the corresponding capital gains, while
at the same time ensuring their ultimate taxation by the State of
the transferring company at the date of their disposal.
182
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (IX)
Art. 4 para. 1:
1. A merger, division or partial division shall not give rise to any taxation of
capital gains calculated by reference to the difference between the real
values of the assets and liabilities transferred and their values for tax
purposes.
For the purpose of this Article the following definitions shall apply:
(a) ‘value for tax purposes’: the value on the basis of which any gain or loss
would have been computed for the purposes of tax upon the income, profits
or capital gains of the transferring company if such assets or liabilities had
been sold at the time of the merger, division or partial division but
independently of it;
(b) ‘transferred assets and liabilities’: those assets and liabilities of the
transferring company which, in consequence of the merger, division or
partial division, are effectively connected with a permanent establishment of
the receiving company in the Member State of the transferring company and
play a part in generating the profits or losses taken into account for tax
purposes.
2. [… (transparent entities)]
183
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment
b) The European tax framework
- The Tax Merger Directive 2009/133/EC (X)
Art. 4 para. 1:
3. Paragraphs 1 and 2 shall apply only if the receiving company computes any
new depreciation and any gains or losses in respect of the assets and
liabilities transferred according to the rules that would have applied to the
transferring company or companies if the merger, division or partial division
had not taken place.
4. Where, under the laws of the Member State of the transferring company, the
receiving company is entitled to have any new depreciation or any gains or
losses in respect of the assets and liabilities transferred computed on a
basis different from that set out in paragraph 3, paragraph 1 shall not apply
to the assets and liabilities in respect of which that option is exercised.
Art. 6:
Losses: If Member State would apply provisions in domestic cases allowing
the receiving company to take over the losses of the transferring company
which had not yet been exhausted for tax purposes, it shall extend those
provisions to cover the take-over of such losses by the receiving company's
permanent establishments situated within its territory.
184
2. Tax Law Treatment –
Implementation of the EC Tax Directive
into Domestic Law
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment c) Implementation of the EC Tax Merger Directive
c) Implementation of the EC Tax Directive into Domestic Law
aa) Implementation of a Directive
Any EU Directive requires implementation:
Art. 288 (2) TFEU: A regulation shall have general application. It
shall be binding in its entirety and directly applicable in all Member
States.
Art. 288 (3) TFEU: A directive shall be binding, as to the result to be
achieved, upon each Member State to which it is addressed, but
shall leave to the national authorities the choice of form and
methods.
186
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment c) Implementation of the EC Tax Merger Directive
bb) Time requirements
1.1.1992: Implementation of Directive 90/434/EEC, i.e. the merger, division, transfer
of assets and exchanges of shares.
1.1.2006: Implementation of Directive 2005/19/EC of 17 January 2005 amending
Directive 90/434/EEC on the common system of taxation applicable to mergers,
Divisions, transfers of assets and exchanges of shares concerning companies of
different Member States, OJ L 58 of 4.3.2005, p. 19, as far as the Directive contains
SE and SCE related amendments.
That are:
– Transfer of registered office of an SE or SCE
– Inclusion of the SE and SCE in the scope of the Merger Directive
1.1.2007: Implementation of the following features:
–
–
–
–
The “split-off” as a new operation covered by the Directive
Inclusion of further forms of companies in the scope of the Directive
Clarification, that the Directive also covers the transformation of a PE to a subsidiary
Forms of companies that are subject to corporation tax in the state of incorporation but
considered as fiscally transparent entities by other MS will also be covered by the
Directive.
– Further acquisition of shares exceeding a 50% shareholding in a subsidiary by way of
a share-for-share deal.
187
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment c) Implementation of the EC Tax Merger Directive
cc) Consequences of an untimely or incorrect or incomplete
implementation
i) Interpretation of national law in conformity to a directive
A national court has the obligation to interpret and to apply the
legislation adopted for the implementation of a directive in conformity
with the directive (“v. Colson and Kamann”)
No interpretation contra legem (see “Pfeiffer”)
An individual may not rely on a directive in order to claim rights against
another individual (see “Faccini Dori”)
leading cases:
- v. Colson and Kamann (ECJ of 10.4.1984, C-14/83, ECR 1984, p. 1891)
- Faccini Dori (ECJ of 14 July 1994, C-91/92, ECR 1994, p. I-3325)
- Pfeiffer (ECJ of 5.10.2004, joined cases C-397-403/01, ECR 2004, p. I-8835)
188
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment c) Implementation of the EC Tax Merger Directive
ii) Direct applicability of a directive
•
•
•
•
•
Wording of Art. 288 TFEU: “A directive shall be binding, as to the result to be
achieved, upon each Member State to which it is addressed, but shall leave to the
national authorities the choice of form and methods.”
A directive is addressed only to the Member States and therefore not directly
applicable to individuals
Direct applicability only in exceptional cases:
Requirements:
- untimely or incorrect transposition of the directive into national law
- provision favorable for an individual
- provision provides for rights that which can be asserted against the member state
- “self-executing” character of the directive (no margin for discretion of the member
state how to transpose the directive)
leading cases:
- Becker (ECJ of 19.1.1982, 8/81, ECR 1982, p. 53)
- Harz ./. Deutsche Tradax (ECJ of 10.4.1984, 79/83, ECR 1984, p. 1921)
189
II. Civil Law and Tax Law Issues of Cross-Border Restructurings of
Companies
2. Tax Law Treatment c) Implementation of the EC Tax Merger Directive
iii) State Liability – Compensation claims against Member States
for damage caused to tax payers
•
•
•
•
•
Conditions governing State liability:
- the rule of law infringed must be intended to confer rights on individuals;
- the breach must be sufficiently serious and
- there must be a direct causal link between the breach of the obligation incumbent
on the State and the loss or damage sustained by the injured parties
In case of an untimely or incorrect transposition of a directive into national law, if the
provisions are not directly applicable according to the requirement described above
(“Francovich”)
In case of conflict of national law with primary EC law (“Brasserie du Pêcheur”)
Incorrect interpretation of EC law by a national court adjudicating at last instance that
does not meets its obligation to seek for a preliminary ruling (Art. 267 TFEU), “Köbler”
Only in cases where a national court has manifestly infringed the applicable law
leading cases:
- Francovich (ECJ of 19.11.1991, C-6 and 9/90, ECR 1991, p. I-5357)
- Brasserie du Pêcheur/Factortame (ECJ of 5.3.1996, C-46 and 48/93, ECR 1996, p. I-1029)
- Köbler (ECJ of 30.9.2003, C-224/01, ECR 2003, p. I-10239)
- Test Claimants in the Thin Cap Group Litigation (ECJ of 13.3.2007, C-524/04, ECR 2007, p. I2107)
190
III. The European Company
Law Statute (SE-Statute)
III. The European Company Statute (SE-Statute)
1. Applicable Law – company law
a) Regulation
Council Regulation (EC) No 2157/2001 of 8 October 2001 on the
Statute for a European company (SE), OJ L 294, of 10.11.2001, p.1
b) Directive
Council Directive 2001/86/EC of 8 October 2001 supplementing the
Statute for a European company with regard to the involvement of
employees OJ L 294, of 10.11.2001, p.22
c) National Implementation Law
Gesetz zur Ausführung der Europäischen Gesellschaft (SEAG) of
22.12.2004, German Law Gazette of 28.12.2004, p. 3675
d) Company Statutes
192
III. The European Company Statute (SE-Statute)
2. Applicable Law – tax law
2. Applicable law – tax law
a) Tax Directive in its amended version
Council Directive 90/434/EEC on the common system of taxation
applicable to mergers, divisions, transfers of assets and exchanges
of shares concerning companies of different Member States of 23
July 1990, OJ L 225, 20.8.1990, p. 1
amended by:
Council Directive 2005/19/EC of 17 February 2005 amending
Directive 90/434/EEC 1990 on the common system of taxation
applicable to mergers, divisions, transfers of assets and exchanges
of shares concerning companies of different Member States, OJ L
58, of 4.3.2005, p. 19
As of 15. Dec. 2009: Consolidated version of the Directive enters
info force (Directive 2009/133/EG); no material changes to the
193
Directive
III. The European Company Statute (SE-Statute)
2. Applicable Law – tax law
b) Parent Subsidiary Directive recast
Council Directive 90/435/EEC of 23 July 1990 on the common system of
taxation applicable in the case of parent companies and subsidiaries of
different Member States, OJ L 225, 22.9.1990, p. 6
recast:
Council Directive 2011/96/EU of 30 November 2011 on the common system of
taxation applicable in the case of parent companies and subsidiaries of
different Member States, OJ L 345, of 29.12.2011, p. 8
c) Interest and Royalties Directive
Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation
applicable to interest and royalty payments made between associated
companies of different Member States, OJ L 157, of 26.6.2003, p. 49
Proposal for a recast Council Directive of 11.11.2011, COM(2011) 714 final
194
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
a) Formation by cross-border merger, sec. 2 para 1 SE-Statute
Pre-Formation situation
Germany
SH A
X-AG
B
O
R
D
E
R
France
SH B
Y-S.A.
Post-Formation situation
SH A
Requirements:
- Only public limited companies may be merged to an SE
- These public limited companies must be incorporated in different
Member States
B
O
R
D
E
R
SH B
French-SE
195
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
b) Formation of a Holding-SE, sec. 2 para 2 SE-Statute (I)
Pre-merger situation
Germany
SH A
X-AG
B
O
R
D
E
R
France
SH B
Y-S.A.
Post-merger situation
SH A
X-AG
SH B
B
O
R
D
E
R
French
Holding-SE
Y-S.A.
196
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
b) Formation of a Holding-SE, sec. 2 para 2 SE-Statute (II)
From a company law point of view the formation of a Holding-SE is
executed by the contribution of shares of the shareholders in the
companies taking part in the operation to the newly formed SE. The SE
issues new shares to the shareholders in consideration.
Requirements:
• Both public and private limited companies may take part in the
operation.
• The companies must either be incorporated under the laws of different
Member States or each of the companies must have had a subsidiary
or a branch in another Member State for a minimum period of 2 years
prior to the operation.
• The SE must obtain a majority in the voting rights in the subsidiaries.
197
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
c) Formation of a Subsidiary-SE, Alternative a of sec. 2 para 3 SEStatute (I)
Pre-Formation Situation
Germany
X-AG
B
O
R
D
E
R
France
Y-S.A.
Post-Formation Situation
X-AG
B
O
R
D
E
R
Y-S.A.
Subsidiary-SE
198
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
c) Formation of a Subsidiary-SE, Alternative a of sec. 2 para 3 SEStatute (II)
From a company law point of view the foundation of a subsidiary-SE
does not differ from the formation of a joint subsidiary of two
companies.
Requirements
• All forms of companies mentioned in Art. 54 TFEU may take part in
the formation of a Subsidiary-SE.
• The companies must either be incorporated under the laws of
different Member States or each of the companies must have had a
subsidiary or a branch in another Member State for a minimum
period of 2 years prior to the operation.
199
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
c) Formation of a Subsidiary-SE, Alternative b of sec. 2 para 3 SEStatute
Pre-Formation Situation
X-AG
Y-AG
Germany
France
Branch
Z-BV
Post-Formation Situation
X-AG
Y-AG
Germany
France
Z-BV
Branch
Subsidiary-SE
200
III. The European Company Statute (SE-Statute)
3. The various forms of formation of a European Company
d) Formation by conversion of an existing company
Pre-Formation Situation
France
Germany
X-AG
Z-S.A.
Post-Formation Situation
X-SE
Requirements:
• Only public limited companies may be converted to an
SE.
• The company must either be incorporated under the
laws of different Member States or must have had a
subsidiary or a branch in another Member State for a
minimum period of 2 years prior to the operation.
Z-S.A.
201
III. The European Company Statute (SE-Statute)
4. Tax treatment of the formation of a European Company
a) Formation by Merger
Pre-merger situation
Germany
SH A
X-AG
B
O
R
D
E
R
France
SH B
Y-S.A.
Post-merger situation
SH A
•
•
•
SH B
B
O
R
D
E
R
Tax neutral cross-border merger
possible under German tax law?
A merger is possible at book value
under the conditions mentioned in
sec. 11 Para 2 UmwStG.
Loss of right to tax gains resulting
from an alienation of assets results
in taxation of built-in-gains.
PE
French-SE
202
III. The European Company Statute (SE-Statute)
4. Tax treatment of the formation of a European Company
b) Formation of a Holding SE
Pre-Formation situation
Germany
SH A
X-AG
B
O
R
D
E
R
France
SH B
Y-S.A.
Post-Formation situation
SH A
X-AG
SH B
B
O
R
D
E
R
French
Holding-SE
Y-S.A.
203
III. The European Company Statute (SE-Statute)
4. Tax treatment of the formation of a European Company
b) Formation of a Holding SE
Issues:
• The formation of a Holding-SE qualifies in principle as an exchange
of shares operation according to Art. 1, 2d) Merger Directive, if SE
and the corporation, which is subject of the share transfer, are
located in different Member States.
• According to German tax law sec. 21 UmwStG is applicable.
• Sec. 21 UmwStG applies to companies covered by the Merger
Directive. The SE was included in the scope of the Merger Directive
explicitly from 1 January 2006 onwards.
204
III. The European Company Statute (SE-Statute)
4. Tax treatment of the formation of a European Company
c) Formation of a Subsidiary-SE, Alternative b of sec. 2 para 3 SEStatute
Pre-Formation Situation
X-AG
Y-AG
Germany
France
Branch
Z-BV
Post-Formation Situation
X-AG
Y-AG
Germany
France
Z-BV
Branch
Subsidiary-SE
205
III. The European Company Statute (SE-Statute)
4. Tax treatment of the formation of a European Company
c) Formation of a Subsidiary-SE, Alternative b of sec. 2 para 3 SEStatute
Issues:
• Raising the capital of the Subsidiary-SE by way of a cash
contribution, the formation does not give rise to any tax implications.
• Raising the capital of the Subsidiary-SE by way of a contribution in
kind, the operation may trigger capital gains taxation. A tax neutral
contribution requires the application of a provision granting tax
deferral relief.
• SE to be formed within the EU:
Contributions in kind (Sacheinlage) to a Subsidiary-SE may be
executed under sec. 20 UmwStG.
206
III. The European Company Statute (SE-Statute)
4. Tax treatment of the formation of a European Company
d) Formation by way of Conversion
Pre-Formation Situation
France
Germany
X-AG
Z-S.A.
Post-Formation Situation
A conversion does not give
rise to capital gains
taxation as no transfer of
assets to a new entity
takes place.
X-SE
Z-S.A.
207
III. The European Company Statute (SE-Statute)
5. Current taxation of the European Company in its different forms
• SE is subject to corporate income tax in Germany.
• Tax treaties apply to Ses.
• SE falls within the scope of EC Tax Directives and Arbitration
Convention.
• Exception: The Interest and Royalties Directive currently does not
apply to the SE. An Amendment Directive has not been adopted yet.
208
Contact
Deloitte & Touche GmbH
Wirtschaftsprüfungsgesellschaft
Rosenheimer Platz 4
81669 Munich
Germany
Prof. Dr. Otmar Thömmes
Rechtsanwalt
Geschäftsführer
Tel: +49 89-29036 8314
othoemmes@deloitte.de
www.deloitte.com/de
209