Taxation of European Companies at the Time of Establishment and Restructuring docx

Christiane Malke
Taxation of European Companies at the Time
of Establishment and Restructuring
GABLER RESEARCH
Christiane Malke
Taxation
of European Companies
at the Time of Establishment
and Restructuring
Issues and Options for Reform with Regard
to the Status Quo and the Proposals
at the Level of the European Union

With a foreword by Prof. Dr. Christoph Spengel
RESEARCH
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detailed bibliographic data are available in the Internet at .
Dissertation Universität Mannheim, 2009
1
st
Edition 2010
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Foreword V
Foreword
In 2004 the first legal entity applicable in all EU member states, the so-called European
Company or Societas Europaea (SE), was introduced in order to strengthen the competi-
tiveness of European companies and improve the functioning of the internal market. In or-
der for the SE to be an alternative to existing legal forms, the establishment as well as the
transfer of seat should not result in tax consequences. However, despite the rules provided
by the Merger Directive, the taxation of hidden reserves is still a major concern for com-
panies that want to reorganize themselves cross-border. As a consequence, a need for fur-
ther research covering aperiodic transactions existed. The doctoral thesis of Ms. Malke
provides a comprehensive contribution to fulfill this need.
Ms. Malke has assessed the tax treatment of SEs at the time of establishment and re-
structuring based on economic and legal criteria. This is provided for all 27 EU member
states. In addition, she has competently analyzed the existing literature on the subject at
hand. The special merit of the doctoral thesis of Ms. Malke consists in developing reform
proposals for different addressees and different levels of harmonization in the EU. More in
detail, the relevant tax rules for SEs at the time of establishment and restructuring are
worked out and presented in a systematic way for the 27 EU member states. Based on this,
existing deficiencies are shown and solutions are elaborated in a comprehensive manner.
These solutions cover changes to the national law of the member states, to EU law as well
as to the proposals provided by the European Commission regarding the introduction of a

Common (Consolidated) Corporate Tax Base. The reform proposals are methodically
well-founded and feasible in practice.
The doctoral thesis of Ms. Malke is a diversified and sound work which fulfills me-
thodical as well as tax law requirements. It constitutes a contribution to the discussion of
economic and tax implications of restructurings of companies doing business in Europe as
well as to the systematic development of current rules. It is not only of importance for in-
ternational researchers in this field, but also for national governments and policy makers
in the European Union dealing with this issue as well as for tax advisors who need an
overview of the aperiodic tax rules of SEs in the EU member states. I therefore strongly
recommend the doctoral thesis of Ms. Malke to this audience.

Prof. Dr. Christoph Spengel
Preface VII
Preface
This thesis was written while I was working at the Business Administration and Taxa-
tion II Department at the University of Mannheim, in the beginning led by Prof. Dr. Dr.
h.c. mult. Otto H. Jacobs and later by Prof. Dr. Christoph Spengel. It was accepted by the
Faculty of Business Administration of the University of Mannheim in 2009.
For supporting me during the preparation of this thesis I wish to express my thanks to
various people. Foremost, I am indebted to my thesis supervisor, Prof. Dr. Christoph
Spengel, for his guidance, encouragement, his constructive comments and his advice dur-
ing the whole time. Moreover, I owe Prof. (em.) Dr. Dr. h.c. mult. Otto H. Jacobs a debt of
gratitude for providing the second assessment of the doctoral thesis as well as for arousing
my interest in international taxation. I also thank Prof. Dr. Hans-Wolfgang Arndt for pro-
viding the examination in my elective subject.
Many thanks I wish to give to Andrea Kamp and Michael David for putting a lot of time
and effort in reading my thesis. Andrea, I want to thank for her valuable input and for be-
ing a sympathetic listener. Michael, I want to thank for his very careful proofreading of
this thesis with regard to English style and grammar. I also wish to thank Carsten Wendt
for his constructive remarks in technical discussions. Furthermore, I thank my colleagues

at the department and the ZEW for the pleasant environment to work in.
Lastly, but most importantly, I thank my family and friends, especially Felix for his pa-
tience, invaluable support and for cheering me up as well as my parents for their continu-
ous care, encouragement and great support in every situation.

Christiane Malke
Summary of Contents IX
Summary of Contents
1 Introduction 1
1.1 Motivation of the thesis 1
1.2 Aim of the thesis and object of examination 6
1.3 Organization of the thesis 7
2 Relevance of the European Company in practice 9
2.1 Basic features of the European Company 9
2.2 Examination of statistical data regarding the use of the European Company 10
2.3 Interim conclusions 15
3 Taxation of European Companies during the time of restructuring in an
ideal environment 16
3.1 Guiding tax principles 16
3.2 Issues at reorganizations 20
3.3 Application to purely national contexts 26
3.4 Application to the ideal internal market 27
3.5 Interim conclusions 29
4 Taxation of European Companies during the time of restructuring in the
current environment 30
4.1 Guiding tax principles 30
4.2 Comparative analysis of the treatment in the EU member states 55
4.3 Issues and options for reform 147
5 Taxation of European Companies during the time of restructuring in the
proposed environment 191

5.1 Guiding tax principles 191
5.2 Common Corporate Tax Base 192
5.3 Common Consolidated Corporate Tax Base 195
5.4 Interim conclusions 214
6 Conclusions 216
Table of Contents XI
Table of Contents
List of Abbreviations XV
List of Figures XIX
List of Tables XXI
1 Introduction 1
1.1 Motivation of the thesis 1
1.2 Aim of the thesis and object of examination 6
1.3 Organization of the thesis 7
2 Relevance of the European Company in practice 9
2.1 Basic features of the European Company 9
2.2 Examination of statistical data regarding the use of the European
Company 10
2.3 Interim conclusions 15
3 Taxation of European Companies during the time of restructuring in an
ideal environment 16
3.1 Guiding tax principles 16
3.1.1 Neutrality and efficiency 16
3.1.2 Equity and fairness 17
3.2 Issues at reorganizations 20
3.2.1 General features of reorganizations 20
3.2.2 Treatment of hidden reserves 21
3.2.3 Retention of unused losses 24
3.2.4 Treatment of tax incentives 25
3.2.5 Additional transaction taxes 25

3.2.6 Scope of rules 26
3.3 Application to purely national contexts 26
3.4 Application to the ideal internal market 27
3.5 Interim conclusions 29
XII Table of Contents
4 Taxation of European Companies during the time of restructuring in the
current environment 30
4.1 Guiding tax principles 30
4.1.1 Neutrality and equity in an international context 30
4.1.1.1 International neutrality and efficiency 31
4.1.1.2 International equity and fairness 32
4.1.1.3 Taxing right and time of taxation at international restructurings 35
4.1.1.4 Valuation at international restructurings 39
4.1.1.5 Interim conclusions 40
4.1.2 EU law 41
4.1.2.1 Primary EU law 42
4.1.2.1.1 Decisive fundamental freedoms 42
4.1.2.1.2 Discriminations and restrictions of the fundamental freedoms 44
4.1.2.1.3 Justifications of discriminations and/or restrictions 46
4.1.2.2 Secondary EU law 49
4.1.2.3 Decisive judgments of the European Court of Justice in the context
of reorganizations 49
4.1.2.4 Interim conclusions 52
4.1.3 Side condition: Feasibility 52
4.1.4 Interim conclusions 53
4.2 Comparative analysis of the treatment in the EU member states 55
4.2.1 Approach for the comparative analysis 55
4.2.2 Merger Directive 56
4.2.3 Entry 58
4.2.3.1 Merger 58

4.2.3.1.1 Basics with regard to company law 58
4.2.3.1.2 Tax consequences 59
4.2.3.1.2.1 Entity level 61
4.2.3.1.2.1.1 Transferring company/companies 61
4.2.3.1.2.1.1.1 Assets and liabilities in country of transferring company 61
4.2.3.1.2.1.1.2 Permanent establishments in country other than that of
transferring company 72
4.2.3.1.2.1.2 Receiving company (SE) 77
4.2.3.1.2.1.2.1 Tax-exempt provisions and reserves 77
Table of Contents XIII
4.2.3.1.2.1.2.2 Losses 79
4.2.3.1.2.1.2.3 Prior holdings 82
4.2.3.1.2.1.2.4 Additional transaction taxes 84
4.2.3.1.2.2 Shareholder level 86
4.2.3.1.3 Interim conclusions 93
4.2.3.2 Holding SE 94
4.2.3.2.1 Basics with regard to company law 94
4.2.3.2.2 Tax consequences 95
4.2.3.3 Subsidiary SE 109
4.2.3.3.1 Basics with regard to company law 109
4.2.3.3.2 Tax consequences 109
4.2.3.3.2.1 Contributions of cash or shares 110
4.2.3.3.2.2 Contributions of branches of activity or single assets 111
4.2.3.4 Conversion 128
4.2.4 Transfer 130
4.2.4.1 Basics with regard to company law 130
4.2.4.2 Tax consequences 131
4.2.5 Exit 144
4.2.6 Interim conclusions 145
4.3 Issues and options for reform 147

4.3.1 Company law 147
4.3.2 Tax law 150
4.3.2.1 Missing or incorrect transformation of Merger Directive 150
4.3.2.2 Treatment of accrued hidden reserves 152
4.3.2.2.1 Transfer of assets and companies from one member state to
another 153
4.3.2.2.1.1 Issues 153
4.3.2.2.1.1.1 Taxing right and time of taxation 153
4.3.2.2.1.1.1.1 Assessment against the background of international
neutrality and equity 154
4.3.2.2.1.1.1.2 Assessment against the background of primary and
secondary EU law 156
4.3.2.2.1.1.2 Valuation 162
4.3.2.2.1.1.3 Interim conclusions 164
XIV Table of Contents
4.3.2.2.1.2 Options for reform 164
4.3.2.2.1.2.1 Assets remaining in the former jurisdiction to tax 164
4.3.2.2.1.2.2 Assets leaving the former jurisdiction to tax 165
4.3.2.2.1.2.2.1 Requirements with regard to the tax base, the tax rate
and the taxable event 165
4.3.2.2.1.2.2.2 Personal, objective and territorial scope 168
4.3.2.2.1.2.2.3 Required coordination between countries involved 168
4.3.2.2.1.2.2.4 Uncoordinated approaches 172
4.3.2.2.1.2.2.5 Other options: taxation of unrealized gains or
abolishment of taxing rights upon exit 175
4.3.2.2.1.2.3 Interim conclusions 177
4.3.2.2.2 Transfers of foreign permanent establishments 177
4.3.2.2.3 Transfer of shares from one member state to another 178
4.3.2.2.4 Doubling of hidden reserves 179
4.3.2.3 Retention of unused losses 182

4.3.2.4 Filing obligations and avoidance of abuse 185
4.3.2.5 Additional transaction taxes 187
4.3.3 Interim conclusions 188
5 Taxation of European Companies during the time of restructuring in the
proposed environment 191
5.1 Guiding tax principles 191
5.2 Common Corporate Tax Base 192
5.3 Common Consolidated Corporate Tax Base 195
5.3.1 Proposed rules 195
5.3.1.1 Ongoing system 195
5.3.1.2 Transitional aspects 200
5.3.2 Issues and options for reform 203
5.3.2.1 Transactions taking place within a consolidated CCCTB group 203
5.3.2.2 Transactions not taking place within a consolidated CCCTB group 208
5.4 Interim conclusions 214
6 Conclusions 216
Appendix 223
List of References 229
List of Abbreviations XV
List of Abbreviations
Art Article
AT Austria
BE Belgium
BFH Bundesfinanzhof
BFH/NV Sammlung amtlich nicht veröffentlichter Entscheidungen des Bundes-
finanzhofs
BG Bulgaria
BStBl Bundessteuerblatt
C Case
CCTB Common Corporate Tax Base

CCCTB Common Consolidated Corporate Tax Base
CDD Capital Duty Directive
CDFI Cahier de Droit Fiscal International
Cf. Confer
COM Communication
Comp Company
CY Cyprus
CZ Czech Republic
DBA Doppelbesteuerungsabkommen
DE Germany
DK Denmark
EC European Community
ECJ European Court of Justice
ECR European Court Report
ECS European Company Statute
ECT EC Treaty
Ed Editor/Edition
Eds. Editors
EE Estonia
EEA European Economic Area
EEC European Economic Community
XVI List of Abbreviations
EEIG European Economic Interest Grouping
E.g Exempli gratia
Einl. Einleitung
ES Spain
Et al Et alii
Etc Et cetera
ETUI-REHS European Trade Union Institute for Research, Training and Health and
Safety

EU European Union
FI Finland
Fn Footnote
FR France
GR Greece
HST Home State Taxation
HU Hungary
IBFD International Bureau of Fical Documentation
I.e id est
IE Ireland
IFA International Fiscal Association
IFRS International Fiancial Reporting Standards
IP Press release
IRAP Imposta Regionale sulla Attivitá Produttive
IT Italy
LT Lithunia
LU Luxembourg
LV Latvia
MD Merger Directive
MT Malta
N/a Not available
N/a Not applicable
N.B. Note besides
NL Netherlands
No. Number
List of Abbreviations XVII
OECD Organisation for Economic Co-operation and Development
OJ Official Journal
P page
P.a. per annum

Para paragraph
Paras. paragraphs
PE Permanent establishment
PL Poland
PT Portugal
RO Romania
SCE European Cooperative Society
SE Societas Europaea
SEC Staff of the European Commission
SE-VO SE-Verordnung
SK Slovak Republic
SL Slovenia
SW Sweden
UFO Unidentified Flying Object
UK United Kingdom
USA United States of America
WP Working Paper
Vol. Volume
Vs Versus
List of Figures XIX
List of Figures
Figure 1: Merger by acquisition 60
Figure 2: Merger by formation of a new company 60
Figure 3: Establishment of a holding SE through companies in different member
states 96

Figure 4: Establishment of a holding SE through companies in the same member
state 97

Figure 5: Establishment of a subsidiary SE through companies in different

member states 112

Figure 6: Establishment of a subsidiary SE through companies in the same
member state 112

Figure 7: Establishment of an SE by conversion 129
Figure 8: Transfer of an SE 133

List of Tables XXI
List of Tables
Table 1: Established SEs within the EU member states 10
Table 2: Merger - tax consequences at transferring company 63
Table 3: Merger - permanent establishment abroad 75
Table 4: Merger - carryover of provisions and reserves 78
Table 5: Merger - loss carryover 80
Table 6: Merger - merging gains or losses (receiving company) 83
Table 7: Merger - Additional transaction taxes 85
Table 8: Merger - shareholders of transferring entity/entities 88
Table 9: Holding SE - shareholders of founding entities and level of SE 100
Table 10: Subsidiary SE - Contributing entities and SE 116
Table 11: Transfer of SE 135
Table 12: Double tax treaties concluded between EU member states 223
Table 13: Foreign permanent establishments - avoidance of double taxation 224
Table 14: Transfer of nondepreciable assets 225

1 Introduction 1
1 Introduction
1.1 Motivation of the thesis
Effective 8 October 2004, a legal entity which is applicable in all EU member states
(the so-called European Company or Societas Europaea (SE)) has been introduced.

1
The
legal basis was the Council Regulation (EC) No. 2157/2001 of 8 October 2001 on the
Statute for a European Company (SE) (hereinafter: European Company Statute)
2
and the
Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a Euro-
pean Company with regard to the involvement of employees
3
. Whereas the regulation on
the Statute for a European Company introducing the legal form of the Societas Europaea
was binding in its entirety and directly applicable in all the EU member states as of 8 Oc-
tober 2004 due to Art. 249 (2) ECT, the directive on the involvement of employees was
binding with regard to the result which should be achieved but still needed to be imple-
mented into the national law of the member states according to Art. 249 (3) ECT.
4
In 2009
- five years after the introduction of the SE - the European Company Statute shall be re-
viewed and amended if necessary as stated in Art. 69 (a) ECS.
The aim of the introduction of the SE was to strengthen the competitiveness of Euro-
pean Companies and improve the functioning of the internal market.
5
The internal market
which shall be established within the European Community according to the EC Treaty is
defined as an area without internal frontiers in which the free movement of goods, per-
sons, services and capital is ensured (Art. 14 ECT). Thus, the internal market is rather a
national market than an international one, since the system
of the market is uniform or su-
pranational and no longer international or mu
ltinational.

6
In order to complete the internal
market and improve the economic and social situation within the EU, barriers to trade
need to be removed and structures of production need to be adaptable to the EU dimen-


1
It is one of the first supranational European legal entities. Other EU-wide entities are the European Co-
operative Society (SCE) which is applicable to co-operative societies and the European Economic In-
terest Grouping (EEIG) which may be of interest for small and medium sized enterprises or self-
employed persons and is mainly used for auxiliary functions (e.g. joint research and development pro-
jects). Cf. for example for the SCE: Selbherr/Manz (eds.), 1995; for the EEIG: Schulze (ed.), 2004.
2
Council Regulation, 2157/2001: 1.
3
Council Directive, 2001/86/EC: 22.
4
Such rules need to have the status of a code or treasury regulations. Administrative interpretations are
not sufficient. Cf. Reiß, 1994: 327-328. This has been done, for example, in Germany via the “SE-
Ausführungsgesetz” and the “SE-Beteiligungsgesetz”. Cf. Lutter/Homme
lhoff (eds.), 2008.
5
Cf. Council Regulation, 2157/2001: 1.
2 1 Introduction
sion. This implies that companies which are not only doing business on a local market
need to be able to plan and carry out reorganizations as needed on a Community scale.
Observing the rules of competition laid down in the EC Treaty, such reorganizations
should give existing companies from different member states the opportunity to combine
their potential by means of new structures, mergers or similar transactions.
7

Furthermore,
conditions need to be established so that the management of European groups of compa-
nies can be optimized. Only then there is no need for companies to relocate their head of-
fices to countries outside the EU which may provide them with more efficient structures.
8

However, the laws of the member states in the European Union are in certain areas ra-
ther orientated towards domestic transactions than cross-border transactions. Especially in
company law each nation has its own legal forms. If a com
pany wants to change its regis-
tered office within the European Union or reorganize its company in order to do business
EU-wide, such transactions may be forbidden by law or hindered because of exit charges.
Such exit charges arise if the company needs to be liquidated in one country and re-
established in another country due to the reorganization. Furthermore, tax costs may ap-
ply. If a company is involved in reorganizations beyond the national borders hidden re-
serves which have been accrued in the assets may become taxable upon transfer.
9

Within the European Union such restrictions are clearly in conflict with the idea of an
internal market. Thus, one measure adopted by the Community to overcome obstacles was
to introduce a legal form which will be available in every one of the member states of the
EU. The council regulation and directive which govern the Societas Europaea focus on
rules regarding company law and employee involvement. With regard to company law,
the statute uniformly regulated for the first time that cross-border transactions shall not re-
sult in the need to liquidate and reestablish the companies involved. Thus, using an SE
made it possible to use new structures, reorganize the organization and transfer the regis-
tered office within the European Union without dissolution and thus without restrictions.
Accordingly, it was only with the introduction of the SE that companies could choose a
legal form which was not governed by a particular national law. Thus, from the perspec-
tive of company law the conditions to complete the internal market within the EU with re-

6
Cf. Wenz, 1993: 175-176.
7
Cf. Council Regulation, 2157/2001: 1.
8
Cf. Lenoir, 2007: 79; Lenoir, 2008: 14.
9
Hidden reserves may also be defined as appreciations in value of assets which have not been realized
yet. For details on the definition and the tax charges see Chapter 3.
1 Introduction 3
spect to legal entities have been established in general.
10
However, due to various options
contained in the regulation, overall uniformity may not be fulfilled in detail.
11

The introduction of the SE was especially important in the context of cross-border
mergers and transfers of the registered office across a border since this was not possible
before without the dissolution of the involved companies.
12
In the meantime further devel-
opments have taken place. The Directive 2005/56/EC
13
now allows national corporations
from different member states to merge without any consequences due to company law.
Thus, as far as the directive is transformed into national law, which had to be done by
15/12/2007, cross-border mergers are not only possible for an SE (or in order to establish
an SE) but also for limited liability companies within the EU. The conditions are ana-

logues to those which are provided for in the European Company Statute for a merger of
an SE.
14
Regarding the transfer of the registered office, the SE is still unique since the
14th Company Law Directive has not been passed at the Community level. Accordingly, a
transfer of the registered office without dissolution of the company in one state and rees-
tablishment of the company in another state is not possible for national corporations.
15

On the subject of taxation, the European Company Statute concluded in 2001 is silent,
even though former proposals regarding the introduction of an SE had included tax rules.
The SE looks back at a history of over thirty years.
16
In a first proposal in 1970
17
far
reaching rules regarding the tax treatment had been included. When looking at noncurrent
transactions the tax neutrality for shareholders upon the establishment of a holding SE, the
definition of the registered office for tax purposes and the tax neutrality upon the transfer
of the registered office were regulated. When looking at current transactions the cross-
border loss transfer with subsidiaries and taxation of profits and losses of perm
anent estab-
lishments were addressed. The second proposal in 1989
18
still contained rules regarding
the taxation of profits and losses of permanent establishments. In the final version of the


10
Cf. Wenz, 1993: 35-44; Council Regulation, 2157/2001: 1.

11
Cf. Thoma/Leuering, 2002: 1450; Thömmes, 2004b: 17; Bartone/Klapdor, 2007: 7-8.
12
Cf. Sauter/Wenz, 2002: 10; Schön/Schindler, 2004: 573.
13
Council Directive, 2005/56/EC: 1.
14
Cf. Chapter 2. Cf. also European Commission, COM(2003)703; Herrler, 2007, 295-300; Winter, 2008:
532-537.
15
Cf. European Commission, XV/6002/97. The work on this issue has been officially stopped in Decem-
ber 2007. See (date of access:
31/01/2009).
16
Regarding the historical development of the SE see in detail Blanquet, 2002: 20-34; Diemer, 2004: 36-
38; Lenoir, 2008: 13-14; Schön/Schindler, 2008: paras. 1-6.
17
Cf. European Commission, COM(70)600.
18
Cf. European Commission, COM(89)268.
4 1 Introduction
European Company Statute of 2001 tax rules have no longer been included
19
since consent
among the member states was not reached.
20
Instead, these complex issues should be dealt
with separately in the following years.
21
This has only been partly achieved in the mean-

time.
In the European Company Statute it is only stated that member states are generally
obliged to guarantee that provisions applicable to SEs do neither result in a discrimination
because of an unjustified different treatment of SEs compared to other national public lim-
ited-liability companies, nor in disproportionate restrictions when an SE is formed or
transfers its registered office. This also has to be respected with regard to taxes.
22
In addi-
tion, Art. 9 (1) (c) (ii) ECS refers to the national law of the country in which the SE is
domiciled. In addition, according to Art. 10 ECS the SE shall be treated in every member
state as if it were a public limited-liability company formed in accordance with the law of
the member state in which it has its registered office and head office. Accordingly, general
EU law, bilateral treaty law and national tax law applies.
23
With respect to current transac-
tions, this implies that the rules applicable to any other national corporate entity are
valid.
24
As a result, 27 different tax systems prevail within the EU not leading to a uniform
treatment of SEs or a reduction of compliance costs.
25
Instead, SEs are faced with the
same obstacles treated as national corporate entities when doing business cross-border.
26

As ongoing activities of SEs are currently not treated differently from other corporations,
the consequences of the entry into an SE, the transfer of the registered office from one
member state to another one and the exit out of an SE become important when analyzing
the attractiveness and effectiveness of this new European legal form. If these transactions
do not result in tax consequences an SE may freely move around within the internal mar-

ket and adapt its structures as required by business objectives. This puts these noncurrent


19
Number 20 of the preamble of the European Company Statute explicitly states that areas like taxation
are not covered by the regulation.
20
Among others, there was the fear that special tax rules could lead to distortions of competition against
other legal entities. Cf. Blanquet, 2002: 54; Thömmes, 2004b: 18.
21
Cf. Diemer, 2004: 38.
22
Cf. Council Regulation, 2157/2001: 1; Lenoir, 2007: 71.
23
Cf. Soler Roch, 2004: 11; Terra/Wattel, 2008: 600. For an overview of the general hierarchy for norms
regulating the SE beyond taxation see Theisen/Wenz, 2005: 51; Bartone/Klapdor, 2007: 7-8, which
both show that various laws need to be observed leading to a complex situation.
24
Cf. also Diemer, 2004: 49.
25
An exception effects the few directives on which consent has been reached (e.g. Parent-Subsidiary Di-
rective (90/435/EEC), Interest-Royalties Directive (2003/49/EC)).
26
For details on the obstacles as of 2001 see European Commission, SEC(2001)1681. For details on the
differing tax burdens of businesses in Europe see Spengel, 2003; Jacobs (ed.), 2007: 102-149; Wendt,
2009.
1 Introduction 5
transactions into the focus of this work. In this context, as has been stated above, a major
issue involves the tax treatment of hidden reserves which have been accrued in the assets
which are transferred. This is also a concern upon entry into an SE since the SE may not

be established by individuals via a contribution of cash or assets, but solely by reorganiza-
tion or conversion of specific entities already existing. Here, the Merger Directive
90/434/EEC, which has recently been amended by Directive 2005/19/EC,
27
is of great im-
portance for the SE. It deals with cross-border reorganizations and provides guidelines on
their tax treatment for the EU member states. The Merger Directive is generally applicable
to national corporations but with regard to the transfer of the registered office, it only cov-
ers the SE.
Additionally, the SE can be examined in a broader context. Due to the various obstacles
that companies doing business in Europe face, resulting from dealing with 27 different tax
systems, the European Commission has proposed to introduce a new fiscal framework in
the long run in order to complete the internal market from a tax perspective. The work is
aimed at introducing a common consolidated corporate tax base throughout Europe. This
would provide uniform rules within the whole EU and thus limit the obstacles mentioned
above more effectively than case specific measures. Such a uniform tax base would
change the systems on profit determination and profit allocation of groups of companies.
28

In this context, it had also been discussed to use the SE in a pilot scheme. As the European
Company Statute had not provided for a fiscal framework and the SE is an entity organ-
ized EU-wide, this would have served the EU dimension of the SE. However, due to con-
cerns that a special tax regime for the SE would discriminate other companies against the
SE and would thus create distortions to competition within the EU it has been aban-
doned.
29
Overall though, work by the Commission Services and tax experts go on in de-
signing such a new tax system, not only for the SE but for all companies doing business
on an EU-wide level.
30

Thus, the SE “may prove to be a “Trojan Horse” that Member
States have unwittingly allowed within their city walls and which will in time disgorge its
contents to the further downfall of national corporate tax systems”.
31
In such a new system
certain issues need to be examined with regard to noncurrent transactions. Among others,


27
Council Directive, 90/434/EEC: 1; Council Directive 2005/19/EC: 19.
28
Cf. European Commission, SEC(2001)1681. See also e.g. Diemer 2004: 49-50.
29
Cf. European Commission, COM(2003)726; Deloitte, 2004; Diemer, 2004: 62; Herzig, 2004: 98-99.
30
Cf. the website of the General Directorate “Taxation and Customs Union” on the progress:

6 1 Introduction
the question arises on how to handle the entry into and exit out of such a new system. Here
again the focus is on the treatment of accrued hidden reserves. Furthermore, within the
ongoing system, one has to determine how to deal with reorganizations in general.
1.2 Aim of the thesis and object of examination
Against this background the aim of this work is to determine how cross-border restruc-
turings shall be treated within the EU from a tax point of view especially with regard to
unrealized gains immanent in transferred assets (i.e. hidden reserves). In order to do so,
first, economic guiding tax principles (neutrality and equity) in an ideal environment (e.g.
one country or one internal market) are elaborated and examined with regard to reorgani-
zations. Secondly, additional requirements in cross-border situations are elaborated (eco-
nomic principles, legal principles as well as administrative aspects). Based on these find-
ings, the currently applicable rules in the EU member states regarding the treatment of the

establishment and restructuring of SEs are compared and evaluated. The goal is to identify
the main deficits of the restructuring rules and develop reform options within the current
tax system. Third, within the context of the reform proposals of the European Commission
to establish a common tax base, the entry into and exit out of such a system as well as re-
structurings within the ongoing system shall be examined and critically analyzed. This
analysis serves to provide guidance on the treatment of such transactions in a new tax sys-
tem which is in line with the aforementioned principles.
For the purpose of the further analysis the ongoing taxation after the reorganization will
be disregarded as it is not immediately relevant for the question of taxing rights at estab-
lishment or restructuring. Furthermore, the decision whether to reorganize or not will
mainly be driven by impediments at the point of time of the reorganization. Finally,
changes to current taxation are caused by the fact that in most countries taxation is not
neutral towards legal forms. Thus, different rules apply depending on the legal form in
which the business takes place. These differences, however, do not originate from the re-
organization itself.
32
However, aspects which are directly connected to the reorganizations
- even if they affect the current taxation afterwards - are evaluated (e.g. loss carryover).


31
Gammie, 2004: 36. Cf. also Jacobs (ed.), 2007: 186.
32
Cf. Herzig, 1997: 3-4; Buchheim, 2001: 69. Regarding the effects which corporate tax systems may
have on the company and its shareholders after the reorganization see Herzig, 1999: 621-643. For ex-
ample, in case of a merger issues which result from the taxation of legally separate entities vanish as
only one legal entity survives. Cf. Wöhe, 1997: 223.
1 Introduction 7
1.3 Organization of the thesis
The thesis is organized as follows: Chapter 2 starts with a description of basic character-

istics of the Societas Europaea. In this context, statistical data on the SE is assessed with
regard to frequency and reasons for establishment among others. This shall show whether
or not the SE has been accepted by entrepreneurs up to now and provide reasons.
Then the focus shifts to taxes in different scenarios. In Chapter 3 ideal tax environments
for reorganizations are examined. Ideal tax environments may be defined as areas without
borders from a tax perspective. For the examinations, general guidelines for the taxation of
restructurings (neutrality and equity) are presented and put into more precise terms with
regard to such transactions. Then the principles are tested in ideal environments, thus in
areas with a uniform tax system as is the case in a domestic reorganization or could be the
case in an internal market as the European Union.
Chapter 4 analyzes the currently applicable tax rules in the 27 member states of the EU,
hence an area with borders from a tax perspective. In order to do so, in a first step, guide-
lines in such a scenario are evolved. Due to the cross-border situation, additional eco-
nomic, legal and administrative aspects need to be observed compared to Chapter 3. Im-
portant criteria commonly agreed on by economists and tax experts are international
efficiency and neutrality as well as international equity from the perspective of the com-
panies involved as well as of the countries involved. Moreover, restrictions arising for
transactions within the European Union due to EU law are analyzed, i.e. EC Treaty, EC
Directives, decisions by the European Court of Justice. Administrative aspects of taxation
are also taken into account. In a second step, the prevailing rules concerning cross-border
restructurings of SEs in the EU are described and compared. The analysis looks at the en-
try into an SE, the transfer of the registered office of an SE from one member state to an-
other member state and the exit out of an SE. With regard to the entry, the four options to
establish an SE are assessed: the merger, the foundation of a holding, the foundation of a
subsidiary and the conversion into an SE. As the Merger Directive serves as the basis for
most of the relevant transactions, it will be described up front as well as with the specific
cases. Furthermore, when examining the different cases, first, company law aspects are
briefly described. Next, the general tax rules will be discussed (mainly based on the
Merger Directive). As the Merger Directive is not directly applicable but needs to be
transposed into national law, finally, the current treatment in the member states is as-

8 1 Introduction
sessed. In a third step, the main deficits of the prevailing rules in the EU member states
with respect to cross-border restructurings (e.g. treatment of accrued hidden reserves, re-
tention of unused losses) are analyzed against the background of the guiding principles es-
tablished at the beginning of the chapter. Based on these findings, necessary changes to
the European Company Statute, the Merger Directive and/or national law are elaborated
for each issue.
After focusing on short-term options to improve the treatment of cross-border restruc-
turings, Chapter 5 deals with long-term proposals of the European Commission. In order
to establish an internal market within the European Union, also with regard to direct taxes,
it has been proposed to introduce a common tax base for companies doing business
throughout the EU. Accordingly, in this chapter the design of the new rules is addressed
and evaluated with respect to the treatment of cross-border restructurings. After elaborat-
ing the guiding tax principles for such a new environment, the chapter focuses on the two
scenarios which have been the focus of the work by the European Commission. These are
the Common Corporate Tax Base (CCTB) and the Common Consolidated Corporate Tax
Base (CCCTB).
33
In contrast to a Common Corporate Tax Base, which implies the intro-
duction of a uniform tax base throughout Europe, the Common Consolidated Corporate
Tax Base would further include a consolidation and apportionment mechanism.
34
For each
approach, the proposed design is outlined and critically assessed with regard to the treat-
ment of cross-border restructurings in order to form SEs or transfer the registered office of
SEs. This does not only cover issues regarding the facilitation of reorganizations and
transfers of the registered office in the ongoing system but also aspects regarding the entry
into and exit out of the proposed environment as - in order to change to such a new tax
system - transitional aspects are a major concern. In this context, options are presented and
evaluated based on the principles laid down at the beginning of the chapter.

The final chapter offers a summary of the main findings.


33
Cf. European Commission, COM(2003)726, COM(2005)532, COM(2006)157 and COM(2007)223.
34
Cf. European Commission, COM(2007)223.