EC Publishes Study On Merger Directive

by Ulrika Lomas, Tax-News.com, Brussels

23 January 2009

The European Commission has published a study which provides a comprehensive overview of the implementation of the Tax Merger Directive in the 27 European Union member states.

The purpose of the survey, which was conducted by Ernst and Young, is to enable the Commission to assess the need for further EU-wide action in this area.

The main finding of the survey is that most member states have correctly transposed the Tax Merger Directive, but it has been under-utilised due to the fact that the corporate law allowing cross border mergers has not been in place in many countries until fairly recently.

The Commission says that this situation may change with the implementation of Directive 2005/56/EC on cross-border mergers of limited liability companies.

The common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different member states was adopted by the European Council on July 23, 1990 as Directive 90/434/EEC.

Broadly, the aim of the Merger Directive is to create within the Community conditions analogous to those of an internal market and remove restrictions, disadvantages or distortions arising from the existing tax provisions which disadvantage reorganisations of companies where companies of two or more member states are involved. This objective is attained by creating a system which allows deferring the taxation of income, profits and capital gains where the businesses are reorganized, provided that certain conditions are met.

The Merger Directive has been amended four times since its adoption. In 1994, 2003 and 2006 the Merger Directive was amended because new member states joined the EU. In 2005, material provisions of the Merger Directive were changed to expand its scope.

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