EC Updates Tax Deferral Rules In Mergers Directive

by Ulrika Lomas, for LawAndTax-News.com, Brussels

21 February 2005

The European Commission on Thursday announced the adoption by the EU's Council of Finance Ministers of a proposal to amend the EU Directive that provides for tax deferral in the case of cross-border mergers and divisions of companies, transfers of assets and exchanges of shares.

The amendment, based on a proposal made by the Commission in October 2003, is intended to: broaden the existing Directive's scope to cover a larger range of companies including the European Company and the European Co-operative Society; provide for a new tax-neutral regime for the transfer of the registered office of a European Company or of a European Cooperative Society between Member States; clarify that the Directive applies in the case of the conversion of branches into subsidiaries; and cover a new type of operation, known as a 'partial division' or 'split-off'.

"I welcome the decision of the Council to adopt this Directive that will extend to a much larger range of companies a set of tax rules that facilitate cross-border corporate re-structuring," Taxation and Customs Commissioner László Kovács announced last week, continuing:

"Despite some compromises that had to be made in order to achieve agreement, this Directive is an important step forward in our endeavours to remove the tax obstacles that companies currently encounter when exercising their freedom to operate across borders within the Internal Market".

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