1 Transfer of seat, crossborder conversion of companies and exit taxes Dr. Jan van de Streek University of Amsterdam

Introduction University of Amsterdam PhD 2008 on conversion of companies Ernst & Young Netherlands Amsterdam 2

Agenda Landmark judgements company law Landmark judgements exit tax individuals Amendments Merger Directive Communication EC exit taxes Impact Assessment transfer seat Communication Council Infringement proceedings Pending Dutch Case Transfer seat in CCCTB

Daily Mail vs. UK Treasury ECJ 2 july 1988, 81/87 4

Daily Mail 1988 Dispute = UK Treasury approval for transfer of head office ECJ –(1) Freedom of establishment has two dimensions –(2) Companies are creatures of law –(3) Transfer of real/formal seat falls outside the scope of the EC-treaty –(4) EC-treaty gives no right to transfer real seat while continuation of legal capacity

The big problem with Daily Mail for two decades ( ) Szudoczky (INTERTAX, 2009) –‘The fact that Daily Mail has was decided on a wrong basis has been expressed by numerous academics and commentators’ –The Daily Mail-case is ‘rather conspicuous’ –Daily Mail would not lose its legal personality under UK law due to transfer of real seat The Court acknowledges this in par. 3! 6

Is Daily Mail still a live or obsolete? Degree of intergration of the internal market requires more corporate mobility Case law on the freedom of establisment has developed significantly since 1998 Art. 293 EC-treaty is repealed by the Treaty of Lisbon However, MS company law regadering connecting factor has not changed… 7

Überseering BV vs. NCC GmbH ECJ 5 november 2002, C-208/00

Überseering 2002 Dispute = refusal by Zivilprozessordnung of legal capacity Dutch BV necessary to sue NCC ECJ –(1) Daily Mail concerned relations between MS of origin and transferring company –(2) This cases concerns the recognition of a (transferred) company by the host state, and falls not outside the scope of the EC-treaty –(3) The non-recognition = restriction –(4) Rule of reason cannot justify non-recognition 9

Sevic Systems AG ECJ 13 december 2005, C-411/03

Sevic 2005 Dispute = refusal by the Umwandlungsgesetz to registrate the merger in the commercial register ECJ –(1) Cross border mergers are – like other reorganizations – particular methods of exercise of the freedom of establishment –(2) Different treatment cross border mergers vs. internal mergers = restriction Merger at issue (i.e. upstream parent-sub-merger) = effective ‘tool’ to continue a activity in a new form without liquidation

Hughes de Lasteyrie (2004) & N (2006 )

Amendments Merger Directive 2006 As from January 1st 2006 rules for transfer registerd office SE/SCE –Chapter V, art Merger Directive –Art. 12: art. 4-appraoch, i.c. no taxation assets connected with remaining PE Transfer of registerd office SE requiers also transfer of real seat (art. 7/8 SE-statute) Why not other companies, but only SE’s/SCE’s? 13

Communication EC 2006 COM(2006)825 Lasteyrie & N have ‘direct implications for exit taxes on companies’ –EC mentions different types of exit taxes, but not the transfer of the real seat of regular companies and Daily Mail –The amendments Fiscal Merger Directive ‘are silent to assets which do not remain connected to a PE ’ Lasteyrie & N apply to those assets (!) Extra guidelines tot avoid ‘mismatches ’

Impact assessment 2007 Directive cross border conversion History 14 th corporate law directive on transfer of company seat –1997: Proposal, bridge-function between connecting factors, for instance real seat transfer with change applicable company law –2004: Consultation; result = transfer of formal and real seat are different problems Impact assessment 2007 –Transfer of real seat is already possible (?!) –Transfer of formal seat is not possible, but EC will wait… 2012?

EC 2007: Transfer of seat excluding influence of EC-law 16

EC 2007: Transfer of seat including the influence of EC-law 17

Cartesio ECJ 16 december 2008, C-210/06

Cartesio 2008 Dispute = refusal to amend real seat in Hungarian commercial register ECJ –(1) The question whether art. 43 EC applies to a company is a preliminary question, which can only be solved by the applicable national law (109) –(2) A restriction can only first arise if a company has the right to the freedom of establishment (109) –(3) However, this is different for a cross border conversion of the company (111) – (4) SEVIC is similar to Übereersing (122)

Questions after Cartesio Is the Cartesio ‘cross border conversion’ also applicable to transfer of registered office? –Eric Kemmeren: NO / Dutch civil practice: YES Is a cross border conversion also possible if only the exit state permits it? – See VALE Has a company a choice between Überseering and Cartesio? –Jaap Bellingwout: YES Tax effects? –Retention of legal personality = retention of tax liability, so no exit tax 20

Pending case VALE Építési Kft. (C-378/10) 21

Communication Council 2008 (p. 993 Weber) (Disappointing) reaction on COM(2006)825 Guiding principles are political comment –Implementation is left to MS’s decision –Transfer of seat of a company is mentioned (A.1) Guideline C refers to unrealised gains on assets: –When the exit state reserves the option to tax unrealised gains, the host state takes the market value

Infringement proceedings exit tax on companies Spain –referred to CJ Oktober Portugal – referred to CJ Oktober Denmark – referred to CJ November Netherlands – referred to CJ November Belgium – formal request EC March Sweden - closed 23

Supreme Court Sweden (Regeringsrätten) 24 April

Pending Dutch Case National Grid Indus BV, C-371/10 25

Transfer of real seat in the CCCTB? 26 Consolidated Group