Cross border reorganizations in europe-have the tax and legal obstacles now been removed

Cross-Border Reorganizations in Europe: have the tax and legal obstacles now been removed?

MCB-Forum – Brussels

2 October 2012

Who are the speakers?

Mr. Juan Lopez Rodriguez, Senior Tax Policy Advisor of the Directorate General ‘TAXUD’, Unit Company Taxation Initiatives at the EU Commission

Mr. Ivo Vande Velde, Counsel at Tiberghien and co-editor of European Cross-Border Mergers and Reorganizations, Oxford University Press 2012

Mr. Jérôme Vermeylen, M&A partner at ALTIUS and co-editor of European Cross-Border Mergers and Reorganizations, Oxford University Press 2012

About ALTIUS | Tiberghien

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General Introduction

Corporate What are the possibilities and limitations in terms of cross-border

corporate reorganizations in Europe? Tax

What are the conditions for a tax-neutral reorganization? Which cross-border reorganizations could have adverse tax

consequences? Are the Belgian tax rules on cross-border reorganizations fully

compliant with the MTD and with primary EU law? EU developments

Interpretation issues relating to the MTD Recent developments relating to corporate migration

Corporate aspects

2/10/2012 5

Corporate – general overview: 4 topics

1. Can all EU/EEA (EU + Iceland, Norway and Liechtenstein) companies take part in a cross-border merger?

2. What are the main difficulties encountered in the context of a harmonized cross-border merger and how can they be tackled?

3. Can EU/EEA companies demerge across borders?

4. Can EU/EEA companies move their registered office and/or their head office across the EU/EEA?

Can all EU/EEA companies take part in a cross-border merger?

Cross-border mergers: which EU/EEA companies?

Harmonized cross-border mergers: governed by Directive 2005/56/EC (CBMD)

Type: all limited liability companies (Art. 2(1) CBMD)i.e. any company (i) with share capital and (ii) having legal

personality, (iii) possessing separate assets which alone serve to cover its debts and (iv) subject under national law to the same or similar rules as imposed under Directive 2009/101/EC (Publicity Directive), provided they:

are entitled to domestic mergers have the specific capacity to merge are formed according to the laws of an EU/EEA Member State

and have their registered office, central administration or principal

place of business in the EU/EEA

Cross-border mergers: which EU/EEA companies? (3)

Excluded companies (Art. 3(2) CBMD) Cooperative societies (optional for Member States) Undertakings for collective investment in transferable securities

(UCITS) Unclear: companies in liquidation

“Nationality”: not for purely domestic mergers! (Art. 1 CBMD) at least two of them governed by the laws of another Member

State in principle also if from the same Member State but newly

incorporated company in another Member State


BelCo

Before

BelCo

After

NewFrenchCo

Belgian branch

MERGER


Can non-limited liability and excluded companies merge? Cooperative societies: SCE Regulation UCITS: UCITS IV Directive Extension of harmonized cross-border merger procedure to non-

limited liability companies: up to the Member States Other companies (provided entitled to merge under domestic

law) : non-harmonized cross-border mergers under the freedom of establishment (SEVIC Systems)

Cross-border mergers: which Belgian companies?

Law of 8 June 2008 introducing Art. 772/1 to 772/14 BCC Extension of the scope: all companies entitled to a domestic

merger except UCITS, i.e.: Public limited liability companies (NV/SA) Private limited liability companies (BVBA/SPRL) Partnerships limited by shares (Comm.VA/SCA) Ordinary limited partnerships (Comm.V/SCS) General partnerships (VOF/SNC) Cooperative societies with or without limited liability (CVBA and

CVOA/SCRL and SCRI) Societas europea (SE) Societas cooperative europea (SCE)

Cross-border mergers: which Belgian companies? (2)

Not included: Companies without a legal personality Belgian and European economic interest groupings ((E)EIG) Agricultural companies UCITS

Companies in liquidation: provided distribution of assets to shareholders not started

Extension of scope: not limited to mergers with EU/EEA companies

Which companies: case studies

German GmbH

Comm.V/SCS

German law: only with other limited liability companies

Which companies: case studies (2)

Dutch B.V.

CVBA/SCRL

Dutch law: limited specific capacity to merge

Which companies: case studies (2)

SwissCo

NV/SA

Swiss law: cross border merger procedure

Belgian law: not limited to mergers with EU/EEA companies

Which companies: advice

Check first legal feasibility of the planned merger

A harmonized merger may become feasible after some changes are made (e.g. change of legal form)

Consider a non-harmonized merger but be aware of legal and practical difficulties

Main difficulties encountered in the context of a harmonized cross-border merger and

how to tackle them

2/10/2012 18

Harmonized mergers: overview of main issues

1. Employee participation procedure

2. Differences in procedures and timing

3. Languages and translations

4. Local courts and authorities

5. Duration and costs

Main issues: employee participation

Political solution coping with differences in involvement of employees through the EU

Principle: participation system of country of acquiring company BUT exceptions

If applicable: appointment of a special negotiating body (SNB) and negotiation procedure to reach an agreement on the participation of employees in the acquiring company

Complex procedure for appointing the SNB Negotiations during up to one year If applicable: often a “merger breaker”!

Main issues: differences in procedure / timing

Principle: each company applies its own national merger rules Similar rules and timing in most continental Europe countries Sweden:

Filing with the Companies Registration Office of common draft terms of merger, independent expert report, annual accounts and interim accounting statement at the same time

Approval of the merger by the general assembly Notice to the company’s known creditors (unless exception) Application for permission to implement the merger and

verification of legality by the Companies Registration Office The Companies Registration Office can ask the creditors if they

oppose the merger The Tax Agency can suspend the merger for up to 12 months

Main issues: differences in procedure / timing (2)

Hungary: one or two steps procedure First management report on the merger presented to a first

general assembly: decision to continue procedure, assessment who wants to remain a shareholder and instructions to the board

Board prepares common draft terms of merger, accounts, report, second management report and a proposal for the settling of accounts of departing shareholders

Second general meeting approving the merger No notary but application for registration of the merger by the

court of registration UK and Ireland: no notary, court scrutinizes the merger after

the approval by the general assembly

Main issues: differences in procedure / timing (3)

Advice: ensure good project management Clarify applicable procedure, requirements and timing in each

jurisdiction One global action plan including all companies and jurisdictions

involved with realistic timing and clear responsibilities Good and permanent communication between the lawyers of all

jurisdictions involved, the clients, the auditors and others

Main issues: languages and translations

Not harmonized at EU/EEA level; each Member State is free to apply its own rules

Usually local language must be used; some accept English documentation

Translations increase costs and timing

Advice: take translation timing and costs into account

Main issues: local courts and authorities

Cross-border merger often viewed as an exotic novelty

Interpretation issues and lack of established practice

Lack of consistency of implementation and interpretation, often even within the same jurisdiction

Red tape

Main issues: local courts and authorities (2)

Advice: start communicating with local courts and authorities early on regularly double-check their interpretations, requirements and

expectations be realistic about the timing and take delays into account

Main issues: duration and costs

It takes time.

If straightforward (no employee participation procedure and no employment, regulatory, competition or other issues): 6 months is realistic.

Costs include: lawyers, notaries, auditors, translators, filing and publication costs, internal resources

Can EU/EEA companies demerge across borders?

2/10/2012 28

Can EU companies demerge across borders?

No harmonization of cross-border divisions

Based on Sevic (CJEU case): yes provided this is a way for a company to exercise its right of establishment

Limitations: only for EU/EEA companies having their registered office,

central administration or principal place of business in the EU/EEA

only if entitled to a domestic division

Can EU companies demerge across borders? (2)

Generally not specifically organized by the law of Member States (exceptions: Luxembourg and Spain).

Vereinigungstheorie: distributive application by each company of domestic rules for domestic divisions and cumulative application of domestic rules (or strictest rule) if uniform treatment required

Can EU/EEA companies move their registered office and/or their head office across

the EU/EEA?

Can EU/EEA companies move across borders?General background

Issue: can companies “move across borders” without interruption of their legal personalities?

What does this mean? Head office = place of central administration or headquarters Registered office = primary or official establishment (statutes) Move across borders = inbound or outbound transfer Transfer of head office = no formality, a matter of fact Transfer of registered office = formal decision, involving a

change of legal system, i.e. cross-border conversion No interruption of legal personality: legal continuity

Can EU/EEA companies move across borders?General background (2)

What is a company’s “nationality”, i.e. lex societatis? National conflicts of law rules determine the connecting factors Two main systems: incorporation theory vs real seat theory Conflicting results

Case studies: Dutch company (incorporation theory state) moves its head

office to Belgium (real seat theory state) double nationality Belgian company (real seat theory state) moves its head office

to the UK (incorporation theory state) in principle stateless company (but exception to real seat theory in Art. 110(2) CPIL: renvoi)


Impact of the incorporation theory on the mobility of companies? no obstacle to inbound or outbound transfer of head office / real

seat; no impact of transfer on lex societatis no inbound or outbound transfer the registered office without

loss of legal personality; no change of the lex societatis


Impact of the real seat theory on the mobility of companies? no outbound transfer the head office / real seat without loss of

legal personality no inbound transfer the head office / real seat without loss of

legal personality inbound or outbound transfer of registered office not possible

without change of head office / real seat

Can EU/EEA companies move across borders?Impact of EU/EEA law

No harmonization of rules for the mobility of companies Exceptions: SEs, SCEs and EEIGs

No harmonization of connecting factors in EU/EEA: incorporation theory and real seat theory on the same footing (Art 54 TFEU)

BUT right to primary or secondary establishment in the EU/EEA (Art 49 and 54 TFEU) compatibility of national rules to be assessed

Can EU/EEA companies move across borders?Impact of EU/EEA law (2)

Direct or indirect restrictions to the right of establishment are prohibited except in the case of “general good exceptions” and under specific conditions (CJEU case law): only non-discriminatory restrictions serve over-riding public interest requirements suitable to attain the objectives not beyond what is necessary to reach objectives complies with secondary EU law (Regulations and Directives)

CJEU case law on the cross-border mobility of companies: Daily Mail, Centros, Inspire Art, Überseering, Cartesio and Vale Epitesi

Can EU/EEA companies move across borders?Inbound transfer of registered and head offices

Problematic under both theories

Hungarian law: no registration of cross-border transfer and conversion of Italian company into a Hungarian company

CJEU in VALE Epitesi case: freedom of establishment applies host Member State entitled to determine national law applicable

to conversion (incorporation and functioning) no general prohibition by host Member State to convert without

interruption of legal personality no discrimination compared to domestic conversion principle of effectiveness: take into account documents of

Member State of origin

Can EU/EEA companies move across borders?Inbound transfer of the head office but not the registered office

Problematic under the real seat theory, not under the incorporation theory

Danish authorities refused to register a branch office of an English Ltd: all activities of Centros Ltd to be exercised in Denmark only motive is to avoid stricter Danish requirements (e.g. capital)

CJEU in Centros case: freedom of establishment EU/EEA company may not be

prevented from opening a branch office in another Member State even if all activities are exercised by the branch office

Can EU/EEA companies move across borders?Inbound transfer of the head office but not the registered office (2)

Strict application of real seat theory under German law (meanwhile changed): Überseering moved its head office (not its registered office) from

the Netherlands to Germany German Court: no legal personality under German law not

entitled to legal proceedings in Germany

CJEU in Überseering case: freedom of establishment EU/EEA company may not be

prevented from opening its head office in another Member State Germany must recognize legal personality of foreign EU/EEA

companies despite its own connecting factors

Can EU/EEA companies move across borders?Inbound transfer of the head office but not the registered office (3)

Dutch law applies the incorporation theory BUT imposed substantive company law requirements on foreign

companies which moved their activities to the Netherlands

CJEU in Inspire Art case: Member State may not impose substantive company law

requirements on an EU/EEA company with a branch office even if the company has no longer any activities in its home Member State

Can EU/EEA companies move across borders?Inbound transfer of the registered office but not the head office


No CJEU case law BUT: Daily Mail and Cartesio cases: Member States have the power

to define the connecting factors real seat theory countries should be able to refuse less clear in relation to the incorporation theory but probably

same result does probably not qualify as the exercise of a right to a primary

or secondary establishment

Can EU/EEA companies move across borders?Outbound transfer of registered and head offices


CJEU in Cartesio case (obiter dictum): home Member State has not the right to refuse or hinder the

outbound transfer of both the head office and the registered office provided the law of the host Member State permits such transfer

Can EU/EEA companies move across borders?Outbound transfer of the head office but not the registered office

Problematic under the real seat theory, not under the incorporation theory

CJEU in Daily Mail and Cartesio cases: companies are creatures of national law and national law

determines the conditions for their existence and functioning neutrality of EU/EEA law regarding connecting factors

a real seat theory Member State may decide not to recognize the continued existence of a company governed by its laws and which broke the connecting factor by moving its head office abroad

Can EU/EEA companies move across borders?Outbound transfer of the registered office but not the head office


No CJEU case law BUT: Daily Mail and Cartesio cases: Member States have the power

to define the connecting factors real seat theory countries should be able to refuse less clear in relation to the incorporation theory but probably

same result does probably not qualify as the exercise of the right to a primary

or secondary establishment

Can Belgian companies move across borders?Inbound transfers

Inbound transfer of head and registered office accepted (Lamot case): procedure developed by legal scholars:

approval of transfer by competent organ of the foreign company meeting of shareholders before Belgian notary to approve Belgian

statutes filing of notarized deed and publication deregistration of company by authorities of member State of origin

CJEU case law: inbound transfer of head office recognized

Inbound transfer of registered office only: not authorized

Can Belgian companies move across borders?Outbound transfers

Outbound transfer of head and registered office accepted (Vanneste case): procedure developed by legal scholars:

general assembly before notary decides transfer according to requirements for a change of statutes

formalities performed by company in host Member State for transfer and registration

filing and publication of notarized deed and deregistration by Belgian authorities

Outbound transfer of head office company no longer recognized by Belgian law except if the host Member State follows the incorporation theory (renvoi; Art. 110(2) CPIL)

Outbound transfer of registered office only: not authorized

Can EU/EEA companies move across borders?What in practice?

Most countries: no national rules organizing this

High complexity and limited awareness despite CJEU cases reluctance of national authorities

Harmonization demanded by all legal scholars and practitioners

Draft 14th Directive: no progress since many years

Practical solution: reach same result through a (harmonized) cross-border merger

Tax aspects

2/10/2012 49

Tax - general overview: reorganization types

Outbound merger / division

Inbound merger / division

‘Extra-territorial’ reorganization – Transfer of a Belgian PE

Transfer of corporate seat

Outbound Cross-Border Merger / Division

Case 1: Base Case of outbound merger

FrenchCo

Before

BelCo

After

FrenchCo

Belgian PE

MERGER

Shareholders Shareholders

Case 1: Base Case of outbound merger (2)

General conditions for a tax-neutral cross-border merger/division (Art. 211 ITC): Qualification of the transaction as a merger / (partial) division

Company Code definitions prevail

Receiving company is a company from a Member State Only intra-EU

Anti-abuse test(tax avoidance versus valid commercial reasons)

Implementation in accordance with Company Code and similar company law requirements in the Member State of the receiving company

No provisions in Company Code on cross-border partial divisions

Case 1: Base Case of outbound merger (3)

What does ‘tax-neutrality’ mean? Roll-over relief for capital gains on assets that, in consequence

of the transaction, are effectively connected with a Belgian PE of the receiving company

Carry-over of tax-exempt reserves to the Belgian PE Take-over of carried-forward tax losses by the PE to the extent

that such take-over applies in a domestic reorganization Proportionate reduction of TLCF if the receiving company has a pre-

transaction PE in Belgium

No taxation in the hands of the shareholders Roll-over relief for capital gains (Art. 45, §1 ITC – Art. 95 ITC) No deemed distribution of assets; no dividend taxation; no dividend

withholding tax

Case 2: Assets not connected to a Belgian PE in consequence of the merger

Taxation of capital gains on assets transferred MTD: roll-over subject to PE requirement (Art. 4) National Grid Indus case (C-371/10)

(exit taxation - transfer of corporate seat):Based on Freedom of Establishment (Art. 49 TFEU):tax claim of exit Member State on unrealised capital gains may be preserved, but immediate recovery of tax is disproportionate.

Sevic Systems case (C-411/03): cross-border merger is a means of exercising the freedom of establishment

Commission’s Communication on exit taxation (19-12-2006): no reference to cross-border mergers

Is PE-requirement in the MTD disproportionate?

Case 2: Assets not connected to a Belgian PE in consequence of the merger (2)

Subsequent ‘disconnection’ of assets from the PE Capital gains recognised subsequently to the assets’

disconnection from the PE, are considered ‘realised’ No deemed liquidation – no dividend (withholding) tax issue?


Unutilized carried-forward tax losses MTD: take-over of losses by a PE in the Member State of the

transferring company, i.e. relief where the losses have been incurred (Art. 6)

Speculative idea: relief for residual ‘terminal’ losses in the Member State of the receiving company if (i) a take-over of losses is allowed in a domestic merger and (ii) the activities in the Member State of the transferring company are fully discontinued in the Member State of the transferring company?

‘Terminal’ losses: see Marks & Spencer case (C-446/03) Request for preliminary CJEU ruling by Finnish Supreme Court

(C-123/11) – Opinion Adv.-Gen. 19 July 2012: no requirement to give loss relief in Finland


Dividend withholding tax – taxation in the hands of the shareholders Under Belgian ITC: in principle dividend withholding tax liability

due to deemed liquidation (subject to exemption based on Parent/Subsidiary Directive or Tate & Lyle case – C-384/11)

Art. 8 MTD:“(…) the allotment of securities representing the capital of the receiving company in exchange for securities representing the capital of the transferring company shall not, of itself, give rise to any taxation of the income, profits or capital gains of that shareholder”

Under the MTD, shareholders’ relief is not subject to PE condition.


Dividend withholding tax – taxation in the hands of the shareholders (continued) Art. 7 MTD (Parent/Subsidiary merger):

“When the receiving company has a holding in the capital of the transferring company, any gains accruing to the receiving company on the cancellation of its holding shall not be liable to any taxation” (without any PE requirement)

Speculative idea: relevance of National Grid Indus case (C-371/10)? Tax claim of exit Member State on unrealized capital gains may be preserved, but immediate recovery of tax is disproportionate.

Also applicable for cross-border mergers (cfr. Sevic Systems )? Also preservation of tax claim and tax deferral on realized but

undistributed profits?

Case 3: Belgian transferring company has PE in other Member State

FrenchCo

Before

BelCo

After

FrenchCo

Belgian PE

MERGER


Dutch PE

Dutch PE

Case 3: Belgian transferring company has PE in other Member State (2)

Capital gains on assets of the PE No roll-over relief based on Art. 4 MTD (because not “effectively

connected to a Belgian PE subsequent to the merger”) Art. 10, § 1 MTD:

“Where the assets transferred in a merger include a PE of the transferring company situated in another Member State, the Member State of the transferring company shall renounce any right to tax that PE”

DTT exemption – impact of ‘subject-to-tax’ clause?Belgium-Netherlands DTT:“income items that, in accordance with the Treaty, are taxed in the Netherlands”(See Circular 11-05-2006 - Court of Appeal Antwerp 21-06-2011)(See Advance ruling 2011.438)


Recapture of PE tax losses ITC mechanism (Art. 206, §1 al 2)

Tax losses incurred in a PE in a DTT country that are deducted against Belgian profits

Claw-back in tax year when the tax losses are deducted from profits of the PE, or when the PE is transferred in a contribution, merger or (partial) division

Claw-back for the full amount of the tax losses Unconditional claw-back, i.e. also if the tax losses do not remain

available in the PE Member State Claw-back mechanism also (but unnecessarily) applies in a

domestic merger


Recapture of PE tax losses (continued) MTD

The Member State of the transferring company may reinstate previously deducted tax losses (unconditional claw-back) (Art. 10, §1 al 2)

The Member State of the PE must allow the take-over of the tax losses only to the extent that such take-over is allowed in a domestic transaction (Art. 10, §1 al 3 and Art. 6)

Potential double non-relief for the PE losses


Recapture of PE tax losses (continued) Compatible with primary EU law?

Marks & Spencer case (C-446/03): relief to be granted by the Member State of the parent company for ‘terminal’ losses incurred by a subsidiary in another Member State, i.e. “losses that cannot be taken into account in the Member State of the subsidiary either by the subsidiary itself or by a third party”.

Opinion Adv.-Gen. in case C-123/11

Krankenheim case (C-157/07) : the Member State of the head office is entitled to reintegrate previously deducted PE tax losses when the PE makes profits, even if the PE Member State does not allow the PE losses to be carried-forward and utilized against PE profits.The recapture mechanism is proportionate, because limited to the actual PE profits.


Dividend withholding tax – taxation in the hands of the shareholders Under Belgian ITC: in principle dividend withholding tax liability due

to deemed partial liquidation (deemed distribution of PE assets) - subject to exemption based on Parent/Subsidiary Directive or Tate & Lyle case (C-384/11)

Art. 8 MTD:“the allotment of securities representing the capital of the receiving company in exchange for securities representing the capital of the transferring company shall not, of itself, give rise to any taxation of the income, profits or capital gains of that shareholder”

Under the MTD, shareholders’ relief is not subject to PE condition.

Inbound Cross-Border Merger / Division

Case 4: Inbound Parent/Subsidiary merger

BelCo

Before

GermanCo

After

BelCo

GermanPE

MERGER

Case 4: Inbound Parent/Subsidiary merger (2)

Capital gain on cancellation of shareholding in Subsidiary Art. 7 MTD:

“When the receiving company has a holding in the capital of the transferring company, any gains accruing to the receiving company on the cancellation of its holding shall not be liable to any taxation” (without any PE requirement)

ITC mechanism Participation exemption (DBI/RDT)

(Tax-neutral and taxable mergers) No 10% participation threshold or 1-year holding requirement

provided the merger is tax-neutral and the transferring company is resident in the EEA (Law 14 April 2011)


Capital gain on cancellation of shareholding in Subsidiary ITC mechanism (continued)

Exemption rate: – 100% if the merger is tax-neutral and the transferring company is

resident in the EU– 95% if the merger is not tax-neutral– ‘tax-neutral’ versus ‘taxable’ test in Member State of Subsidiary?– 95% if the transferring company is outside the EU

Basis for 5% taxation: book value or fair market value of assets transferred?

– Book value (Art. 184ter, §2, al 1 ITC: “Capital gains on the acquired assets are determined on the basis of their book value at the date of the merger”)?

– Independent of ‘’tax-neutral’ versus ‘taxable’ status of the merger?(cfr Art. 210, §2 ITC for domestic mergers)


Capital gain on cancellation of shareholding in Subsidiary ITC mechanism (continued)

Excess participation exemption (e.g. Parent company in loss position)

– no carry-forward under ITC (Art. 205, §3)– Inconsistent with Art. 7 MTD

(cf Cobelfret case relating to Parent/Subsidiary Directive – C-138/07)

‘Extra-territorial’ reorganization Transfer of Belgian PE

Case 5a: ‘Extra-territorial’ hive-down involving contribution of Belgian PE (or PE assets)

GermanCo

Before

DutchCo

After

GermanCo

Belgian PE

ASSET CONTRIBUTION


Belgian PE

DutchCo

Case 5b: ‘Extra-territorial’ partial division involving spin-off of Belgian PE (or PE assets)

GermanCo

Before

DutchCo

After

GermanCo

Belgian PE

PARTIAL DIVISION


Belgian PE

DutchCo

‘Extra-territorial’ reorganization involving transfer of a Belgian PE (or PE assets) (3)

Art. 10 MTD “Where the assets transferred in a merger, a division, a partial

division or a transfer of assets include a PE of the transferring company which is situated in another Member State than that of the transferring company”…

…”the Member State of the PE shall apply the provisions of this Directive as if it were the Member State of the transferring company”:

Roll-over relief for capital gains on PE assets Carry-over of tax-exempt reserves of the PE Take-over of carried-forward tax losses of the PE.


Conditions under Belgian ITC (Art. 231, §2) Merger, (partial) division or transfer of branch of activity or

universality of goods Definitions in Company Code prevail (in principle)

(definition of ‘partial division’ is broader than under the MTD)

Both the transferring and the receiving company qualify as a ‘company from a Member State’

What if the transferring and the receiving companies are resident in the same Member State?

A Belgian PE or assets located in Belgium are part of the assets transferred

Also part / division of a PE? (broader than scope of MTD rule)


Conditions under Belgian ITC (Art. 231, §2) (continued) Transaction qualifying, in the Member State of the transferring

company, for the tax exemption provided by the MTD (Art. 10, §1 al 1)

Anti-abuse test(tax avoidance versus valid commercial reasons)

‘Branch of activity’ test for (a) the assets transferred and (b) the assets remaining in the transferring company?

Take-over of carried-forward tax losses of the Belgian PE Proportionately to ‘fiscal net value’ (Art. 240bis, §1, 2° ITC) Same effects for hive-down and partial division? Limitation of TLCF if receiving company has pre-transaction PE Interpretation issues for ‘construction PE’

Transfer of corporate seat

Case 6: Outbound transfer of corporate seat

Before

BelCo

After


LuxCo


TRANSFER OF SEAT

Case 6: Outbound transfer of corporate seat (2)

Belgian ITC Liquidation rules apply at corporate level (Art. 210, §1, 4°) But arguably no withholding tax in the absence of any

“distribution” (Article 18, 2°ter) or “payment/attribution” of income (Art. 267)

Liquidation rules do not apply to intra-EU transfers to the extent that the assets remain connected to a Belgian PE (Art. 214bis)

Upon subsequent ‘disconnection’ of assets from the PE: capital gains on disconnected assets are deemed realized, but no withholding tax issue?

MTD Only transfer of seat by SE (SCE) is covered.

Case 6: Outbound transfer of corporate seat (3)

Primary EU law: National Grid Indus case (C-371/10)

“The transfer of the place of effective management from one Member State to another cannot mean that the Member State of origin has to abandon its right to tax a capital gain which arose within the ambit of its powers of taxation before the transfer” (principle of balanced allocation of powers of taxation), but

“The freedom of establishment principle precludes legislation which prescribes the immediate recovery of tax on unrealized capital gains”

Same principles for undistributed profits?

Jérôme Vermeylen

Tel: +32 2 426 14 [email protected]

Ivo Vande Velde

Tel: +32 2 773 40 [email protected]

Questions ?

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Cross border reorganizations in europe-have the tax and legal obstacles now been removed