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 – Brussels2 October 2012
Who are the speakers?Mr. Juan Lopez Rodriguez, Senior Tax Policy Advisor of theDirectorate General ‘TAXUD’, Unit Company Taxation Initiativesat the EU CommissionMr. Ivo Vande Velde, Counsel at Tiberghien and co-editor ofEuropean Cross-Border Mergers and Reorganizations, OxfordUniversity Press 2012Mr. Jérôme Vermeylen, M&A partner at ALTIUS and co-editorof European Cross-Border Mergers and Reorganizations, OxfordUniversity Press 2012
About ALTIUS | Tiberghien One team of 110 tax and business lawyers of 2 top firms thathave an operational relationship and provide seamlesslegal and tax services to clients Partner-led approach towards client service and relationships Best Benelux Law Firm of 2012 (International Legal AllianceSummit Awards) Experienced in cross-border work: often praised for its international approach to problem-solving that takesinto account global issues within a local market context Shared offices in Brussels, Antwerp and Luxembourg
General Introduction Corporate What are the possibilities and limitations in terms of cross-bordercorporate reorganizations in Europe? Tax What are the conditions for a tax-neutral reorganization? Which cross-border reorganizations could have adverse taxconsequences? Are the Belgian tax rules on cross-border reorganizations fullycompliant with the MTD and with primary EU law? EU developments Interpretation issues relating to the MTD Recent developments relating to corporate migration
Corporate – general overview: 4 topics1. 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 aharmonized cross-border merger and how can they betackled?3. Can EU/EEA companies demerge across borders?4. Can EU/EEA companies move their registered office and/ortheir head office across the EU/EEA?
Can all EU/EEA companies take part ina cross-border merger?
Cross-border mergers: which EU/EEA companies? Harmonized cross-border mergers: governed by Directive2005/56/EC (CBMD) Type: all limited liability companies (Art. 2(1) CBMD)i.e. any company (i) with share capital and (ii) having legalpersonality, (iii) possessing separate assets which alone serveto cover its debts and (iv) subject under national law to thesame 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 Stateand have their registered office, central administration or principalplace 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 MemberState in principle also if from the same Member State but newlyincorporated company in another Member State
Cross-border mergers: which EU/EEA companies?(2)BelCoBeforeBelCoAfterNewFrenchCoBelgianbranchMERGER
Cross-border mergers: which EU/EEA companies?(5) 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 domesticlaw) : non-harmonized cross-border mergers under the freedomof 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 domesticmerger 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 andCVOA/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 toshareholders not started Extension of scope: not limited to mergers with EU/EEAcompanies
Which companies: case studiesGermanGmbHComm.V/SCSGerman law: only with other limited liabilitycompanies
Which companies: case studies (2)Dutch B.V.CVBA/SCRLDutch law: limited specific capacity to merge
Which companies: case studies (2)SwissCoNV/SASwiss law: cross border merger procedureBelgian law: not limited to mergers withEU/EEA companies
Which companies: advice Check first legal feasibility of the planned merger A harmonized merger may become feasible after somechanges are made (e.g. change of legal form) Consider a non-harmonized merger but be aware of legal andpractical difficulties
Main difficulties encountered in the context ofa harmonized cross-border merger andhow to tackle them2/10/2012 18
Harmonized mergers: overview of main issues1. Employee participation procedure2. Differences in procedures and timing3. Languages and translations4. Local courts and authorities5. Duration and costs
Main issues: employee participation Political solution coping with differences in involvement ofemployees through the EU Principle: participation system of country of acquiringcompany BUT exceptions If applicable: appointment of a special negotiating body (SNB)and negotiation procedure to reach an agreement on theparticipation 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 draftterms of merger, independent expert report, annual accountsand 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 andverification of legality by the Companies Registration Office The Companies Registration Office can ask the creditors if theyoppose 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 firstgeneral assembly: decision to continue procedure, assessmentwho 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 ofaccounts of departing shareholders Second general meeting approving the merger No notary but application for registration of the merger by thecourt of registration UK and Ireland: no notary, court scrutinizes the merger afterthe approval by the general assembly
Main issues: differences in procedure / timing (3) Advice: ensure good project management Clarify applicable procedure, requirements and timing in eachjurisdiction One global action plan including all companies and jurisdictionsinvolved with realistic timing and clear responsibilities Good and permanent communication between the lawyers of alljurisdictions involved, the clients, the auditors and others
Main issues: languages and translations Not harmonized at EU/EEA level; each Member State is freeto apply its own rules Usually local language must be used; some accept Englishdocumentation 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 andexpectations be realistic about the timing and take delays into account
Main issues: duration and costs It takes time. If straightforward (no employee participation procedure andno employment, regulatory, competition or other issues): 6months is realistic. Costs include: lawyers, notaries, auditors, translators, filingand publication costs, internal resources
Can EU/EEA companies demergeacross 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 acompany to exercise its right of establishment Limitations: only for EU/EEA companies having their registered office,central administration or principal place of business in theEU/EEA only if entitled to a domestic division
Can EU companies demerge across borders? (2) Generally not specifically organized by the law of MemberStates (exceptions: Luxembourg and Spain). Vereinigungstheorie: distributive application by each companyof domestic rules for domestic divisions and cumulativeapplication of domestic rules (or strictest rule) if uniformtreatment required
Can EU/EEA companies move theirregistered office and/or their head office acrossthe EU/EEA?
Can EU/EEA companies move across borders?General background Issue: can companies “move across borders” withoutinterruption 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 achange 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 headoffice to Belgium (real seat theory state) double nationality Belgian company (real seat theory state) moves its head officeto the UK (incorporation theory state) in principle statelesscompany (but exception to real seat theory in Art. 110(2) CPIL:renvoi)
Can EU/EEA companies move across borders?General background (3) Impact of the incorporation theory on the mobility ofcompanies? no obstacle to inbound or outbound transfer of head office / realseat; no impact of transfer on lex societatis no inbound or outbound transfer the registered office withoutloss of legal personality; no change of the lex societatis
Can EU/EEA companies move across borders?General background (4) Impact of the real seat theory on the mobility of companies? no outbound transfer the head office / real seat without loss oflegal personality no inbound transfer the head office / real seat without loss oflegal personality inbound or outbound transfer of registered office not possiblewithout 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 companiesExceptions: 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 theEU/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 areprohibited 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 andVale 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 andconversion of Italian company into a Hungarian company CJEU in VALE Epitesi case: freedom of establishment applies host Member State entitled to determine national law applicableto conversion (incorporation and functioning) no general prohibition by host Member State to convert withoutinterruption of legal personality no discrimination compared to domestic conversion principle of effectiveness: take into account documents ofMember State of origin
Can EU/EEA companies move across borders?Inbound transfer of the head office but not theregistered office Problematic under the real seat theory, not under theincorporation theory Danish authorities refused to register a branch office of anEnglish 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 beprevented from opening a branch office in another Member Stateeven if all activities are exercised by the branch office
Can EU/EEA companies move across borders?Inbound transfer of the head office but not theregistered office (2) Strict application of real seat theory under German law(meanwhile changed): Überseering moved its head office (not its registered office) fromthe Netherlands to Germany German Court: no legal personality under German law notentitled to legal proceedings in Germany CJEU in Überseering case: freedom of establishment EU/EEA company may not beprevented from opening its head office in another Member State Germany must recognize legal personality of foreign EU/EEAcompanies despite its own connecting factors
Can EU/EEA companies move across borders?Inbound transfer of the head office but not theregistered office (3) Dutch law applies the incorporation theory BUT imposed substantive company law requirements on foreigncompanies which moved their activities to the Netherlands CJEU in Inspire Art case: Member State may not impose substantive company lawrequirements on an EU/EEA company with a branch office evenif the company has no longer any activities in its home MemberState
Can EU/EEA companies move across borders?Inbound transfer of the registered office but notthe head office Problematic under both theories No CJEU case law BUT: Daily Mail and Cartesio cases: Member States have the power todefine the connecting factorsreal seat theory countries should be able to refuseless clear in relation to the incorporation theory but probablysame result does probably not qualify as the exercise of a right to a primaryor secondary establishment
Can EU/EEA companies move across borders?Outbound transfer of registered and head offices Problematic under both theories CJEU in Cartesio case (obiter dictum): home Member State has not the right to refuse or hinder theoutbound transfer of both the head office and the registeredoffice provided the law of the host Member State permits suchtransfer
Can EU/EEA companies move across borders?Outbound transfer of the head office but not theregistered office Problematic under the real seat theory, not under theincorporation theory CJEU in Daily Mail and Cartesio cases: companies are creatures of national law and national lawdetermines 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 recognizethe continued existence of a company governed by its laws andwhich broke the connecting factor by moving its head officeabroad
Can EU/EEA companies move across borders?Outbound transfer of the registered office but notthe head office Problematic under both theories No CJEU case law BUT: Daily Mail and Cartesio cases: Member States have the power todefine the connecting factorsreal seat theory countries should be able to refuseless clear in relation to the incorporation theory but probablysame result does probably not qualify as the exercise of the right to a primaryor 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 Belgianstatutes 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 torequirements for a change of statutes formalities performed by company in host Member State for transferand registration filing and publication of notarized deed and deregistration by Belgianauthorities Outbound transfer of head office company no longerrecognized by Belgian law except if the host Member Statefollows 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 andpractitioners Draft 14thDirective: no progress since many years Practical solution: reach same result through a (harmonized)cross-border merger
Case 1: Base Case of outbound mergerFrenchCoBeforeBelCoAfterFrenchCoBelgianPEMERGERShareholders Shareholders
Case 1: Base Case of outbound merger (2) General conditions for a tax-neutral cross-bordermerger/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 similarcompany law requirements in the Member State of the receivingcompany 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 consequenceof the transaction, are effectively connected with a Belgian PE ofthe receiving company Carry-over of tax-exempt reserves to the Belgian PE Take-over of carried-forward tax losses by the PE to the extentthat 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 dividendwithholding tax
Case 2: Assets not connected to a Belgian PEin 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 maybe preserved, but immediate recovery of tax is disproportionate. Sevic Systems case (C-411/03): cross-border merger is ameans 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 PEin 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?
Case 2: Assets not connected to a Belgian PEin consequence of the merger (3) Unutilized carried-forward tax losses MTD: take-over of losses by a PE in the Member State of thetransferring company, i.e. relief where the losses have beenincurred (Art. 6) Speculative idea: relief for residual ‘terminal’ losses in theMember State of the receiving company if (i) a take-over oflosses is allowed in a domestic merger and (ii) the activities inthe Member State of the transferring company are fullydiscontinued 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 togive loss relief in Finland
Case 2: Assets not connected to a Belgian PEin consequence of the merger (4) Dividend withholding tax – taxation in the hands of theshareholders Under Belgian ITC: in principle dividend withholding tax liabilitydue to deemed liquidation (subject to exemption based onParent/Subsidiary Directive or Tate & Lyle case – C-384/11) Art. 8 MTD:“(…) the allotment of securities representing the capital of thereceiving company in exchange for securities representing thecapital of the transferring company shall not, of itself, give rise toany taxation of the income, profits or capital gains of thatshareholder”Under the MTD, shareholders’ relief is not subject to PEcondition.
Case 2: Assets not connected to a Belgian PEin consequence of the merger (5) Dividend withholding tax – taxation in the hands of theshareholders (continued) Art. 7 MTD (Parent/Subsidiary merger):“When the receiving company has a holding in the capital of thetransferring company, any gains accruing to the receivingcompany on the cancellation of its holding shall not be liable toany taxation” (without any PE requirement) Speculative idea: relevance of National Grid Indus case(C-371/10)? Tax claim of exit Member State on unrealizedcapital gains may be preserved, but immediate recovery of tax isdisproportionate. Also applicable for cross-border mergers (cfr. Sevic Systems )? Also preservation of tax claim and tax deferral on realized butundistributed profits?
Case 3: Belgian transferring company has PEin other Member StateFrenchCoBeforeBelCoAfterFrenchCoBelgianPEMERGERShareholders ShareholdersDutchPEDutchPE
Case 3: Belgian transferring company has PEin other Member State (2) Capital gains on assets of the PE No roll-over relief based on Art. 4 MTD (because not “effectivelyconnected to a Belgian PE subsequent to the merger”) Art. 10, § 1 MTD:“Where the assets transferred in a merger include a PE of thetransferring company situated in another Member State, theMember State of the transferring company shall renounce anyright 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 inthe Netherlands”(See Circular 11-05-2006 - Court of Appeal Antwerp 21-06-2011)(See Advance ruling 2011.438)
Case 3: Belgian transferring company has PEin other Member State (3) Recapture of PE tax losses ITC mechanism (Art. 206, §1 al 2) Tax losses incurred in a PE in a DTT country that are deductedagainst Belgian profits Claw-back in tax year when the tax losses are deducted from profitsof 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 remainavailable in the PE Member State Claw-back mechanism also (but unnecessarily) applies in adomestic merger
Case 3: Belgian transferring company has PEin other Member State (4) Recapture of PE tax losses (continued) MTD The Member State of the transferring company may reinstatepreviously deducted tax losses (unconditional claw-back) (Art. 10,§1 al 2) The Member State of the PE must allow the take-over of the taxlosses only to the extent that such take-over is allowed in adomestic transaction (Art. 10, §1 al 3 and Art. 6) Potential double non-relief for the PE losses
Case 3: Belgian transferring company has PEin other Member State (5) Recapture of PE tax losses (continued) Compatible with primary EU law? Marks & Spencer case (C-446/03): relief to be granted by theMember State of the parent company for ‘terminal’ losses incurredby a subsidiary in another Member State, i.e. “losses that cannot betaken into account in the Member State of the subsidiary either bythe 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 officeis entitled to reintegrate previously deducted PE tax losses when thePE makes profits, even if the PE Member State does not allow thePE losses to be carried-forward and utilized against PE profits.The recapture mechanism is proportionate, because limited to theactual PE profits.
Case 3: Belgian transferring company has PEin other Member State (6) Dividend withholding tax – taxation in the hands of theshareholders Under Belgian ITC: in principle dividend withholding tax liabilitydue to deemed partial liquidation (deemed distribution of PEassets) - subject to exemption based on Parent/SubsidiaryDirective or Tate & Lyle case (C-384/11) Art. 8 MTD:“the allotment of securities representing the capital of thereceiving company in exchange for securities representing thecapital of the transferring company shall not, of itself, give rise toany taxation of the income, profits or capital gains of thatshareholder”Under the MTD, shareholders’ relief is not subject to PEcondition.
Case 4: Inbound Parent/Subsidiary mergerBelCoBeforeGermanCoAfterBelCoGermanPEMERGER
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 thetransferring company, any gains accruing to the receivingcompany on the cancellation of its holding shall not be liable toany taxation” (without any PE requirement) ITC mechanism Participation exemption (DBI/RDT)(Tax-neutral and taxable mergers) No 10% participation threshold or 1-year holding requirementprovided the merger is tax-neutral and the transferring company isresident in the EEA (Law 14 April 2011)
Case 4: Inbound Parent/Subsidiary merger (3) Capital gain on cancellation of shareholding in Subsidiary ITC mechanism (continued) Exemption rate:– 100% if the merger is tax-neutral and the transferring company isresident 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 assetstransferred?– Book value (Art. 184ter, §2, al 1 ITC: “Capital gains on the acquiredassets are determined on the basis of their book value at the date ofthe merger”)?– Independent of ‘’tax-neutral’ versus ‘taxable’ status of the merger?(cfr Art. 210, §2 ITC for domestic mergers)
Case 4: Inbound Parent/Subsidiary merger (4) 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’ reorganizationTransfer of Belgian PE
Case 5a: ‘Extra-territorial’ hive-down involvingcontribution of Belgian PE (or PE assets)GermanCoBeforeDutchCoAfterGermanCoBelgianPEASSET CONTRIBUTIONShareholders ShareholdersBelgianPEDutchCo
Case 5b: ‘Extra-territorial’ partial divisioninvolving spin-off of Belgian PE (or PE assets)GermanCoBeforeDutchCoAfterGermanCoBelgianPEPARTIAL DIVISIONShareholders ShareholdersBelgianPEDutchCo
‘Extra-territorial’ reorganization involvingtransfer of a Belgian PE (or PE assets) (3) Art. 10 MTD “Where the assets transferred in a merger, a division, a partialdivision or a transfer of assets include a PE of the transferringcompany which is situated in another Member State than that ofthe transferring company”… …”the Member State of the PE shall apply the provisions of thisDirective as if it were the Member State of the transferringcompany”: 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.
‘Extra-territorial’ reorganization involvingtransfer of a Belgian PE (or PE assets) (4) Conditions under Belgian ITC (Art. 231, §2) Merger, (partial) division or transfer of branch of activity oruniversality 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 inthe same Member State? A Belgian PE or assets located in Belgium are part of the assetstransferred Also part / division of a PE? (broader than scope of MTD rule)
‘Extra-territorial’ reorganization involvingtransfer of a Belgian PE (or PE assets) (5) Conditions under Belgian ITC (Art. 231, §2) (continued) Transaction qualifying, in the Member State of the transferringcompany, 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’
Case 6: Outbound transfer of corporate seatBeforeBelCoAfterShareholders ShareholdersLuxCoShareholders ShareholdersTRANSFER 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 extentthat the assets remain connected to a Belgian PE (Art. 214bis) Upon subsequent ‘disconnection’ of assets from the PE: capitalgains on disconnected assets are deemed realized, but nowithholding 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 oneMember State to another cannot mean that the Member Stateof origin has to abandon its right to tax a capital gain whicharose within the ambit of its powers of taxation before thetransfer” (principle of balanced allocation of powers oftaxation), but“The freedom of establishment principle precludes legislationwhich prescribes the immediate recovery of tax on unrealizedcapital gains”Same principles for undistributed profits?