Does the Merger Directive Violate EU Primary Law by Excluding EU Companies Having Their Place of Effective Management in a Third Country?

Abstract:

Confirmed by case law, the freedom of establishment (Articles 49, 54 TFEU) applies for companies formed in accordance with the law of a Member State and those having their registered office, central administration or principal place of business within the European Union. Thus, the company’s place of effective management (POM) itself and its location are irrelevant criteria for applying the freedom of establishment. Therefore, an EU company with a POM in a third State can generally rely on the freedom of establishment. Moreover, pursuant to the ECJ, cross-border mergers within the EU are also covered by the freedom of establishment (A OY, SEVIC Systems). However, Article 3(b) of the EU Merger Directive generally disallows a tax-neutral cross-border merger if the transferring or acquiring company has a POM outside the EU. In this article the author discusses whether Article 3(b) of the EU Merger Directive infringes the freedom of establishment by excluding EU companies with a POM in a third State from taking part in a tax-neutral cross-border merger. In this regard, a short overview of the Directive’s implementation in national tax law is given. On this basis, the article highlights general implications for the reorganization tax law in other Member States and other EU direct tax directives.