Harmonized tax base ‘needs more work’

By Anna McLauchlin

Date: 14/10/04

THE new European Company Statute could stimulate the debate over creating a common EU tax base as the European Commission is considering how to allow registered companies to harmonize their tax rules.

"We are studying the possibility of a harmonized tax base for European companies but we need to do further work before we could consider such a project," said a Commission official. One of the main stumbling blocks is the issue of discrimination, whereby it would be difficult to allow European companies to use a common tax base but not companies established under national rules, the official said.

But one possibility might be a non-binding recommendation from the Commission under which member states could implement national rules allowing European companies to apply the same tax rules to their entire group, wherever based in the EU.

European employers federation UNICE, which will hold an exchange of views with businesses on the statute on Tuesday (19 October), says the lack of harmonized tax laws is one of its biggest drawbacks. "While there is no progress on the fiscal aspect, companies will think twice about registering," said Jérôme Chauvin, director for company affairs at UNICE.

EU finance ministers mooted Commission plans to create a common EU tax base at the last informal gathering in the Netherlands, but some member states are opposed to any harmonization which they claim is the first step in moving towards common rates.

The European Company Statute, or Societas Europeas (SE), came into force on 8 October after thirty years of planning. Member states can now set up a European company by converting an existing national company, creating a holding company or joint subsidiary, or merging companies located in at least two member states. The advantage is that using the same management and reporting system can reduce administration costs.

But only a handful of companies are considering the move. Sven Dumoulin, legal adviser to Unilever, said: "From the discussions I've had with market partners and legal and tax advisors, it's clear that the statute will be used if it makes life easier for a company. Either it will or it won't. If there is no tax benefit that might be a reason for companies to look at other options."

But he added that it is difficult to draw conclusions after only a few days. "We should see some activity now that the statute is actually in force," he said.

Another problem is that only six member states have actually implemented the law at national level, which Chauvin claims is partly because of implications for employee involvement. "I don't think it's lack of time, member states have had about three years to adopt this law," said Chauvin. "But the SE touches on a sensitive political issue."

Under the statute, member states have to allow both a one-tier and a two-tier board system in their corporate law, and a company registering as a European company has to agree on which will apply. The two-tier system, used particularly in Germany, usually means that employees have more say in company decisions.

The European Company Statute, which came into force on 8 October 2004 after thirty years of planning, could stimulate the debate over creating a common EU tax base as the European Commission is considering how to allow registered companies to harmonize their tax rules, author suggests.