In the April 2001 issue of IFLR we reported that political agreement was reached by the EU's Council of Ministers to establish the European Company Statute and the related directive on worker participation in European companies. We can now report that, on October 8 2001, the EU Employment and Social Policy Council adopted the regulation establishing the European Company Statute and the accompanying directive. The directive and regulation will come into force on October 8 2004.
Arguably, the major remaining obstacles to widespread adoption of the European Company as a business entity are uncertainties relating to taxation. In October, the European Commission also unveiled its company taxation strategy. The Commission proposed:
- extending the scope of Council Parent-Subsidiary Directive (90/435) on dividends and the Merger Directive (90/434) in order to cover direct taxes on cross-border company restructuring and companies that will be covered by the European Company Statute in 2004;
- reformulating the Directive on cross-border tax relief which has been held at Council level since 1990. The Commission will consult member states in 2002 with a view to publishing its legislative intentions in 2003. It is planning to either calculate losses according to the legislation of the state where the parent company is based, or work on the basis of the Danish system for taxing a company's worldwide consolidated profit/loss in order to prevent companies being taxed on profits made in one member state without at the same time being able to take into account losses in another country;
- establishing an EU joint forum on transfer pricing in 2002 to establish better co-ordination between member states to avoid double taxation;
- encouraging the completion by member states of the ratification process to extend the Arbitration Convention to the 2000 and 2004 second five-year period and publishing a directive in 2003 to improve the Arbitration Convention and make its provisions subject to interpretation by the Court of Justice;
- publishing a communication on double tax conventions in 2004 on the need to adopt certain provisions of double taxation to comply with EU Treaty principles; and
- holding a European company taxation conference in the first half of 2002.
In connection with the foregoing proposals, the Commission is considering options for creating a common (consolidated) tax base including the following:
- adopting the taxation laws in force in the state where a company's headquarters are located ("home state taxation"); and
- creating a common company tax code that will apply throughout the EU and a mechanism for dividing company tax receipts among the member states concerned. This latter option sounds not too dissimilar, at least in its ambition, from the European Company Statute that was first proposed 31 years ago.
In addition, at the 2001 ECOFIN, the Council of Finance Ministers agreed that companies listed in the EU must adopt International Accounting Standards (IAS) from 2005.
Ross Warner at Landwell and Peter Cussons at PricewaterhouseCoopers