EU Corporate Law and EU Company Tax Law (Corporations, globalisation and the law series)

EU Corporate Law and EU Company Tax Law

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CORPORATIONS, GLOBALISATION AND THE LAW

Series Editor: Janet Dine, Director, Centre for Commercial Law Studies, Queen Mary

College, University of London, UK

This new and uniquely positioned monograph series aims to draw together high quality

research work from established and younger scholars on what is an intriguing and

under-researched area of the law. The books will offer insights into a variety of legal

issues that concern corporations operating on the global stage, including interaction

with WTO, international financial institutions and nation states, in both developing and

developed countries. Whilst the underlying foundation of the series will be that of

company law, broadly-defined, authors are encouraged to take an approach that draws

on the work of other social sciences, such as politics, economics and development

studies and to offer an international or comparative perspective where appropriate.

Specific topics to be considered will include corporate governance, corporate

responsibility, taxation and criminal liability, amongst others. The series will

undoubtedly offer an important contribution to legal thinking and to the wider

globalisaton debate.

Titles in the series include:

Human Rights and Capitalism

A Multidisciplinary Perspective on Globalisation

Edited by Janet Dine and Andrew Fagan

Company Law in the New Europe

The EU Acquis, Comparative Methodology and Model Law

Janet Dine, Marios Koutsias and Michael Blecher

EU Corporate Law and EU Company Tax Law

Luca Cerioni

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EU Corporate Law and

EU Company Tax Law

Luca Cerioni

Academic Research Fellow at the University of Leeds, UK

CORPORATIONS, GLOBALISATION AND THE LAW

Edward Elgar

Cheltenham, UK • Northampton, MA, USA

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© Luca Cerioni 2007

All rights reserved. No part of this publication may be reproduced, stored in a retrieval

system or transmitted in any form or by any means, electronic, mechanical or

photocopying, recording, or otherwise without the prior permission of the publisher.

Published by

Edward Elgar Publishing Limited

Glensanda House

Montpellier Parade

Cheltenham

Glos GL50 1UA

UK

Edward Elgar Publishing, Inc.

William Pratt House

9 Dewey Court

Northampton

Massachusetts 01060

USA

A catalogue record for this book

is available from the British Library

Library of Congress Cataloguing in Publication Data

Cerioni, Luca, 1969–

EU corporate law and EU company tax law / by Luca Cerioni.

p. cm. — (Corporations, globalisation and the law series)

Includes bibliographical references and index.

1. Corporation law—European Union countries. 2.

Corporations—Taxation—Law and legislation—European Union countries. I.

Title.

KJE2451.C47 2007

346.24'066—dc22

2006028682

ISBN 978 1 84542 774 0

Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

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Contents

List of abbreviations viii

Preface ix

Foreword and acknowledgments xiii

PART I THE DEVELOPMENTS OF EC LEGISLATION AND CASE

LAW IN CORPORATE TAXATION AND COMPANY LAW

AND THEIR ULTIMATE OUTCOME: A CONTRIBUTION TO

THE LEGAL COMPETITION BETWEEN MEMBER STATES

1. The ultimate result of EC legislation and case law in the field

of companies’ taxation: an increased scope for tax competition

among Member States 3

1.1. The two 1990 Directives: from the objective of a

‘common system of taxation’ to the result of a distorted

tax competition 4

1.2. The 2003 Interest-Royalties Directive: overview 17

1.3. Unintentional contribution of the latest ECJ case law on

the 1990 Directives to tax competition 18

1.4. Crucial developments of the ECJ tax case law on companies’

freedom of establishment and their potential effects on tax

competition 36

1.5. Current company taxation environment within the

Community, Commission orientations and underlying

attitude towards tax competition 50

1.6. A problematic, unresolved issue 56

2. Latest ECJ rulings on the freedom of establishment in the

context of EC company law developments 68

2.1. Developments of EC company law regarding companies

governed by the laws of Member States: overview 68

2.2. The Uberseering ruling 69

2.3. The ECJ’s findings in Inspire Art 75

2.4. A key company law implication from a tax ruling 78

2.5. And a company law ruling with tax implications 80

v

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3. From the limits of the EC company law harmonization

programme to the ‘limited supranationality’ in the SE 88

3.1. Review of the results of the company law harmonization

programme and envisaged developments 88

3.2. Main EC law ‘supranational’ instrument: the SE 91

3.3. A ‘slightly more supranational’ form: the SCE: overview 125

3.4. Final observation 126

PART II THE RESPONSE TO THE CHALLENGE OF LEGAL

COMPETITION: A SUPRANATIONAL SOLUTION?

4. Alternative routes towards the level playing field for companies

in the European Community: suggestions 141

4.1. EC corporate tax Directives and company law

harmonization programme: coherence or ‘variable

geometry’? 141

4.2. Competition in corporate taxation within the EC and

EC Law 146

4.3. Intra-EC competition in company laws and EC law 160

4.4. Supranational instruments as vehicles for a legal competition

compatible with EC law? 174

5. Hypothesis for (truly) supranational developments 191

5.1. Hypothesis for the taxation regime of the SE 192

5.2. Hypothesis on the current proposal on the EPC 199

5.3. European forms of partnerships and their taxation regimes 202

6. Conclusions 207

6.1. An institutional view from the perspective of Member

States: any problem for the ‘supranational solution’ to the

legal competition in corporate taxation and company laws? 207

6.2. Final remarks 211

APPENDICES

I. Examples of the ‘race to the bottom’ legal competition among

Member States in corporate taxation and company laws 217

II. Functioning of the pilot HST and CCBT schemes 220

III. EC corporate tax law implementation in Member States 222

IV. Key cases of relevance to company direct taxation 236

vi Contents

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V. Increasing opportunities for expansion strategies in the new

wider Europe 240

VI. Update 246

Bibliography 251

Further reading 258

Index 261

Contents vii

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viii

Abbreviations

ACT Advance Corporation Tax

APCLCG European Commission Action Plan on Company Law and

Corporate Governance

CCBT Common Consolidated Base Taxation

CCBTWG Common Consolidated Base Taxation Working Group

CEN capital export neutrality

CIN capital import neutrality

Commission the European Commission

Council the Council of Ministers of the European Community

DTC Double Tax Convention

EC European Community

ECJ/the Court European Court of Justice

ECR European Court Report

ECS European Company Statute

EEC European Economic Community

EEIG European Economic Interest Grouping

EPC European Private Company

ESC European Economic and Social Committee

EP European Parliament

EUCIT European Union Company Income Tax

EU European Union

FFC formally foreign companies

HST Home State Taxation

HTB Harmonised Tax Base

IBFD International Bureau of Fiscal Documentation

OECD Organisation for Economic Co-operation and Development

OECD Model OECD Articles of the Model Convention with respect to

taxes on income and capital

OJEC Official Journal of the European Communities

PE permanent establishment

SE European Company

SCE European Cooperative Society

SMEs small and medium-sized enterprises

SNB special negotiation body

Treaty Treaty of Rome (as subsequently amended) establishing

the EEC (and the EC)

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Preface

WHY STUDY EC CORPORATE TAXATION AND

EC COMPANY LAW TOGETHER IN THE CURRENT

PHASE OF DEVELOPMENT OF EC LAW?

The European Community (EC), which since its foundation has been offering

new and original issues to the international academic and extra-academic

literature concerning both law and other disciplines, currently finds itself in a

period of its history which presents unprecedented risks and opportunities. The

risks have been well evidenced by the difficult times during 2005: the rejection

of the ‘European Constitution’ in popular referenda in two founding states, and

the difficulties in reaching agreement over the budget, indicate that the ‘crisis

of rejection’ may paralyse any further progress of the European construction

and even compromise its future when the ultimate objectives stated in the

Treaty of Rome (such as harmonious and balanced development of economic

activities, high level of employment, social cohesion, improvement in the

standard of living) – objectives which would benefit all socio-economic actors

in any Member State – are not reached, or when the advantages brought about

by their achievement are not fully perceived. In these circumstances, the future

of the European integration process risks being threatened to a greater extent

than in any previous period in the history of the EC: as the current range of

decisions taken at EC level affecting the everyday life of nationals (individuals

and businesses) of Member States is wider than in any previous period,

negative interdependencies are deemed to be amplified in the event of

malfunctioning of the internal market. Together with (and because of) these

risks, the current historical context also offers decision-makers and academic

researchers unprecedented opportunities of identifying clear patterns that, on

a lasting basis, could shape future developments in such a way as to minimize

the risk of not achieving the goals stated in the Treaty and the EC’s self-set

objective of becoming the world’s most competitive and knowledge-driven

economy (the so-called ‘Lisbon objective’, the strategy towards which was

revised in 2005). This challenge will need to find a response, among others, in

those areas of EC law that create the essential framework enabling businesses

(which are the main protagonists of market integration) to operate on a

Community-wide scale: the areas of EC company law and EC company tax

law.

ix

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x Preface

The importance of future developments in these two areas was already

understood, 50 years ago, by the founders of the (then) EEC, when they

provided the institutions of the Community with the legal basis for creating,

within the Community, a level playing field for all businesses from any

Member State. For this purpose, they envisaged the removal of those obstacles

that would hinder companies’ free movement within the internal market, such

as excessive differences in national company law provisions and risks of

double taxation, and regarded the future Community’s initiatives in these two

areas of law as complementary. Moreover, in important Communications

issued in recent years, the European Commission has highlighted the

importance, in this historical phase, of developments in each of these areas for

the proper functioning of the Community market and for the ‘Lisbon

objective’.

With these premises, the (developments in the areas of) EC company law

and EC company taxation should be studied together, in the current phase, on

the one hand from the perspective of academic research, of decision-making

at EC level and of students of European law, of company law and of European

and international tax law, and, on the other hand, from the perspective of

businesses and practitioners. Important legislation in recent years, innovative

rulings of the European Court of Justice (ECJ) on the freedom of establish￾ment and new proposals from the Commission for legislative developments,

which ultimately are all aimed at creating for cross-border activity within the

Community the conditions of a domestic market, are deeply affecting both

company law and company taxation systems of Member States. This is

occurring at the same time when, in a global economy where capital and

investments quickly move from one jurisdiction to another in search of the

optimal location, company law and company taxation have been emerging as

the two areas of law in which Member States are concentrating much of their

efforts for improving their attractiveness as locations for businesses and

investments. Company law and company taxation regimes of each of the

Member States are thus being increasingly affected not only by Community

initiatives, but also by this ‘legal competition’ with each other, which has been

acquiring an increasing prominence in recent years and with which the

Community initiatives are bound to interact. In such a context, the reason for

studying the developments of EC company law and of EC corporate tax law

together lies in the challenges it affords from the perspective of academic

research, at the political decision-making level and for students, and in the

unprecedented opportunities offered from the perspective of businesses and

practitioners. Under the first perspective, the challenge is twofold: for

academic researchers and decision-makers, it is the search for a compre￾hensive response to the questions whether and under which conditions the

phenomenon of legal competition, in its interaction with developments of EC

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company law and of EC corporate tax law, can contribute to the proper

functioning of the internal market (and thus minimize the risks of outcomes in

conflict with the Treaty’s objectives and with the Lisbon objective). For

students, it is the turning of possible difficulties (in considering systematically

the interdependencies between the developments in EC company law and in

EC tax law and those of the national company law and company taxation

systems in competition with each other) into major chances of increasing or

consolidating an interdisciplinary and comparative approach of analysis and of

building up an international legal curricula. From businesses’ perspective, a

unified approach towards EC company law and EC corporate tax law (which

aims to consider together, in a systematic manner, the developments in these

two areas of EC law and their impact on the competing national company law

and corporate tax regimes) reveals opportunities for new strategies of

expansion within the Community, which could take advantage from the legal

competition in both areas while remaining within the ambit of exercise of the

freedom of establishment granted by the Treaty. To the extent that these

opportunities are being opened to businesses, the unified approach towards EC

company law and EC tax law which makes it possible to identify the possible

combinations of optimal choices becomes also a must from the viewpoint of

tax and legal practitioners acting as their advisors.

In the overall situation where the two areas of EC law at stake have a crucial

role to play in indicating clear patterns in order for future developments to

contribute to the proper functioning of the internal market, and where studying

EC company law and EC corporate tax law together becomes a suitable

approach from the perspectives of academic research, of decision-makers, of

students, of businesses and of practitioners, this book is intended to contribute

to each of these perspectives. It seeks, in fact, to reconcile a contribution to

new research themes suggested by the latest developments in EC company law

and in EC corporate tax law, aimed at offering ‘inputs’ to the international

academic debate and to decision-makers, with a description of the

fundamental framework and of the key developments of interest to students,

and with the illustration on new possibilities for companies’ intra-EC

expansion strategies that are of interest on the one hand from the academic

viewpoint, and on the other hand to businesses and their consultants.

The book’s structure has a main text and Appendices. The main text (a) in

Part I illustrates the key EC legal framework in the two areas, the legislative

developments and the most important ECJ rulings, and indicates how these

developments, in the current context of the legal competition among the

Member States, have contributed to this phenomenon; (b) in Part II formulates

a hypothesis for future developments allowing the legal competition to meet

some conditions under which it could aid the achievement of the ultimate

EC law objectives. In pursuing these purposes, the book considers possible

Preface xi

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strategies for expansion by businesses on a Community scale, and pays

particular attention to the latest ‘supranational’ developments and proposals,

which have been attracting much international interest in recent years: the

European company in the field of EC company law and the Commission’s

strategy for the introduction of a common consolidated base taxation in the

field of EC corporate tax law.

The Appendices offer to businesses and practitioners an overview of the

implementation of the key EC legislation in some Member States and of the

resulting differences between national laws, with some examples of strategies

for intra-Community expansion and restructuring that could be implemented

as modalities of exercising the freedom of establishment from one state to

another.

The author hopes that the book will become a useful instrument while, at

the same time suggesting research ideas for the international debate on

possible future developments in the two complex and fascinating areas of EC

company law and EC company taxation.

Luca Cerioni

30 May 2006

xii Preface

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xiii

Foreword and acknowledgments

At a time when – in singular coincidence with the 50th anniversary of the

Treaty of Rome – the future of the European construction is the subject of

frequent discussions where further ‘supranational’ developments often meet

resistance, this book wishes to be academically provocative: it formulates a

legal case for supranational developments as the only solution that under

certain conditions, in the current historical phase, would deserve being

regarded as a way forward in two ‘sensitive’ areas of EC law such as EC

company tax law and EC corporate law, and ultimately suggests that this

would also be in all Member States’ interests.

Given the dynamic areas of EC law at issue, the construction of this

case required a critical review of the relevant EC legislation and case law,

in order to demonstrate that a clear pattern could be identified and would

require the proposed way forward, as well as to draw the arguments, and

a considerable period of time. This started with my PhD thesis, prepared

at the University of Essex and submitted in 2004, and finished in late October

2006 at the University of Leeds, when it was realized that few further

developments taking place after the start of the production process on the main

text, which had been presented at the end of May 2006, made it appropriate to

add a short updating that the reader will find in Appendix VI. During such a

considerable period of time, several people gave their contribution to the

finalization of this book, and I would like to express sincere thanks to all of

them.

This work was developed with my PhD thesis as a starting point and with

considerable revisions and updating that were made necessary by ongoing

developments in EC corporate law and EC company tax law and by the need

to address the comments that I was aware that work could attract. Therefore,

I’m extremely grateful, first, to Prof. Janet Dine, who, at the University of

Essex Law Department, supervised both my LLM dissertation in 1996 and my

PhD thesis during a period – from 2001 to 2004 – when I was carrying out my

doctoral research on a part-time basis while working abroad. She had great

patience in re-reading the changes that new pieces of EC legislation and new

ECJ case law made necessary from time to time to parts that had already been

written and, after her transfer to the Centre for Commercial Law Studies at the

Queen Mary College, University of London, in 2005 felt that the work would

deserve inclusion in the ‘Corporations, Globalisation and the Law’ series. My

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gratitude to Prof. Dine is equally due for her encouragement, before and after

the publication in the Journal of Business Law in 1999 of a part of my LLM

dissertation, to pursue the doctoral research itself, and for her reading of the

last version of this work in June 2006. I also would like to thank, for their

appreciating the PhD thesis and for the useful comments, the two examiners,

Prof. Steve Peers (University of Essex) and Prof. Charlotte Villiers (University

of Bristol), and I’m also obliged to the anonymous academic referee for

Edward Elgar, whose comments were useful to me in the latest refinement

phase.

As regards the technical phase of finalization of the book, I’m also

very grateful to Elisabetta Valdani, at Essex University, who in 2005 helped

me to understand the difficulties that would have arisen had an alternative

procedure for the technical preparation of the manuscript been followed

and who therefore allowed me to save enough time that I could devote to

the updatings and revisions, and to the entire Edward Elgar team for their

advice and patience before and after I submitted the manuscript. In particular,

I wish to thank Luke Adams and Nep Elverd for their flexibility in extending

the deadline initially agreed for submission and their patience with my

numerous queries relating to technical house style criteria, and I’m also

particularly grateful to Kate Emmins, who, during the later phase of the

production process, allowed me to add the short updating appendix

(October 2006) and was willing to discuss by phone, point by point, a series

of questions concerning the way of expressing the arguments put forward,

which issue, due to my not being a native English language speaker, was also

important in my final check of corrections made in the previous copyediting

phase.

As for some of the material used, I’m obliged to the International Bureau

of Fiscal Documentation (IBFD) in Amsterdam, for authorizing me to

use, in Chapter 4 paragraph 2 of this work, part of the material concerning

the compatibility of tax competition with EC law, which was published

in my previous article: L. Cerioni, ‘Harmful tax competition revisited:

Why not a Purely Legal Perspective under EC law?’ European Taxation,

the IBFD – edited and published journal in EC, comparative and inter￾national taxation, Vol. 45, No. 7, July 2005. I’m also grateful to Prof.

Adriano Di Pietro and his collaborators at the University of Bologna, Faculty

of Law, for providing me, shortly after the start of my work on the PhD

thesis, with comparative material, drawn from international Congresses

held there, concerning the implementation of the first two EC tax directives

in several EC Member States. Last but not least, I’m also very grateful

to my family of origin for allowing me, in 1995–1996, to attend the

LLM in European Community Law at Essex University, which was

the preliminary step for the research that led to the PhD thesis and

xiv Foreword and acknowledgments

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