Other measures
Tax Merger Directive and Dispute Resolution Mechanism Directive
Beyond the changes to the withholding tax directives and to the Anti-Tax Avoidance Directive, the proposal makes two further sets of amendments of note: the alignment of the Tax Merger Directive with Union company law and the streamlining of the dispute resolution mechanism. The principal changes are as follows:
- Tax Merger Directive (2009/133/EC) is aligned with recent developments in company law;
- tax neutrality is extended to cross-border conversions and to other forms of reorganisation; and
- Dispute Resolution Mechanism Directive (2017/1852) is streamlined to improve access and speed.
Alignment of tax mergers with company law
The scope and definitions of the Tax Merger Directive (2009/133/EC) are aligned with Directive (EU) 2017/1132 on certain aspects of company law, as amended by Directive (EU) 2019/2121 (the Mobility Directive). Accordingly, the definition of a merger is extended to include a simplified merger that includes the transfer of all the assets and liabilities of one or more companies to an existing company without the issue of new shares in case that the companies are under common ownership. The second novelty is that a division also includes a division by separation. Also, new definitions of cross-border conversion, departure and destination Member State are also introduced.
A new chapter is inserted laying down rules applicable to cross-border conversions. A cross-border conversion does not in itself give rise to the taxation of capital gains in the departure Member State, provided that the company either remains tax resident there or has a permanent establishment in that State to which the relevant assets and liabilities remain connected.
Provisions and reserves created before the conversion, together with their tax treatment, are transferred to the permanent establishment. As a general rule, the conversion does not trigger taxation at shareholder level (i.e. no taxation of income, profits or capital gains). However, taxation may arise at a later stage when the shareholders dispose of their shares.
Finally, the annex listing the qualifying legal forms under the Tax Merger Directive is updated, and the EC is empowered to amend it by delegated act in order to take account of future developments in Member States company law.
Improved dispute resolution mechanism
The proposed changes to the Dispute Resolution Mechanism Directive (2017/1852) clarify that, where the taxation of more than one person is affected by the same question in dispute, each of those persons qualifies as an affected person. This is particular relevant for transfer pricing adjustment affecting associated enterprise in different Member States. In such cases each affected person may submit its complaint to the competent authority of its residence Member State, or one affected person may submit a complaint on behalf of the others.
The requirement for the simultaneous submission of complains, which is difficult to interpret in practice, is replaced by a time limit of 30 days.
Further, the grounds on which a competent authority may reject a complain are provided in the list and reasons outside of that list are no longer allowed. Before any rejection, the affected person will be given opportunity to correct the complaint within 30 days. If a complaint is eventually rejects, the affected person may resubmit within statutory deadlines.
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