| After 30 years
of political discussion, debate and compromise, the
Single European Company, known by its Latin name of
Societas Europaea (SE) has become a reality. The European
Company Statute Regulation adopted by Member States
on 8 October 2001 created the legal framework for the
SE and, on 9 October 2003, the UK government introduced
draft legislation to implement the Regulation into national
law in October of this year.
The European Company Statute comes into force on 8 October
2004, providing businesses with a corporate vehicle
in which to operate throughout Europe, with one set
of rules and a unified management and reporting system.
The potential savings in terms of administrative costs
may be as high as €30bn per year. There is scope
for further cost savings and other advantages where
a business wants to restructure in other member states.
The problem remains that the European Company Statute
does not, by itself, replace existing national laws
and thereby harmonise key areas, such as taxation, audit
and accounts, competition, corporate governance and
employment rights between member states. However, following
the introduction of International Accounting Standards
(IAS) in 2005, for listed European companies, conformity
of accounting standards may not be far away.
In the area of taxation, the basic form of an SE is
likely to be a fully-merged pan-European entity registered
in one member state, but operating in other states through
a branch structure. Such structures are already available
in the UK and considered by some commentators as less
attractive than a standalone subsidiary structure, given
the inconsistent manner in which branches are taxed
in different member states. Additionally, the absence
of a common tax base for an SE throughout the single
market means that that there is no respite for the differing
levels of transfer pricing regulation implemented by
member states.
The Directive on worker participation will also need
to be considered when deciding where to establish the
SE, as the level of worker participation is likely to
vary with local practice. It is likely that the success
or failure of the European Company Statute Regulation
is, to a large extent, dependant on the success or failure
of the level of harmonisation achieved in the EU in
areas such as taxation and commercial law. From a US
perspective, any rationalisation of European operations
into an SE will require thorough analysis of tax, accounting
and employment considerations, before current structures
are set aside.
Key elements of the Societas Europaea
Formation and structure
An SE may be registered in any one of the member states
and will be governed by both the European Company Statute
Regulation and the laws of the member state in which
it is registered. It is required to be a Public Limited
Company (plc) – although shares need not be listed.
It must also operate in more than one member state.
It is not an alternative to establishing a new company
as the creation of an SE is only available to existing
companies by:
- The merger of two or more existing plcs from at
least two different EU member states
- Converting an existing plc, with its registered
office within the EU and which, for at least the past
two years, has a subsidiary in another member state
- The formation of a holding company for existing
public or private limited-companies from at least
two member states
- The formation of a subsidiary company by companies
from at least two different member states
The minimum capital requirement will be €120,000.
Its registered and head office must be located in the
same EU state. There will not be a central register
of European companies as the SE will be included on
the same register as companies established under national
law of the host state. The structure of the SE will
enable companies to merge and operate throughout the
EU under a single set of rules and a unified management
and reporting system, thus eliminating the costs and
time associated with administering a network of subsidiaries.
Worker participation
One of the more controversial aspects of an SE is the
requirement for worker participation. The Directive
sets out wide-ranging codes for the provision of information
to, consultation with and participation of employees,
in both the supervision and strategic development of
the SE. This was one of the most difficult areas to
resolve due to the differing levels of employee participation
within member states. Countries such as Germany and
the Netherlands, whose national laws provide for a high
level of employee participation, did not want to see
the dilution of existing rights, while other countries
wanted little or no participation. A compromise was
reached under which the company and its employees may
reach a voluntary agreement for employee involvement.
If no agreement can be reached there will be a default
set of national employee involvement rules relating
to the provision of information and consultation.
Every SE must involve its employees, although the level
of worker participation may be determined by the way
the SE is formed. Where an SE is formed by merger, the
level of participation will be determined in accordance
with the Directive. Where an existing company is converted
to an SE, then existing rules will apply. Once plans
are agreed for the formation on an SE, negotiations
must commence with a Special Negotiating Body made up
of employees’ representatives. Negotiations may
continue for six (possibly up to 12) months in order
to reach agreement on all the relevant issues. Where
agreement is not reached, the standard rules in the
Directive will apply.
Under the standard rule for information
and consultation of its employees the SE is required
to:
- Prepare and provide regular reports on the progress
of the SE business and its prospects
- Provide agenda of meetings of the administrative
or the management bodies of the SE and copies of all
documents submitted to the general meetings of its
shareholders
- Provide details of exceptional circumstances affecting
the employees’ interests, particularly in the
event of relocations, closures and redundancies
Taxation
An SE will be taxed in the member state in which it
is registered, and treated as any other multinational
company at company and branch level. Significant tax
advantages are unlikely, other than perhaps the Directive
on eliminating double taxation on cross-frontier mergers,
which may arise on formation, or on any subsequent restructuring
for SEs created through mergers.
As an SE will be registered in one member state with
branches operating in other states, and assuming that
the member state where the SE is registered taxes the
worldwide income of it, then it may be possible to offset
losses from some permanent establishments against profits
of others. At present, this is not possible in a multi-jurisdictional
group structure. However, the High Court has referred
to the European Courts of Justice (ECJ) the question
of whether Marks and Spencer (M&S) should be allowed
to offset its £100m of losses in French, Belgian
and German subsidiaries against UK profits. M&S
is arguing that under article 43 of the EC Treaty, these
losses should be available for set-off under the freedom
of establishment provisions of the EC Treaty. If the
ECJ finds in favour of M&S, this will have a profound
impact on the way businesses structure their European
operations.
From a US perspective, the UK remains an attractive
proposition for US firms intending to establish a base
in which to expand into Europe. Apart from the same
language and similar cultural attitudes, the UK’s
corporate tax rates remain very competitive.
Other matters
The Regulation does not cover areas such as competition,
director’s duties, insolvency, employment contracts,
pensions and health and safety requirements; these will
be governed by the national laws of the member states
in which the SE is operating. Richard Stevens is Senior
Partner of FW Stephens, Chartered Accountants; James
O’Brien is an audit partner and corporate tax
adviser
For more information, contact:
Tel: +44 (0) 20 7251 4434
E-mail: richard.stevens@fwstephens.co.uk
E-mail:
james.o’brien@fwstephens.co.uk
Website: www.fwstephens.co.uk
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