Trade, Tax and Takeovers

it is possible for companies seek to enter the market of a member state, competing attractive the exercise of the right of establishment, must be justified, exercise of fundamental freedoms or discriminating on grounds of internal situations tax regimes hitherto reserved for cross frontier constitutes one of the most effective methods to that end. access those rules prevented the service provider from providing the prohibited that the trade name infringed its rights to use a similar name, and companies in those member states may nevertheless opt into the of laboratories providing clinical biology services."7 "own brand" name to its stores in austria. another company claimed having to meet the cost of the £20,000 minimum capital requirement agent in munich against a company incorporated in england and e.g., case c-264/96 imperial chemical industries plc (ici) v kenneth hall colmer (her "a restraining order of the type sought by the plaintiff in the main 25 articles 16 ­ 19. case 198/86 erwin conradi and others v. direction de la concurrence et des prix des european court's contribution to a competitive european market. it transactions almost to vanishing point.4 and parliament are not playing the positive role which they might. the measures/voting rights in articles 9 and 11 of the directive. yet by some member states via the procedure of enhanced cooperation that laid down by the french legislation constitutes, for compa- of several large member states. what is particularly worthy of remark in requirements relating to the essential characteristics of goods or servi- were held to amount restrictions on capital movement, since they were european law maker could champion in the tax field, consensus might free to lay down rules for its own territory governing the activities these features were "inherent in the exercise, in a single market, of the zation by those undertakings of a uniform advertising concept at seems a distinct possibility. takings." business as usual (e.g., the takeover directive). it is the luxem- arguments for derogation). i would say for example that if the court of systems, the concern of national finance ministries that the court's denmark, was to secure the advantages of limited liability without reliance on the origin principle. this is the principle that services be in is in another member state where they lawfully use a trade name 22 com(2004) 2 final/3; council document 5161/05 of 10 january 2005. business activities would be carried out by a branch in denmark. the logic in allowing the rules of the state of origin to determine legal movement, and indeed to a more competitive europe, has been was presented in november 2002. its values are unequivocally the new services. this is light touch regulation aimed at deregulation. it is a the same principle was to be adopted for services, in säger v take-over directive being considerably weakened.21 close when it comes to acquiring shares in companies with a view to the in so far as they applied to a subsidiary formed in france by a legal good and services have something in common. they can originate danish nationals resident in denmark and carrying on business european values of competitiveness, and empiricism, combined with a admittedly, be the case if the opinion of advocate general maduro were court de-regulate europe despite resistance in the council or parliament (e.g. tax harmonisation and the the branch if the company had been also carrying on business in the danish nationals set up a company in the united kingdom rather than be addressed by unilateral modification of tax rules, in some cases by european court of justice. such in any other member state. the analogy with cassis was indeed 1990 and 2000, two thirds of the cases dated from the last three years services are significantly influenced by the case law of the court of 1 case 120/78 rewe-zentral ag v bundesmonopolverwaltung für branntwein [1979] ecr challenge rules in its country of establishment, on the ground that company which does not apply that regime. so in countries which apply by the board of a target company to frustrate a bid without the prior upholds challenges to national rules on banking, tax, and capital carried on no business at all in the member state of incorporation, and dennemeyer & co. ltd.2 that regulation of corporate activities per se amounts to a restriction on and "thin capitalisation" rules, applying rule reinforces barriers to market entry, and that seems to be enough failed to have sufficient regard for the "cohesion" of the national tax to loans by out of state parent companies to their subsidiaries, but not market in alcoholic products. this judgment shrinks the distinction this lecture advances two propositions. the first concerns the 7 ibid., para. 9. the court confirmed this view of the scope of freedom of establishment in states, unless there is a good reason to the contrary. this case concerned french rules prohibiting distinctive, and enduring. it is to be hoped that at least the principal structures, which operate as barriers to market entry and reduce 11 ibid., para. 27. discrimination on grounds of nationality. until relatively recently it evolution of the pro market attitudes of the commission certainly the presumption which may be created by the right of establish- under the same conditions to another member state. but the gebhard majesty's inspector of taxes) [1998] ecr i ­ 4695. first report of the high level group of experts group was on the who claimed that the provision of such services by the defendant in the field of european law, as in many national fields of law, a hard parent in its german stores, and german parent wished to extend this effectively, by paying remuneration on sight accounts, with the european parliament - is not isolated. the proposal for a directive on the least restrictive. the second aspect was for that company to set up a it held that there was no valid reason why alcoholic beverages lawfully bank wished to pay interest on its current accounts. it alleged that the formulation which referred to the exercise of all fundamental freedoms. caixa bank case.14 the scheme of the directive as regards establishment provides for cyelp 1[2005] derrick wyatt102 attainment of the objective which they pursue; and they must not subsidiaries of foreign companies in raising capital from the person registered in another member state. the court agreed: germany. in a more recent case the court allowed a service provider to the court in this case upheld two related aspects of the right of member states from investing in the capital of those under- in denmark set up a limited liability company in england whose only cross-frontier business activity seem deadlocked by disagreement elements of that contribution prove irreversible. lawmakers and judges to the technical aspects of the work of both. but trade, tax and takeovers -- can the european the court's reasoning is to the effect that an investor seeking to majesty's inspector of taxes) [1998] ecr i ­ 4695, paras. 28 and 29. establishment.17 the rule in issue in this case hinders the right of establishment in a case which involved the right of establishment, the court used a pro competitive features. in the first place the directive prohibited action and the parliament, have inhibited recent commission initiatives to de- advocated.28 ment of the english company, which would do no business in the need for authorisation schemes unless objectively justified.24 treatment for nationals and non-nationals, and stated: 17 case c-264/96 imperial chemical industries plc (ici) v kenneth hall colmer (her (or in analogous the articles of association which gave state authorities special rights another member state, have also been held to amount to a restriction in this connection it should be recalled that the legal basis of was an objectively justifiable reasons to the contrary. national rules 649. capital movement. from the council and parliament? the interest of a mandatory requirement which has come to be the form advocated by the commission. in the form proposed by the commission v. france15 that proposition is that the community's political institutions, the council establishment, which have an extensive network of branches and my thesis tonight is that the case law of the european court has interest on `sight" current accounts. a french subsidiary of a spanish services directive) or doomed to produce european packaging for exercise of the economic activity itself. this case also tends to shrink 12 case c-255/97 pfeiffer großhandel gmbh v. löwa warenahndel gmbh [1999] ecr i ­ 10 case c-212/97 centros ltd v. erhvervs- og selskabsstyrelsen [1999] ecr i ­ 1459. courts. serious obstacle to the pursuit of their activities via a subsidiary member state to set up a branch in another, even if the company policies on the quality of services and charter marks are similarly been construed very narrowly in subsequent cases, as have analogous arguments, see formulation may be to create a presumption that a commercial operator the undertakings concerned and to dissuade investors in other the national proceedings arose from a legal action by a patent acquisitions of shares in the company, and to veto certain decisions of cyelp 1[2005] derrick wyatt 105 question, now and under the draft constitution, and would be the trade name "plus". this was the trade name used by the german "measures which apply to both nationals and foreigners without the state, and in that the existence of the special shares was the direct or indirect consequence of national legislative measures. these special cases involving national tax provisions heard by the court between not a comment simply or mainly on the barroso commission. the banking sector ­ the existence of an extensive network of branches. cyelp 1[2005] derrick wyatt 103 not to apply articles 9/11 if they are the subject of a takeover by a where in the past harmonisation might have been preferred.27 may in principle be marketed in any other member state, so may a doing so if a member state retains special rights to interfere in the nies from member states other than the french republic, a 18 case c-9/02 hughes de lasteyrie du saillant v. ministère de l'Économie, des finances challenge allegedly unnecessary regulation is illustrated by the recent moves towards a harmonisation of national laws" (2001 yel, p. 33). service to customers in other member states.3 swedish rules prohibited harmonisation of standards is kept to a minimum and targeted.26 impose high minimum rates of corporation tax, and thus undermine the national direct taxation:trends in the case law of the court of justice, 20 yel (2001) 1, question was between 15 per cent and 20 per cent nationality. uk rules depriving a resident company of consortium relief predates the present commission, and has affected the commission's and supported by those who consider free markets to make a in the uk was held to be entitled to provide its services to customers in petitions and questions from the european parliament, consultation of interested parties, by means of the rate of remuneration paid on sight accounts european court of justice to a europe of personal freedom of state where the branch was established. professor derrick wyatt qc, st edmund hall, oxford. this is the text of a lecture economic activity. and it does so in a way which contributes to a high bourg court which maintains the process of de-regulation, and member states, and a reduction in arbitrary tax penalties for companies internal to denmark, but made it clear that they would have registered and studies or analyses." appeared that a national rule could only amount to a restriction on the approach to the content of internal market legislation which it has that the case law of the court has in one or two cases given insufficient milano [1995] ecr i ­ 4165. the distinction between purely internal situations and cross frontier summary: proposals by the commission to remove barriers to in others is market liberalising, or potentially so. i would maintain this centros case. it might be said that lawyers should confine their criticisms of company law harmonisation has ensured that subsequent commission cyelp 1[2005] derrick wyatt100 ces. the purchaser in one member state of a good or service originating discriminatory effects whatsoever. the court held in one of the cases, was indeed described by the commission as a relaunch of this agenda. the latter article prohibited not only discriminatory measures, but also 8 case c-55/94 reinhard gebhard v. consiglio dell'ordine degli avvocati e procuratori di and policy and politics on the other, is not easy to draw. it is in that a feature of the right of establishment and of capital movement but there is a second element in my thesis. it is that the council french rules constituted a restriction on the freedom of establishment 3 c-405/98 gourmet international products [2001] ecr i ­ 1755 member state is, in the absence of community rules in this area, movement has two effects. it removes obstacles to cross frontier makes less attractive the exercise of the right of establishment. the the danish authorities regarded the situation as in reality being to be the case even though in certain cases the response of member member state where he lawfully provides similar services. a service 30 dr i. j. ghosh, tax notes international, 4th april 2005. been and continues to be a liberalising force which should be welcomed that just as a good or service product produced in one member state case law is eroding and will continue to erode the national tax base is a on takeover bids, oj l108/38. concerned at erosion of the national tax base. there is room to argue articles 9/11, target companies cannot frustrate bids by home 13. that prohibition hinders credit institutions which are freedom of establishment guaranteed by the treaty."11 to adjust company law to facilitate the right of cross frontier argued that the rules in question were excessively restrictive, and that for an out of state operator to challenge the rule. are objectively justifiable reasons to the contrary. existence or exercise of the special share rights did not have any falls to the court to interpret the scope of the fundamental freedoms of competence of the community institutions to regulate the internal aspects of national tax law hitherto regarded as the this example ­ of a commission proposal for improvement of the professional qualification. sought a restraining order. the court referred to the gebhard test and inspector of taxes), this would be a step too far. this might not, methodology which emphasises transparency and consultation. outside the tax competence of the first member state.30 as pfeiffer is the benefit of a presumption that the advertising concept 21 directive 2004/25/ec of the european parliament and of the council of 21 april 2004 this respect is that criticisms of this directive appear to call in question all member states. carrying on business under certain conditions in its home state is principles give to the law of the member state of origin of goods and might well be to encourage measures of harmonisation.20 restriction on cross frontier economic activity is a hindrance to the 12. a prohibition on the remuneration of sight accounts such as to the law of a member state which has opted out of articles 9/11, 6 ibid., para. 5. (2002) 441 final, 30.7.2002. in its "subsidiarity" evaluation, the commission states that the competitiveness of the european market. for those who believe establishment as including the right of a company incorporated in one justice held that such a prohibition amounted to a restriction on the ment is the right to free movement of capital. the links are particularly justice in the internal market field was the so-called cassis case.1 establishment, service provision and capital movement. the court's companies in the consortium have been held to hinder the right of double tax conventions, and it can more ambitiously be addressed by consumer of british patent renewal services. provide services. cyelp 1[2005] derrick wyatt 97 29 the principle was applied in case c-204/90 bachmann, [1992] ecr i ­ 249, but has 2 case c-76/90 manfred säger v dennemeyer & co. ltd [1991] ecr i ­ 4221. 9 ibid., para. 37. businesses aiming to set up permanent establishments in other 19 case c-324/00 lankhorst ­hohorst gmbh v. finanzamt steinfurt [2002] ecr i ­ 11779. provision of services which would have to be justified. this was because right of establishment if it discriminated, directly or indirectly against extending their businesses across national frontiers. concept at community level". what this right amounts to in a case such to this case law are largely objections by national finance ministries the common consolidated corporate tax base working group, member states seem at first sight to raise rather different issues. the proceedings in case c-446/03 marks & spencer v. david halsey (hm branch in any other member state. the court rejected arguments that to customers in germany was contrary to german rules reserving proposed for adoption to the council and european parliament in order in another, is in a sense "shopping abroad". the german consumer of regime which allows member states to adopt protectionist opt outs 14. where credit institutions which are subsidiaries of foreign the legislation is based on empirical rather than speculative or german parent operating 139 discount stores in austria wanted to use this approach is clearly more demanding of national rules than a 24 articles 9 and 10. set up a company to choose the member state whose company law was high level group of company law experts to advise on proposals for (a) the prohibition restricted the right of publishers to offer advertising french cassis could be said to be doing so. as could the german safeguard national fiscal sovereignty, could produce policy gains for prohibition had a particular effect on the cross border supply of substantial contribution to the public good. commission has never been more liberal, in the economic sense. this is presentation of the businesses they operate according to the place 16 m. wathelet, the influence of free movement of persons, services and capital on the court's case law. a side effect of this expansion is an expansion in at the outset two member states indicated that a distinction was to be service products. this position was soon to change. in the gebhard8 case the court guarantee essential to achieving that aim is the prohibition of conditions. this is analogous to the weight which the cassis and säger et de l'industrie judgment of 11 march 2004. establishment. the first aspect was the right of a person who wished to which failed to respect this principle must be set aside by national effects of directly effective treaty provisions on establishment and in commission v. belgium5 the commission alleged that non- proceedings operates to the detriment of undertakings whose seat which had its first meeting in november 2004, continues to meet. but cannot be ruled out. and adoption in the future of a common tax base to loans by resident parent companies, have been held to discriminate mere non-discrimination requirement. one effect of the gebhard the court held that the treaty prohibited any national rule likely perhaps the most significant case ever decided by the court of only be possible via enhanced cooperation on the part of certain but not did not comply with the minimum capital requirements of the member 20 judge melchior wathelet (reporting judge in numerous tax cases) wrote: "it may be that, in the latter case an english company lawfully providing services 25 per cent., whereas the alcohol content of the french product in proposals have taken account of the views of business and have aimed stated: aim of the out of state business is to become an in-state business. the these features represented an abuse of the right of establishment ­ ".. provided that such equality of treatment is respected, each cyelp 1[2005] derrick wyatt98 common tax base project. the two member states in question remained management of the company by its directors. this comes close to saying situations. and even though one of the aims of the court of justice because it reinforces barriers to market entry which are intrinsic to the derrick wyatt cyelp 1[2005] derrick wyatt 99 capital from the public. it emphasised that the text of article 43 (ex 52) guaranteed equality of bad harmonisation. a common tax base, negotiated by unanimity to the provisions of the directive as regards both establishment and united kingdom. in free markets, these contributions to a competitive europe are fulfill four conditions: they must be applied in a non-discrimi- establishment. the decision of the european commission to appoint a commercial operator to challenge any national rule which hinders or what if the subsidiary of the out of state bank has a network of exercise of managerial control. the court has given judgment in a then prevailing in denmark. when the danish nationals sought to credit institutions traditionally established in the member state of commission's proposal was for a european wide take-over regime that would have made for a more competitive europe. it was modified into a competitive low tax europe should not regard any tax harmonisation as "...national measures liable to hinder or make less attractive the such an order is liable to constitute an impediment to the reali- "even though the rules in issue may not give rise to unequal is a good model of how internal market laboratories were incompatible with article 43 (ex 52). the commission reasonable corollaries of the territorial scope of the tax systems, have french rules automatically subjecting unrealised "the obstacles in question have been clearly identified on the basis of complaints, number of cases involving "special shares" held by public authorities in the court's case law on goods, services, establishment and capital application of national tax rules. tax lawyers came late in the day to the presumptively good for the markets of all member states, unless there timely and positive. cyelp 1[2005] derrick wyatt 101 that they bestowed voting rights did not reflect any capital invested by part of the argument of the united kingdom at the hearing in the degree of competitiveness, since all that is necessary to show a internal market, is in the tax field. with few exceptions, the court's case of that period.16 disadvantage by the national rule in question. in principle, the national authorisation of the general meeting. in the second place multiple weight to the need to allow derogations from fundamental freedoms in company law harmonisation in the ec treaty is the chapter on 28 article 31. competitiveness referred to in article 2 of the ec treaty. my second regulate the internal market, and improve its overall competitiveness. commission the directive would have had distinctive pro market and cyelp 1[2005] derrick wyatt106 entitled to extend its activities to another member state under the same 4 as does case c-60/00 mary carpenter [2002] ecr i - 6279 the right of establishment the right to realise a "uniform advertising accepted by the court. but the fundamental problem with the argument internal market being undermined by member states and/or the effect at any general meeting authorising defensive measures. such a politically opposed to a common tax base. the possibility that progress increasingly been regarded by the european court as hindering the justice, and in a number of respects the directive is declaratory of the cyelp 1[2005] derrick wyatt96 presumption that a commercial operator carrying on business under by preventing self-serving defensive measures by company boards. but capable of dissuading potential investors from other member states space to potential advertisers in other member states and (b) the cyelp 1[2005] derrick wyatt 107 of establishment."13 the effect of court's case law in this area as whether or not the court of justice might in certain cases have 14 case c-442/02 caixabank france, judgment of 5 october 2004. produced and marketed in one of the member states, should not be exercise of fundamental freedoms guaranteed by the treaty must principle be regulated by their "home state".25 article 94 of the ec treaty. the commission's position is to pursue the advertising space, given the international nature of the advertising formulation is not limited to such an affect and appears to allow a establishment, not simply to create interesting hybrid company law. the used by the parent in the home state may be extended to other member acquire a controlling stake in a company is likely to be dissuaded from treatment, they are liable to impede the acquisition of shares in under certain conditions in its home state is entitled to extend its implications of the internal market for national tax rules. of all the from other case law. in pfeiffer großhandel12 proposed take-over directive. the second report was on "a modern my final example of the court and commission being rather more share capital of the english company was £100, and the sole reason the activities to another member state under the same conditions appears 23 see the commission report on "the state of the internal market for services" com company incorporated in one member state claim to be recognised as made it clear that any national measure which hindered or made less 2835. theoretical grounds.23 company was the avoidance of danish minimum capital requirements. hauts de seine [1987] ecr 4469. latter."6 the court rejected this approach to the right of establishment. in the general interest; they must be suitable for securing the go beyond what is necessary in order to attain it (see case c- if there is a continuing increase in the number of cases brought, either before the court of capital gains to tax, when a taxpayer transfers his tax residence to market under, inter alia, article 95 ec. united kingdom, and since the sole purpose of setting up the english refused to do so, since that branch would be the principal establish- product which is good for the market of one member state, is situations. thus for example in the special shares cases, provisions in states has been to respond to the court's case law by extending to the company. of particular interest are those cases in which the to facilitate exercise of the right of establishment and the freedom to drawn between technical participation and the political aspects of the qualified majority voting in the tax field is legally out of the discrimination where they constitute an unjustified constraint for the in the latter member state, affecting their access to the market. wales. the plaintiff was a specialist in patent renewal services 26 article 40. which they would like to use beyond the boundaries of that state. regime of articles 9/11. and member states may authorise companies establishment. in one member state, yet be marketed in another. there is a kind of whether discriminatory or not. while the court adopted this approach to impede the activities of a provider of services established in another incurred in another member state in respect of activities falling wholly 27 article 39. only be marketed if they contained a minimum alcohol content of and fast line between legal reasoning and principle on the one hand, codes of conduct at community level are advocated in circumstances register the danish branch of the company, the danish authorities the meaning of article 43 ec. branches itself? it does not seem to be a precondition to challenging the that prohibition is therefore to be regarded as a restriction within ment to the effect that a commercial operator carrying on business companies previously in public ownership. the shares were "special" in from investing in the companies in question. yet they had no special by such a prohibition." extent to which this allows out of state commercial operators to example for member states to opt out of the rules on defensive a fundamental freedom closely linked to the right of establish- advanced by the taxpayer in marks and spencer is with the proposition while in theory a common tax base is about the best cause the at the technical level might lead to modification of political positions therefore greater opportunities than those subsidiaries for raising cyelp 1[2005] derrick wyatt104 the advertising in publications of alcoholic beverages. the court of product which was good for the market of one member state, was out of state businesses. between inter-state transactions and purely internal intra-state natory manner; they must be justified by imperative requirements reach of the internal market is to increase the pro competitive effects of justice or before the national courts, that will force the member states to accelerate known centros case.10 in this case the court treated the right of long term aims of (a) a common tax base and (b) home state taxation for the court in this case, in 1979, laid down an important principle. council and parliament failed to adopt the take-over directive in 5 case 221/85 commission v. belgium [1987] ecr 719. on grounds of nationality.19 national rule that the out of state bank actually be placed at a an austrian subsidiary of a pressure from certain member states led to these provisions of the presumptively good for the market of all member states, unless there justice were to accept the contention of the taxpayer in the national services in the internal market22 which are hard to reconcile with the aims and scope of the chapter on such activities exclusively to persons possessing the relevant directive would have improved competitiveness in the internal market that one member state should be obliged to give relief for losses aspects of the directive have been strongly criticised by the governments described as the "cohesion of the tax system"29 15 case c-483/99 commission v. france [2002] ecr ­ 4781, para. 41. approach in this respect has contributed positively to the high degree of introduced into and placed on the market in any other member state. a legislation should be conceived, developed and formulated. the need for certain conditions in its home state is entitled to extend its activities overall competitiveness of the eu. but member states which want a the community institutions adopting harmonisation measures via unless the company in question has opted into the latter regime! the shares bestowed on the public authorities the right to veto certain it is not difficult to draw an analogy between centros on the one legitimate concern. but it is a concern which can be addressed. it can propensity to hinder cross frontier activity. one effect of expanding the regulatory framework for company law in europe". this latter report 13 ibid., para. 20. companies, but may be entitled to frustrate bids by companies subject hand, and cassis and säger on the other. the analogy is to the effect 19/92 kraus...., para. 32).9 administrative simplification. it lays down a presumption against the enthusiastic than national governments about removing barriers in the one of the effects of the gebhard formulation may be to create a justified, but what is significant is that the court recognises as part of small and medium sized enterprises. this proposition is demonstrated by the judgment in the now well yet is has proved in some quarters highly controversial. in particular under german legislation fruit liqueurs such as "cassis" could spirit that i venture the modest conclusion, that the contribution of the discriminatory belgian rules governing the activities of clinical biology voluntary community level since it may force them to adjust the law on fundamental freedoms versus national tax rules rightly identifies unjustifiable restrictions on cross frontier economic activity. objections voting rights and restrictive voting arrangements would not have had which has attracted increasing attention has been its impact on the public, by depriving them of the possibility of competing more basic treaty principles, as those principles have been interpreted by the on the right of establishment.18 delivered to oxford alumni in london on 23rd may at the offices of allen and overy. p. 32. logical step towards implementation of the so-called lisbon agenda, and disastrous in policy terms because some member states would seek to because of the inclusion of a certain proportion of non resident to the market by those establishments is thus made more difficult the scheme of the directive for provision of services places the court of justice recognised that such a restriction might be