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Cross border merger - implementation of Directive 2005/56/EC under Greek law

Law 3777/2009 was passed in compliance with Directive 2005/56/EC issued by the European Parliament and the Council of the European Union with regards to cross-border mergers of capital companies (i.e.  SA companies, limited liability companies, etc) between different member-states.

According to article 2 par. 2 of Law 3777/2009, a merger is, inter alia, the practice of a resident company which is dissolved without a liquidation phase having taken place, transferring the totality of its property (assets and liabilities) to a company resident of another member-state, which holds all securities or shares of the former one. It is a practice which particularly favors the quick absorption of a subsidiary company by its mother company.

For each one of the merging companies, the respective legislative provisions as they stand in their member-states apply.

1. Common cross-border merger plan

The administrative and management bodies of each company that merges draft (in duplicate) a “common cross-border merger plan”.

This common cross-border merger plan that is drafted by the management bodies of the resident company must include at least the following:

a) company type, company name, registered offices of the merging companies and the company created by the merger,
b) the possible impact of the merger on the employees of the merging companies,
c) the date from which the actions of the merging companies are considered, from an accounting perspective, as actions performed on behalf of the company that has been created by the merger,
d) the rights that are secured by the new company for partners who have special rights or beneficiaries with securities other than shares as well as the measures proposed for them,      
e) possible special advantages provided to experts who examine the common cross-border merger plan or to the members of administrative, management and supervisory or audit bodies of the merging companies,
f) the statute of the company that is being created by the merger,
g) to the extent required, information about the procedures, according to which the regulations that govern the role of employees in the determination of their participation rights to the company that is being created by the merger are set.
h) information about the assessment of the assets and liabilities that are being transferred to the company which is being created by the merger,
i) the dates of the financial statements of the merging companies that have been used for the determination of the merger terms.

2. Publicity
The resident company files a petition to the General Electronic Commercial Registry in order for the common cross-border merger plan to get published to a special subcatalogue of the General Electronic Commercial Registry’s online page, after it has been approved by the SA Companies and Fidelity Directorate of the General Secretariat of the Ministry of Development, Competitiveness and Shipping. This common cross-border merger plan needs to become public for at least a month before the day set for the General Assembly meeting and remain public at least until the completion of said meeting.

3. Board of directors report to the partners
The board of directors of the resident company drafts a report and submits it to the General Assembly, explaining and justifying the legal and economical aspects, as well as the impact of the cross-border merger on the members, creditors and employees.

The report is made available to the partners and employees at least one (1) month before the day set for the General Assembly meeting, remains available at least until the conclusion of said meeting and is registered to the General Electronic Commercial Registry. The employees’ opinion is included to the report as long as it has been made known to the board of directors in due time.

4. Creditor’s protection
For the protection of the rights of creditors of a resident company under merger, the provisions of article 70 of Law 2190/1920 apply, according to which within twenty (20) days from the publication of the common cross-border merger plan, the creditors of the merging companies , whose claims have been borne before the submission of  the common cross-border merger plan according to the publicity prerequisites and have not become due at the time of such publication, have the right to ask for sufficient guarantees if the financial status of the merging companies renders this protection necessary. The companies have the obligation to provide them with said guarantees as long as the creditors have not already received any.

5. Completion of the cross-border merger
In the case that the company created by the merger is a foreign company, the completion of the merger procedure is carried out by the other member-state, which is competent for the final approval of the merger.

The resident competent authority issues a certificate prior to the merger, by which it certifies the correct implementation of the actions necessary for the merger. The resident company submits this certificate within six (6) months from the day of its issuance to the competent authority of the other member-state alongside with the common cross-border merger plan. The removal of the company being acquired from the General Electronic Commercial Registry is commenced by the SA Companies and Fidelity Directorate of the General Secretariat of the Ministry of Development, Competitiveness and Shipping, right after the notification of the registration of the merger approval decision.

Results
From the date of the approval decision and on, the cross-border merger produces the following results for the two merging companies:

1. The totality of the assets and liabilities of the acquired company is transferred to the acquiring company.
2. The acquired company ceases to exist.
3. The rights and obligations of the merging companies deriving from employment contracts or from employment relationships which are active on the date the merger enters into force are transferred to the company deriving from the merger.
4. Shares of the acquiring company are not exchanged with shares of the acquired company held by:
a) either the acquiring company or a person acting in his own name but on the company’s behalf
b) or the acquired company or a person acting in his own name but on the company’s behalf.

Taxation Issues
The provisions of Law 2578/1998 constitute a harmonization with those of the so-called Tax-Directive 90/434/EEC issued by the Council of the European Union about the applicable taxation system regarding mergers between companies of two or more member-states. In the case of a cross-border merger based on Law 3777/2009, the provisions of articles 1 to 8 of Law 2578/1998 are applicable, only when a permanent residency in Greece is created for the acquiring company with the merger. As a result, if there is no residency in Greece, something which is not prohibited, the provisions of articles 1 to 8 of Law 2578/1998 do not apply and for this reason, the tax exemptions and advantages provided by them do not apply either.
According to the above, the cross-border merger is going to be taxed on the basis of the general provisions and articles 42, 43 and 54 of the new Income Taxation Code. (Law 4172/2013-from now on “ITC”).

According to article 54 ITC, a “merger” is every action by which a company (from now on “the transferring company”) that is being dissolved without it being set under a liquidation procedure, transfers all its assets and liabilities to another already existing company (from now on: the “receiving company”) with the exchange of the issuance or transfer of securities (i.e. shares) from the capital of the receiving company to the shareholders of the transferring company.

What is more, in the case of a merger, an additional payment by the receiving company may take place, provided that this payment does not exceed the ten per cent (10%) of the nominal value, or, if there is no nominal value, the ten per cent (10%) of the book value of the shares.

According to article 42 par. 7 ITC, as far as the goodwill deriving from the merger in application of article 54 is concerned, the special provisions about goodwill from securities transfer apply.

In particular, any income deriving from goodwill from securities transfer is considered income from transfer of capital and is subject to an income tax with a tax rate of fifteen per cent (15%), without the need for a tax return statement at the year that the merger takes place, due to the fact that the corresponding income will be included in the yearly tax return statement of the fiscal year that the merger took place (Circ. No. 1032/2015).

-By analogous implementation of the above article, the following apply:  

a) “goodwill” means the difference between the market value of the assets and liabilities being transferred and their taxable value.
b) the “market value” of the assets and liabilities being transferred is determined on the basis of their value at the time of the merger.
c) the “taxable value” of the assets and liabilities being transferred is also determined on the basis of their value at the time of the merger.
d) if the determination of their value results in a negative amount, the relevant loss is transferred to the next five (5) years and is balanced only with future goodwill gains.
e) income acquired by natural persons that are residents for taxation purposes of states that Greece has signed a double taxation convention with and which derives from goodwill resulting from the merger is exempted from taxation, as long as said persons submit certificates to the tax administration proving their residency for taxation purposes.

If the transferring company has its residency for taxation purposes in Greece and the receiving company is a resident of another member-state of the EU, to the extent that the merger results in a transfer of industry branch which constitutes a permanent establishment in another EU member-state, the transferring company is not exempted from goodwill taxation but is entitled to a credit against the sum of the tax that is a result of the merger, in relation to any tax that would apply in the EU member-state which the permanent establishment lies at due to the merger.

-After the merger, the receiving company:

a) amortizes its assets according to the regulations that would apply for the transferring company if the merger would not have taken place.
b) may transfer the reserves and budget forecasts that have been created by the transferring company, with the tax exemptions and under the terms that would apply for the transferring company if the transfer would not have taken place.
c) undertakes the rights and obligations of the transferring company in relation to these reserves and budget forecasts.
d) may transfer the losses of the transferring company, under the same conditions that would apply for the transferring company if the merger would not have taken place.
e) if the receiving company has a holding in the capital of the transferring company, it is exempted from tax for any goodwill deriving from the annulment of this participation.

-The following apply in relation to the shareholder who, due to the merger, exchanges securities of the transferring company with securities of the receiving company, provided that he is a resident for tax purposes of Greece or retains a permanent residence in Greece:

a) he is not subject to taxation for the goodwill he acquires due to the merger, with the exemption of what corresponds to a payment he might have received from the receiving company.
b) he does not attach a greater taxable value to the securities he acquires as an exchange than the value they would have before the merger or division.

According to article 56 ITC, the benefits laid down in the above mentioned articles are lifted in whole or partially, when any action of those mentioned in these articles has tax avoidance or tax evasion as its main aim or as one of its main aims.

The fact that the action is not performed for economically legitimate reasons, such as the restructuring or the rationalization of the activities of the companies taking part in the relevant action, may constitute a presumption that tax avoidance or tax evasion is the main aim or one of the main aims of the action.

 

Publication date: 19/7/2016