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Germany German Government intends to introduce further tax reforms in 1997 As part of its efforts to promote its savings measures the German Federal Government has introduced a Bill for the Annual Tax Act for 1997. This Act would bring with it a number of changes in 1997, the most noteworthy of which would be the abolition of the wealth tax (Vermogensteuer) with effect from 1997, a reduction in the solidarity surcharge, the abolition of the municipal trade tax on capital (Gaverbekapitalseteuer) and a reduction in the municipal trade tax on income (Gewerbeertragsteuer). Most of these reforms are, however, currently the subject of major discussions between the various political parties and it is questionable whether the German Government wdl ultimately be able to achieve its objectives in respect of these intended reforms. One aspect, which has been more readily accepted by the various interested parties and will most likely be changed in 1999, is the solidarity surcharge. This surcharge is to be gradually reduced from the current rate of 7.5 per cent p.a. to 6.5 per cent p.a. with effect from 1 January 1997 and to 5.5 per cent p.a. with effect from 1January 1998. The solidarity surcharge was reintroduced with effect from 1 January 1995 for an indefinite period (unlike the surcharge which was levied for the assessment periods 1991/1992), in order to help finance the tremendous costs brought to bear on the German Government as a result of the reunification and to raise funds for rebuilding the five new states. Effectively, the surcharge is an additional 'tax' levied, among others, on the income, corporate income and wage taxes. All taxpayers are equally liable to pay this surcharge in accordance with their ability to pay taxes. In the case of corporations the surcharge is levied on both resident and non-resident corporations alike. The same applies for resident and non-resident individuals. In the case of the German income tax, the bases for the solidarity surcharge are the income taxes determined for the assessment periods commencing from 1995 onwards. For the corporate income tax the solidarity surcharge is based on the corporate income taxes determined for the assessment periods commencing from 1995, which are reduced by corporate income tax credits if a positive balance remains. For corporate income tax or income tax prepayments the bases for such solidarity surcharge are any such prepayments for the assessment period commencing from 1995 onwards. Where the income tax is levied by way of a withholding at source, as in the case of wage tax, the bases for the surcharge are the taxes withheld at source with effect from 1January 1995 onwards. The surcharge levied on prepayments, taxes on dividends and wage tax is imputed in the assessments for both the income and corporate income taxes. It should, however, be noted that where a double taxation agreement exists, only the maximum withholding tax rate stipulated therein may be levied. Thus, where the withholding tax rate together with the surcharge exceed the stipulated rate, no surcharge may be levied, as this would be contrary to the standard treaty provisions. Ingrid Kiblbock Deloitte Q Touche, Munich Ministerial resolution on EU exchanges of shares On 17 April 1996, the Italian Ministry of Finance issued Resolution n. 55/E ('the Resolution') concerning the tax regime applicable to infra-Community corporate reorganizations effected through exchange of shares. The Resolution clarifies the contents of Legislative Decree n. 544 of 30 December 1992 ('the Decree'), which implemented in Italy the Merger Directive. In particular, the Resolution deals with two important issues: (a) the criteria according to which the shares exchanged must be valuated; and (b) the applicability of anti-avoidance provisions eo cross-border reorganizations. The question has been submitted to the attention of the tax authorities by Olivetti SpA ('Olivetti'), an Italian joint-stock company, owner of 5 1per cent of the share capital of Omnitel SpA ('Omnitel'), another Italian joint-stock company. Olivetti was interested in being informed about the fiscal consequences arising from the contribution of the 51 per cent participation in Omnitei, to the capital of its wholly owned Dutch subsidiary. As a consequence of the increase in its capital, the Dutch subsidiary would issue new shares in favour of Olivetti. The economic rationale underneath this operation would be the restructuring of the Olivetti " erouo. In this resDect. the existence of a business purpose would aiso be supported by an additional increase in the capital of the Dutch subsidiary to be effected by means of a public tender of newly issued shares on the US Stock Exchange. The Resolution took the view that the contribution has to be considered neutral for tax purposes, because of [he provisions contained in the Decree. More spec~fically,the tax neutrality principle applies when the conditions provided for in art. l(e) of the Decree are met. Under this article, exchanges and contributions of shares are defined as those operations whereby a qualified EU company acquires or integrates a controlling participation, as provided by art. 2359(1) of the Italian Civil Codel in the capital of another qualified EU company resident in another Member State,2 attributing to the contributing company its own shares in exchange for those received through the contribution. In return for the shares received, the acquiring company may also grant a cash payment, provided that it does not exceed 10 per cent of the nominal value of the newly issued shares. As an additional condition for the tax neutrality regime to apply, art. l(e) of the Decree requires that at least one of the contributors is an Italian resident, or that the transferred participation is connected with an Italian permanent establishment of a qualified EU company. Article 2(5) of the Decree then states that provided all the aforementioned requirements are satisfied - exchanges of shares do not represent a realmtion of the capital gains or capital losses on the shares or quotas given in exchange, the tax value of which is rolled over to the shares or quotas received by the contributing company. On the contrary, the cash payment - if any - would be taxable in the hands of the contributing company. In the case at issue, the tax authorities confirmed that the exchange of shares which will take place between Olivetti and its Dutch subsidiary will not give rise to any taxation, provided that it is effected at book values. Accordingly, the shares of the Dutch company received by Olivetti should be registered in the accounting books of the latter at the same value at which the shares of Omnitel were registered prior to their contribution. The second issue considered by the Resolution concerns the application of anti-avoidance measures. In this respect, the Resolution expressly grants the Itallan tax authorities the faculty to saary out all controls and assessments authorized by the law, before and after the exchange of shares has been enacted, in order to ascertain that the operation does not have tax-avoidance purposes. It would be hasty to deem such faculty governed by art. l l ( a ) of the Merger directive, under which a state may refuse to apply or withdraw the benefits of the Directive if an exchange of shares has as its principal objective or as one of its principal objectives tax evasion or tax avoidance. The fact that the exchange of shares is not camed out for valid commercial reasons such as the restructuring or rationalizing of the group activities may - under this provision - constitute a presumption that the operation has tax avoidance features. However, it is well known that because of a mistake committed by the Italian Parliament3 while implementing the Merger Directive, the Decree does not contain any antiavoidance provision similar to art. 11 of the Merger Directive. The clarification contained in the Resolution seems to confirm - as already concluded by most Italian scholars4 - that art. 10 of Law n. 408 of 28 December 1990 affects not only domestic but also cross-border reorganizations. Indeed, the wording of such provision, which contains the only general antiavoidance provision of the Italian tax system, is very similar to art. l l ( a ) of the Merger Directive, since it grants the Italian tax authorities the faculty to disallow the tax advantages accomplished through the operations of exchange and contribution of shares and quotas - among other corporate reorganizations when camed out without valid economic reason and for the sole purpose of fraudulently obtaining a tax saving. If the Dutch subsidiary of Olivetti had, on its turn, a US resident subsidiary, the operation at issue would also represent a feasible way to interpose a Dutch holding company between an Italian company and a US company without losing the benefits granted by The Netherlands-US double tax treaty ('the Treaty') which entered into force in 1994. The Treaty contains - at art. 26 - a limitation on benefits provision listing a number of tests aimed at preventing treaty shopping. More specifically, under one of them, a company resident in one of the contracting states is entitled to treaty benefits if the principal class of its shares is listed on a recognized stock exchange located in either of the states and is substantially and regularly traded on one or more recognized stock exchanges. Such test would be met through the public tender of the newly issued shares of the Olivetti Dutch subsidiary on the US Stock Exchange. In other terms, the exchange of shares could represent a route both to rationalize the group structure without any tax liability and to channel US source income to Italy via The Netherlands. Indeed, a single increase of the capital of the Dutch company would reach two objectives: permit the EU exchange of shares (through the issuance of new shares in favour of Olivetti) and meet the US-Netherlands treaty stock exchange test (through the public tender of the newly issued shares on the US Stock Exchange). Federica Fantozni Studio Legale Tribulario Associato, Rome Under this provision a company is deemed to control another company if the first holds the majority of votes which can be exercised in the shareholders' general meeting of the second company. Italian qualified companies are those in art. l(a) of the Decree. which includes, in addxion to the legal forms mentioned in the annex to ihe Directive, Italian cooperative and insurance companies. On this issue, see F. Fantozzi, 'Italy: Finance Act for 1995', EC T x Review, 1995/3 at 177. a bl. Agostini, 'Fusioni e scisioni CEE:pnme riflession', Commercio Internasionale, 12/1993 at 795; G. Maisto, 'Italy approves Leg~slativeDecree implementing EC blergers Directive', in Tau Notes Intl., 11 January 1993 at 67.
EC Tax Review – Kluwer Law International
Published: Jan 21, 1996
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