256 5 Equity and Shareholders’ Capital
opposes it before the issue of that certificate. Such opposition may be based only
on grounds of public interest. There is a similar rule in the SCE Regulation.^612
The Directive on cross-border mergers provides that the “laws of a Member
State enabling its national authorities to oppose a given internal merger on
grounds of public interest shall also be applicable to a cross-border merger where
at least one of the merging companies is subject to the law of that Member
State”.^613
Tax and cross-border mergers. Like the company law aspects of cross-border
mergers, the tax treatment of cross-border mergers is covered by the fundamental
freedoms under the EC Treaty. In addition, the tax treatment of cross-border
mergers is governed by Directive 90/434/EEC.^614
The main principle under Directive 90/434/EEC is tax neutrality. It should be
possible to carry out mergers and other types of restructuring without any immedi-
ate tax consequences. A merger shall not – of itself – give rise to any taxation of
capital gains calculated by reference to the difference between the real values of
the assets and liabilities transferred and their value for tax purposes,^615 nor shall it
- of itself – give rise to any taxation of the income, profits or capital gains of the
shareholders.^616
If the provisions of Directive 90/434 are not implemented, companies partici-
pating in a merger may directly rely on any national rules that allow for tax neu-
trality in the case of a domestic merger.
On the other hand, artificial arrangements whose purpose is to circumvent or
escape national tax law are not regarded as worthy of protection under EU tax law
(Marks & Spencer).^617
5.11.5 Share Exchanges and Company Law
A share exchange can be full or partial. A full share exchange permits a business
combination between two or more entities. The entities can be domestic or for-
eign.
Effect of share exchange. The effect of a full share exchange is that: (1) the
separate existence of the entities does not cease; and (2) the acquiring entity ac-
quires all of the ownership interests of the securities classes issued by the other en-
tities; (3) and, as a result of the exchange, the acquiring entity becomes the con-
trolling entity.
(^612) Article 21 of Regulation 1435/2003 (SCE Regulation).
(^613) Article 4(1)(b) of Directive 2005/56/EC (Directive on cross-border mergers).
(^614) Directive 90/434/EEC on the common system of taxation applicable to mergers, divi-
sions, transfers of assets and exchanges of shares concerning companies of different
Member States.
(^615) Article 4(1) of Directive 90/434/EEC.
(^616) Article 8(1) of Directive 90/434/EEC.
(^617) Case C-446/03 Marks & Spencer [2005] ECR I-10837, paragraph 57.