El Reconectador Whip & Bourne

7.4.1. Discrimination

A special tax regime for the SE could give rise to unequal treatment and/or discrimination, and this has been discussed above. To the extent unequal treatment or discrimination were present, enhanced cooperation would be blocked by Article 43 (c) EU Treaty.

7.4.1.1. State aid

Similarly, a special tax regime for the SE might qualify as state aid and the risk that such aid might not be compatible with the Common Market and would therefore need to be notified was also discussed

261 See Leible in Streinz, EUV/EGV, Art. 96 EGV, note 3; Kahl in Callies/Ruffert, Kommentar zu EU-Vertrag und EG- Vertrag, Art. 96, note 4 et seq.

262 Leible in Streinz, EUV/EGV, Art. 96 EGV, note 6.

263 This view seems to be shared by the European Commission in its answer to a MEP question, see OJ C 257, 29.6.83, p. 1 et seq.

above. The same considerations would apply to the idea to adopt such a scheme in the framework of enhanced cooperation. Incompatible aid would exclude enhanced cooperation according to Article 43 (c), (f) EU Treaty.

7.4.2. Cross border trade

Even irrespective of the considerations referred to above in respect of discrimination and state aid, there is a risk that the introduction of a specific SE tax regime could result in a barrier to cross border trade in particular with respect to intra group sales and services.

It is widely known practice that multinational groups of companies centralise for non-tax and tax reasons group internal services and functions. The significance of such service centres was generally recognised by the Member States in connection with adoption and implementation of the Code of Conduct. Taking into account that under the specific tax regime no transfer pricing issues will arise and double taxation of interest, royalties and dividends will be effectively avoided the idea of a service centre in a Member State with low general tax rate that participates in enhanced cooperation will be by far more attractive to enterprises of other participating Member States than an otherwise comparable location in a non-participating Member State.

Although enhanced co-operation may well have been conceived with a view to facilitating, for example, tax harmonisation measures, nevertheless the requirements of article 43 EU are very strict. As a consequence of the fact that even positive non-repressive measures may result in trade barriers, this consideration might even apply to enhanced cooperation if a common tax base were applied to all forms of companies that are comparable to an SE, but only between those Member States participating in enhanced cooperation.

7.4.3. Distortion of Competition

As in the case of state aid, there is a concrete risk that a specific tax regime for the SE could be viewed as a specific measure; such specific measure would in principle result in distortion of competition between participating and non-participating Member States as SEs and SE structures in participating Member States would have an advantage not available to competitors in non participating Member States.

The significance of this distortion of competition would depend on the particular tax and compliance cost savings and might imply a difficult evaluation.

7.4.4. Compensation, Option, Pilot scheme

The issues and problems discussed in respect of enhanced co-operation would not be relevant and

occur, if any tax and compliance cost savings were compensated for264 as indicated in the discussion of discrimination.

It might be argued that an SE participating in a special tax regime might have certain obligations which offset or remove expected benefits – in respect of adapting to a new set of rules for calculating the tax base or increased compliance requirement in respect of monitoring and reporting the consequences of the project. However, compensation would need to be precise.

In the absence of full compensation, the analysis in this section would not change if the system were adopted as optional or only on a temporary test basis.

7.4.5. Further remarks

If a common tax base regime were implemented in the framework of enhanced cooperation the issue would have to be addressed in the participating country of the head office/parent entity whether the non-discrimination principles of Article 43, 48 EC Treaty would not require to allow inclusion of branches and/or subsidiaries located or resident in non-participating Member States and/or branches and subsidiaries of SEs which had their head office in non-participating Member States.

Further, as mentioned above, Member States not participating in enhanced cooperation shall not impede the implementation thereof by the participating Member States. In this respect application in a non-participating country of provisions denying deduction of a loss that can be deducted in another Member State might be problematic.

The issues discussed in this section on enhanced cooperation would have to be addressed in a similar fashion under Article 97 EC Treaty, if a limited number of Member States agreed outside of the scope

of enhanced cooperation, e.g. by way of a multilateral convention265 to introduce a specific tax regime for the SE.

7.5. Conclusion

Although, due to a lack of experience and doctrine, uncertainties exist in respect of the interpretation of Article 43 EU Treaty, the following conclusions seem nevertheless reasonable:

264 See particularly in respect of distortion of competition OJ C 257, 29.6.83, p. 1 et seq. There seem to be differences between the various language versions at least in respect of the second last paragraph of the answer.

265 It follows from the wording of Art. 43 EU Treaty that Member States are not obliged to use the enhanced cooperation system (concurring e.g. Becker in von der Groeben/Schwarze, EUV/EGV, Art. 43 EUV, note 28.)

In our opinion, enhanced co-operation would not deal with the problem of discrimination under general Treaty rules.

Although uncertainties exist in respect of the interpretation of the conditions for enhanced cooperation, it cannot be used if a specific tax regime for SEs would result in unequal treatment or discrimination. Further, if a specific SE tax regime might result in state aid it must be notified and there are doubts as to whether it could be approved.

A special tax regime for the SE as currently envisaged could not be implemented under enhanced co- operation unless the tax and compliance cost savings were fully compensated.