Tax treatment of re-domiciliations and cross-border mergers

This publication outlines the tax treatment of corporate re-domiciliations in six EU countries, following the harmonization of EU corporate re-domiciliation regimes under the Mobility Directive. By way of comparison, it also covers the tax treatment of cross-border mergers and includes observations on the position in the UK. This guide is presented in the form of a jurisdictional Q&A. The jurisdictions covered are France, Germany, Italy, the Netherlands, Portugal, Spain and the UK. The topics covered include the transfer tax and CIT treatment of inbound and outbound re-domiciliations and cross-border mergers (or, with respect to the UK, transactions with equivalent effect). Re-domiciliations A re-domiciliation (or conversion or change of corporate seat) refers to the change of a company’s place of incorporation. The company converts from its registered legal form under the laws of the departure State to a legal form under the laws of the destination State without dissolution or winding up (i.e. under the legal continuity principle). Similar corporate reorganisations which involve a dissolution or winding up would generally have different tax implications, and these are outside the scope of this publication.

Different jurisdictions’ re-domiciliation regimes differ (provided that, where applicable, the requirements of the Mobility Directive are met). For example, from a French corporate law perspective, inbound and outbound re-domiciliations are not limited to cases falling within the scope of the Mobility Directive, subject to more stringent procedures and with some uncertainty as to whether the legal personality can be retained. Portugal, Spain and Italy (subject to specific conditions) generally allow inbound and outbound re-domiciliations, i.e. the application of their re-domiciliation regimes is not limited to cases where the jurisdiction on the other side is an EU or EEA country. In contrast, Germany and the Netherlands permit re-domiciliations only to the extent required by the Mobility Directive, i.e. where the jurisdiction on the other side is an EU or EEA country.

The UK does not currently permit re-domiciliations at all – although steps can be taken to achieve a similar effect for tax purposes (albeit not for corporate law purposes). The UK government has stated that it intends to introduce a re-domiciliation regime in “due course”.

Cross-border mergers

A cross-border merger refers to the merger of one or more “transferring” companies into an existing or a newly formed “receiving” company in another jurisdiction, where the transferring companies transfer all their assets and liabilities to the receiving company and are wound up, but without going into liquidation, and the shareholders of the transferring companies are issued securities in the receiving company. In addition to these securities, they may also receive a cash payment. Different tax considerations would generally apply for similar transactions where the transferring companies go into liquidation (and a discussion of such considerations is outside the scope of this publication).

Again, merger regimes differ across different jurisdictions. For instance, as a matter of principle, France allows cross-border mergers involving a jurisdiction not covered by the Mobility Directive, but the feasibility of such operations will depend on the law of the other jurisdiction. Germany, Italy, the Netherlands, Portugal and Spain all permit (inbound and outbound) cross-border mergers involving companies in EU or EEA countries; Portugal, Spain and Italy (subject to specific conditions) also permit these where another country is involved.

UK law does not currently permit cross-border mergers. A merger regime had previously been introduced to comply with EU law requirements, but it was not extensively used in practice and was repealed following Brexit. As such, alternative transactions are usually undertaken in order to achieve a similar outcome to a cross-border merger.

Please keep scrolling down to explore the tax treatment of inbound and outbound re-domiciliations and cross-border mergers in the covered jurisdictions, and of certain comparable operations in the UK.

This publication is intended to provide an overview and highlight potential issues; it is not intended to be comprehensive. A detailed discussion of the countries’ re-domiciliation and cross-border merger regimes from a corporate law perspective is outside the scope of this publication.