Croos-Border Mergers in the European Union
Jana Skálová, Ladislav Mejzlík

Abstract
Cross-border mergers are considered to be a substantial topic in the European Union, since this issue is associated with free movement of capital. This is why the directives stipulating tax and legal conditions for cross-border mergers’ implementation have been issued. Directive 2005/56/EC brought in new possibilities of business transformation across the EU member states border. This article analyzes cross-border mergers in the Czech Republic, and possible reasons for the limited use of cross-border mergers. The basic legal document, based on which cross-border mergers are executed, is the common draft terms. The actual terms that each common draft terms shall include are stipulated by the Directive 2005/56/EC (the successor company, decisive date, information on valuation of assets and liabilities transferred to the successor company). The decisive date is a date from which the transaction of the merging companies will be treated for accounting purpose as being those of the company resulting from the merger (i.e. the successor company). This accounting concept deviates from the legal concept of the merging companies’ legal existence, which ceases with the registration of the merger in the Commercial Register. Determination of the decisive date for accounting purposes according to the local law of various member countries varies because of the process of transposition of directives, where each state may modify or adapt the provisions of the Tenth Directive in accordance with their own legal systems. Harmonisation of accounting for cross-border merger within the EU is, however, regulated inadequately. Such missing harmonization of accounting aspects of mergers results in a situation where each states adopts its own “customized” regulation. This would not be wrong if it did not involve cross-border mergers where mutual compatibility is necessary. As if the inconsistency of the directive and its slow implementation in the Member States somehow imply that neither the states nor entities need such regulation, that these are just sporadic transactions and not an appropriate instrument for international movement of capital. Income tax advantages that may be gained in cross-border merger were implemented by virtue of Directive 90/434/EEC. The Income Tax Act allows Czech successor companies to take over tax losses that were incurred by foreign merging companies and that have not been used yet. At this point, tax advantages could be at least described as problematic or even unattainable. As a way out of this difficult situation, appears to be an amendment to the current laws and regulation of accounting in the EU Member States and in Czech Republic.

Full Text: PDF