(E)merging value decreases in transferred assets - A study on tax aspects regarding post-merger value decreases in assets transferred upon merger

Sammanfattning: The objective of this thesis has been twofold. Firstly, the purpose has been to examine how the outcomes for tax purposes, at the company level, differ depending on whether the assets transferred in a merger remain attributable to a P.E. in the state of the transferring company, when those assets are subsequently realised with a loss after having decreased in value, post-merger, to a level below their book value. Secondly, the purpose has also been to investigate to what extent a step-up in tax base mechanism, the one in ATAD as well as a conceivable step-up in tax base mechanism inserted in the Merger directive or tax treaties, could be suitable to mitigate any discrepancies. In examining the first part of the purpose a legal-dogmatic research method was applied, analysing the law as it positively stands. For the second part of the purpose a normative approach was applied. The study shows that there are discrepancies in the outcomes for tax purposes, depending on whether the assets transferred in a merger remain attributable to a P.E. in the state of the transferring company, when those assets are subsequently realised with a loss. Furthermore, the study shows that the step-up in tax base mechanism included in the exit tax rule in the ATAD is not sufficient for mitigating the highlighted discrepancies. Nor would it be sufficient for member states to extend these rules to merger situations by unilateral means. Moreover, inserting a rule with similar characteristics into the Merger directive would end up with a choice having to be made between the objective of the directive to safeguard the financial interest of the member state of the transferring company and aligning the rule with the one in the ATAD. The later would be desirable for reasons of legal certainty. A more suitable solution would be to insert an exit rule, with similar characteristics to the exit tax rule in the ATAD, into tax treaties. Any disagreements on what constitutes an appropriate market value at the time of the merger or exit could be resolved by the contracting states under the mutual agreement procedure article.