Societas Europea could be firms of future

Posted on in ERA News 9 view

The International Herald Tribune, October 08, 2004

The new appendage: SE
Paul Meller
Societas Europaea could be firms of future

BRUSSELS – Forget PLC's, SA's and all the other little letters attached to
names of companies that disclose their nationalities. Starting Friday,
European companies are supposed to be able to register as European entities
and add the letters SE (from the Latin phrase Societas Europaea) after their
names.

In theory, at least, these SE companies should find it easier to transcend
Europe's national borders and gain huge savings on their operating costs.

But despite 30 years of discussing the idea and three years after European
governments finally signed on to the SE concept, there are still a number of
legal obstacles to making this idea work.

Most notably, only a handful of those governments have actually passed the
laws required to make the idea of a truly European company a reality.

So, not surprisingly, the list of companies pursuing SE status is quite
short. Only nine companies have closely examined the idea so far, and of
these only two are investing a serious amount of time on the issue.

“It would be wrong to call this a false dawn,” insisted Peter Schutze, a
board director at the Scandinavian banking group Nordea. “The politicians
had to set a date. Now what is needed to pressure on countries to follow
up.”

Nordea, formed in 2000 through a merger of banks in Sweden, Finland, Norway
and Denmark, decided to pursue SE status last year and hopes to register
around the end of next year.

The Finnish technology company Elcoteq Network is considered to be close to
making a similar commitment, although no one at the company was available
for comment on Thursday.

The other seven are European Aeronautic Defense Space (EADS); Eurotunnel;
the French-Spanish steel maker Arcelor; the Finnish-Swedish phone company
TeliaSonera; the Italian-Austrian construction company Brenner Tunnel; the
Belgian-Dutch financial services group Fortis; and the Swedish bank SEB.

When the politicians signed up to the idea of a European company statute
three years ago, they said the move would save billions of euros in
administrative costs for corporations doing business across national
borders.

“The European Company will enable companies to expand and restructure their
cross-border operations without the costly and time-consuming red tape of
having to set up a network of subsidiaries,” said Frits Bolkestein, the
European commissioner in charge of forging a single European market.

Under the European company statute, a European corporation can be set up by
the creation of a holding company or a joint subsidiary, or by the merger of
companies located in at least two member states of the European Union, or by
the conversion of an existing company set up under national law.

With headquarters in one country of its choosing, an SE company will be able
to operate on a European-wide basis and be governed by laws directly
applicable in all 25 countries in the European Union, rather than by
national laws in the countries it operates in.

Schutze, of Nordea, said having a European identity would help break down
some of the barriers a company faces when operating across national borders.
But he warned that becoming an SE company would not solve all the problems
his company faces.

“The European company statute won't be a panacea,” said Jerome Chauvin, a
director at the European employers' association, Unice. “We have always
supported the idea, but there are still some missing pieces.”

The financial services industry has been one of the slowest to take
advantage of the single European market, largely because of opaque national
banking rules, which have effectively deterred banks from crossing borders.

The biggest obstacle to Nordea is a Europe-wide law designed to safeguard
bank customers' savings in the event of a bank failure. The law, passed in
1994, orders banks with branches in more than one country to pay into a
government-run guarantee fund in the country where the banks' headquarters
are located.

Since that date, Nordea's operations in Finland, Norway and Denmark have
paid more than E400 million, or $491.7 million, into those countries'
guarantee funds. But according to the Europe-wide law, Nordea should now be
paying into the Swedish fund because that is where the bank's headquarters
are located.

“We stand to lose all that money, and becoming an SE won't help us in this
respect at all,” Schutze said.

In addition it will be hard to explain to customers in Denmark, for example,
that their savings are protected by a guarantee fund in Sweden.

“Those customers may decide it's all too complicated and go to the bank next
door,” he said.

The biggest drawback of the European company statute is its failure to
address tax issues, Chauvin of Unice said.

“There is no possibility to consolidate tax under the European company
statute,”
he said, adding: “You won't see a rush to register SE's until there is a tax
regime designed for them.”
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