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Finance: Commission Proposes Increasing Minimum Protection for Bank Deposits to EUR 100,000
The European Commission has put forward a revision of the Directive on Deposit Guarantee Schemes (1994/19/EC) that puts into action the recent commitments made by EU Finance Ministers. The new rules are designed to improve depositor protection and to maintain the confidence of depositors in the financial safety net. Under the new rules, the minimum level of coverage for deposits will be increased within one year from EUR 20,000 to EUR 100,000, and initially to EUR 50,000 in the intervening period. Individual Member States can choose to add to these minimum levels. In addition, the payout period in the event of bank failure will be reduced from three months to three days. The proposal now passes to the European Parliament and the Council of Ministers for consideration.
Mergers: Commission Revises Remedies Guidelines
The European Commission has issued a new notice on remedies in merger control, replacing the existing notice from 2001. “Remedies”, which are essentially compromises offered to the Commission by parties to a transaction to eliminate competition concerns, have featured prominently in several significant merger cases. The Commission, however, has questioned whether remedies have in practice actually eliminated competition concerns to the extent hoped.
The new notice essentially formalises existing practices with regard to remedies and reiterates the Commission’s position that remedies will only be accepted if they are viable and effectively eliminate competition concerns. It also provides explicit guidance as to what information parties must provide when offering remedies, and require that parties use a new form, “Form RM”.
While the new notice is likely to create greater certainty for companies that wish to offer commitments, it also may suggest that the Commission may be more sceptical towards certain types of remedies. For instance, the new notice prefers structural over non-structural remedies, and divestitures over licences. This greater certainty remains to be seen in practice, which will likely be soon as the new guidelines take effect immediately.
Finance – State Aid: European Commission Approves Restructuring Plan for German Bank IKB
The European Commission has announced its approval, under EC Treaty State aid rules, of a restructuring package for German bank IKB Deutsche Industriebank AG. In 2007, Germany’s State-owned development bank, Kreditansstalt für Wiederaufbau (KfW) and three German banking associations granted a total of EUR 9 billion in State aid to IKB. The measures in favour of IKB included capital injections, risk shields and liquidity facilities. In line with the restructuring plan, IKB was sold to the U.S. investment fund Lone Star in an open, non-discriminatory and unconditional tender. The Commission questioned this restructuring plan under EU State aid rules. Under these rules, State aid to a company in distress is allowed, but only if it restores that company to long-term viability, including by making cuts in its activities, and if it is accompanied by a major investment made by the rescued company itself.
The Commission's investigation concluded that the restructuring plan was capable of restoring the bank's long-term viability by refocusing its activity on core business, abandoning loss-making activities and improving cost and risk efficiency. In addition, the sale to Lone Star will allow for positive economic development of IKB. Moreover, the Commission considered that Lone Star's capital injection and the funding provided by the banking associations constitute a significant contribution to its own restructuring. Finally, various measures, in particular a significant reduction of IKB's activities, limit the distortions on the market created by the economic advantage it received through the State support.
Finance – Accounting: Commission Adopts Changes to Accounting Standards to Mitigate Consequences of Financial Crisis
The European Commission has adopted amendments to accounting standards with the unanimous support of the EU Member States. The amendments to International Accounting Standard (IAS) 39 introduce the possibility of reclassifications for companies applying International Financial Reporting Standards (IFRS), which were already permitted under US Generally Accepted Accounting Principles (GAAP) in rare circumstances. The amendments to IFRS 7 introduce additional disclosure requirements linked to these reclassifications in order to ensure full transparency for users of financial statements.
The changes to the accounting standards are intended to mitigate the consequences of the recent turbulence in financial markets. These amendments provide EU companies with the same flexibility as their US competitors in reclassifying assets held-for-trading into the held-to-maturity category, while avoiding any distortion of treatment between US and European banks. The changes apply as of the third quarter of 2008 (starting after 1 July 2008).
Sports & Media – State Aid: Commission Decision on State Aid Granted by Denmark to TV2 Annulled
The Court of First Instance (CFI) has annulled the European Commission’s Decision regarding the State financing of TV2/Danmark, the Danish public broadcaster. This case arose from a complaint by the Danish commercial broadcaster SBS regarding aid granted to TV2 in the form of licence fees and advertising revenue between 1995 and 2002. The Commission initiated a formal investigation procedure and found these measures to be compatible with the Common Market, with the exception of approximately EUR 84 million in licence fees and other measures.
On appeal, the CFI found the statement of reasons of the Decision to be inadequate. First, while the CFI agreed with the Commission that licence fees can be considered a State resource, the Commission had not sufficiently explained why it considered private advertising revenues as such. Second, the Commission did not provide the reasons why it considered there to be overcompensation received by TV2 as the result of the licence fee. In that regard, the Commission did not sufficiently examine the conditions under which the amount of licence fee income payable to TV2 was set, nor did it develop its claim that the Danish authorities did not regularly verify the level of accumulated reserves.
As the Commission had not stated sufficient reasons, its Decision was annulled.
Sports & Media – VAT: ECJ Finds Sports Association’s Services Exempt from VAT
Contact Philip Bentley
The European Court of Justice (ECJ) has ruled that services provided by sports organisations to member clubs may be exempt from VAT. Under the sixth VAT Directive, certain services closely linked to sport supplied by a non-profit making organisation to “persons” taking part in sport are to be exempt from VAT.
Canterbury Hockey Club and Canterbury Ladies Hockey Club are members of England Hockey and pay an affiliation fee. England Hockey provides its member clubs with services such as coaching, umpires, a network of development offices and advice on marketing and sponsorship. However, the UK tax authorities claimed that the affiliation fees for England Hockey’s services did not fall within the exemption in the VAT Directive because the exemption only applied to services to natural “persons” and not legal persons such as clubs. The English High Court referred the issue to the ECJ.
In Canterbury Hockey Club C-253/07, the ECJ noted the particular organisation of sport and considered that if the exemption were to be limited to services to natural persons, a large number of sporting activities would fall outside the scope of its remit. Such a result would run counter to the intention of the exemption. Consequently, the ECJ considered that the exemption could apply to services to legal persons as well as natural persons, provided a number of conditions were met. First, the services must be supplied by a non-profit making organisation. Second, the services must be closely linked and essential to sport. Third, the true beneficiaries of those services must be persons taking part in sport. Services such as advice on marketing or commercial activities do not meet these criteria. However, services supplied in connection with sports clubs are generally eligible to benefit from the VAT exemption.
NEXT WEEK’S EVENTS
Monday 27 October – Friday 31 October 2008
Agriculture and Fisheries Council (27 – 28 October 2008)
COURT OF JUSTICE
There will be no sitting of the Court of Justice from 27 October to 2 November 2008 inclusive.
COURT OF FIRST INSTANCE
There will be no sitting of the Court of First Instance from 27 October to 2 November 2008 inclusive.