european union single market capital flows
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Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Daniela CastroSebastien De Knoop
Nicolas MurciaCameron Trenfield
Lynn Van den Maegdenbergh
Capital flows in the Single Market
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Introduction
“As the European Union is growing, several objectives must be considered within the single market to reach a true political and economic
community of 27 Member States
as the free movement of capital is one of the fundamental principles of the Union”
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Timeline
1957Treaty of
Rome
Article 67:Full liberalization
of “Capital Movements”
1988Single
European Act
Directives:Effective
integration of “Capital
Movements”
2008-2010Lisbon Program
Objectives:Effective
integration of “Financial Services”
Free Movement of
Capital MANDATORY
1990
1997-1998Madrid
European Council
Capital Markets:Regulatory framework
01/1999
€
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Achieving the Free Circulation of Capital
Full liberalisation of capital movements between Member States (July, 1990)
Abolish restrictions on « Capital movements »
Safeguard Clause
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Establishing a European Financial Area
Progressive liberalisation of capital movements:
Capital operations in financial market securities
Operations involving financial credits
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
The Legal Aspects of Intra-EU Investment
Capital movements:
« Acquisition of domestic securities »: Right to acquire stakes and to exercise the resulting voting rights under the same conditions as the domestic government.
Exceptions are based on economic, public security or public health considerations:
Microsoft (USA)
Privatization of a public company:France Telecom (France)
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Financial Assistance for Balances of Payments
The outstanding amount of loans to be granted to Member States under this facility is limited to € 12 000 million
The Commission is empowered, on behalf of the European Community, to contract loans on the capital markets or with financial institutions
Support made available by the European Central Bank (ECB) under the very short-term financing facility program
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Impact on Capital Markets
Harmonisation of capital markets increases transparency and avoid arbitrage disputes.
Business conventions Bonds
Equity markets:Non Par Value shares (NPV) (January 4th, 1999 )
Ratings: Sovereign debt Corporate debt
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Banks and the Free Movement of Capital
Cross-border payments
Cross-border credit transfers
Transfers of funds
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Cross-border Payments
Cross-border credit transfers Cross-border electronic payment transactions Cross-border checks
Regulation (EC) No 2560/2001 (Dec. 31st, 2001)To ensure that charges for those payments are the same as those for payments in euros within a Member State
COM (2005) 603 (December 1st, 2005)To put forward a common legal framework for retail payment services in the internal market
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Cross-border Credit Transfers
Directive 97/5/EC (February 14th, 1997)Strengthened by Regulation 2560/2001 (December 28th, 2001)
To ensure that credit transfers throughout the EU are performed rapidly and inexpensively
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Transfer of Funds
Regulation (EC) No 1781/2006 (November 15th, 2006)
To establish the traceability of transfer of funds which are applicable to all payment service providers
Objective: To further combat terrorist financing
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Businesses and the free movement of Capital
“European Company”
Annual Accounts
Payment and securities systems
Investor Compensation Schemes
Late Payments
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
The Formation of a “European Company”
For the completion of an internal market,
“companies […] should be able to plan and carry out the re-organisation of their business on a
Community scale. […] Such re-organisation presupposes that existing companies from
different Member States are given the option of combining their potential by means of mergers.”
(Council Regulation (EC) No 2157/2001 of 8 October 2001)
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
The Formation of a“European Company”
Four ways of forming a European Company: Merger Formation of a holding company Formation of a joint subsidiary Conversion of a public limited company previously formed under national law
Minimum Capital: € 120 000
Registered Office: where it has its true centre of operations
Statutes:• Administrative board (single-tier system)• Management board + supervisory board (two-tier system)
Taxation: treated as a multinational
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Allianz (Ger)First European Company
Largest financial services provider: 75% total revenues generated in Europe € 5.5 billion in operating profit (2005) Represented in 29 European Countries
Became a SE on October 13th, 2006 Supervisory Board with 6 members representing staff from all European Countries Simplified operating structures € 2.87 bn (9 first months of 2007) compared to € 2.07 bn (2006)
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
New organizational structure
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Annual Accounts
Fourth Council Directive 78/660/EEC (Jul.25th ‘78)To coordinate Member States’ presentation and content of annual accounts and annual reports
Directive 2001/65/EC (Sept. 27th, 2001)Adopting the method of “fair value accounting”
Council Directive 2006/43/EC (May.17th,’06)Harmonize auditing of annual accounts
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Payment and Securities Settlement Systems
Directive 98/26/EC (June 11th, 1998)To reduce the risk associated with participation in payment and securities settlement systems (risk linked to insolvency of a participant).
Transfer orders and netting must be legally enforceable
Transfer orders may not be revoked once they have been entered into the system
The insolvency law applicable is the law of the Member State whose system is involved
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Investor Compensation Schemes
European Parliament and Council Directive 97/9/EC (March 3rd, 1997)
To protect investors following the failure of an investment firm.
Min. level of compensation/investor: € 20 000
Investors must submit their claims within maximum 3 months of the establishment of the eligibility
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Late Payments
Directive 2000/35/EC (June 29th, 2000)To encourage public authorities and companies to comply with payment deadlines in commercial transactions
Payment due within 30 days after the receipt of the invoice or the receipt of the goods/services
Interest on late payment = interest rate applied by the ECB to its main refinancing + 7%
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Consumers and the free movement of Capital
Actions of Injunction
Consumer Credit
Credit Agreements
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Action of Injunction
Directive 98/27/EC (May 19th 1998) To approximate the laws, regulations and administrative provisions of the Member States in order to protect the collective interests of consumers.
Entities:Bodies or organisations which have a legitimate interest in ensuring that the collective interests of consumers are protected
• Independent public bodies• Bodies whose mission is to protect these interests in compliance with criteria laid down in national law.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Council Directive 87/102/EEC (December 22nd 1986)
European legislation harmonizes the general conditions relating to consumer credit
The EU market in consumer credit is still national
The EP Internal Market and Consumer Protection Committee plan to stimulate the European market while still protecting consumers.
Consumer Credit
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Benefits to Consumers
• All EU consumers will have the right to the same information in their country or other EU Member State
• It will be easier to calculate the total cost of a loan
• It will be standardized EU-wide and will be used as a basis for calculating the annual percentage rate of charge (APR)
• Protect consumers against taking on too much debt. It will be easier to pay off loans early
• A right of cancellation within 14 days will apply EU-wide.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
GDP Facts
European consumers owe more than US$1.18 trillion or nearly 1/10th of EU gross domestic product and this market is growing at 8% a year.
Britain and Ireland are among countries where borrowing is the most popular.
On average, Lithuanians and Slovakians owe less than US$148 while cash-rich spenders in Britain and Ireland owe more than US$4,440.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Council Directive 93/13/EC
The existing Consumer Credit Directive is based on minimum harmonization.
The future legislation on credit agreements for consumers will harmonize the existing legislation
• ensuring the same level of consumer protection
• facilitating access to transnational credit at European level.
Credit Agreements
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Negotiations within the Council focused on:
Standard information for advertising
Pre-contractual information and contractual information to be included in credit agreements Right of withdrawal
Early repayment of the credit and the creditor’s right to compensation
The calculation of the annual percentage rate of charge (APR).
Credit Agreement
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Purchasing Property in another Member State
The free movement of capital includes the rights of citizens and businesses to
purchase shares in companies established in a different Member State and to
purchase properties
*Exceptions with new member states
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
World Property Investment Hot Spot
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Fiscal Aspects of the Free Movement of Capital
Economic Stakeholders
Private Individuals
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Indirect Taxes on the Raising of Capital
Directive 69/335/EEC (Jul. 17TH 1969)
Abolishes stamp duty on securities. Transactions subject to capital duty are only taxable in the Member State in which a company’s main centre of management is located. Attempts to reduce double-taxation, capital duties and further the common market. Directive 74/553/EEC (Nov. 7th 1974)
The amount of Capital Duty charged is based on the value of the shares belonging to each member.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Directive 2006/98/EC (Nov. 20th 2006)
Due to accession of Bulgaria and Romania.Complete Harmonization of indirect taxation.
Indirect Taxes on the Raising of Capital
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Taxation: Parent companies & Subsidiaries
The distribution of profit coming from and to a company whose main centre of management is located in a different Member State
Council Directive 90/435/EEC (23 July 1990) With amended Directives 2003/123/EC and 2006/98/EC
The Member State in which the parent company resides either cannot tax distributed profits or can offer corporate tax deductions to profits made by the parent company’s subsidiaries (located outside of the Member State but within the EU)
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Common System of Taxation
Directive 90/434EEC (July 23rd 1992)
Set common regulations for taxation on mergers, divisions and contributions of assetsCapital Gains are not taxable at the time of a transaction
When a merger entails the transfer of an asset from one member state to another, the former must renounce all taxing rights
Member States do not apply the provisions of the Directive when taxing a direct or indirect shareholder of certain corporate taxpayers.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Taxation of Savings Income
Council Directive 2003/48/EC (23 June 2003)
Enables interest on savings received in one Member State by individuals who are resident for tax purposes in another Member State to be made subject to effective taxation in accordance with the laws of the latter Member State
Cooperation and exchange of banking information between member states is fostered
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Tackling Tax Obstacles to the cross-border provision of occupational pensions
Commission’s Objectives:
• Seek a coordinated approach adapted to the diversity of Member States' rules rather than attempting to achieve harmonisation;
• Call for the elimination of unduly restrictive or discriminatory tax rules;
• Present measures to safeguard Member States' tax revenues.
The EU is looking to abolish cross-border provision obstacles using the same cooperation tactics they use for interest tax savings.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
The main institution is the European Anti-Fraud Office (OLAF)
Objectives: Protect financial interests of European Union Fight fraud, corruption, and other irregularities
Methods Independent internal and external investigations Organizes cooperation between corresponding associations of member states
Fight against Fraud
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Money Laundering
Any illegal activities include:
Converting property acquired in a criminal manner
Helping someone who is laundering money
Acquiring property that was obtained illegally
Disguising any information concerning financial property
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Obligations of Businesses
Businesses are responsible vis-à-vis there customers
As soon as they establish a business relation
When there are transactions of EUR-15,000
In any suspicion of illegal activity
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
FIU
Financial Intelligence Unit
Established in every Member State
Whenever suspicion arises, must notify the FIU
Commission facilitates interaction between FIU’s
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Customs Declaration
Anyone carrying more than EUR 10,000 must declare it at the borders of the Community
Information can be used by Member State to look into fraud
May share information with other member states
Professional Secrecy remains intact.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Corporate Malpractice
Enhance transparency
Both within company and in transactions between companies
Clarify responsibilities of board members
Oblige all listed companies to make a public annual statement
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Financial Crime
Commission puts big emphasis on combating organized financial crime
If financial crime decreases, organized crime decreases too
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Financing of Terrorism
Combat financing of terrorism
Facilitation of the freezing of suspect bank accounts
Communication across Member States regarding suspect flows of capital
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Fraud in Numbers
Number of frauds decrease by 12%
Value of fraud increase from 328 to 353 million Euros (7%)
Using anti-dumping duties, Chinese bicycles importers evaded million of Euros
7.3 Billion Euros since OLAF creation in 1999
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
External Capital
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Foreign Direct Investment
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
World Destinations
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Intra and Extra Flows
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
Conclusion
The free movement of capital, like the three other fundamental freedoms of the EU, has enabled its
Member States to achieve new levels of prosperity.
The fluidity of capital has facilitated transactions amongst any individual or entity in the EU.
The increased amount of cooperation forges stronger relationships amongst Member States and provides a
platform to further improve agreements.
Consumers
Fiscality
Fraud and External Flows
The Free Movement of Capital
Banks and Businesses
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