Issue No. 541 Report No. 371, May JO, 1979
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Issue No. 541 Report No. 371, May JO, 1979 IN THIS ISSUE page Collllllunity: Basic Consensus on Insolvency Measure •••••• 1 Company Law Proposal Returned to Parliament Unit •••••• 2 Italy: Unions Complain About 'Hidden' Income Tax •••••• 3 Britain: Accountants' Final Draft of Ethics Code •••.•• 4 Ireland: Economic, Social Development Plan Approved ••• 5 Germany: Government Plans Additional Energy Savings ••• 6 Bonn Wants More Consumer Rights in Credit Purchases ••• 7 Switzerland: VAT Rejected Again; A-Power Curbs •••••••• 7 Euro Company Scene ••••••••••.•••••.•••.••••••••••••••• 8 unit The Council of Ministers has agreed on the substance of the asic Consensus insolvency·draft directive, and formal adoption is expected on Insolvency within a few weeks. The measure would harmonize the mem Measure ber-state laws to guarantee satisfaction of employee pay claims in the case of employer bankruptcy. All member states except Ireland already have legislation on the mat ter, so only Dublin would have to establish a guarantee fund to pay unsettled claims; it would have three years to set up the fund. The proposal as it stands now falls considerably short of what the European Collllllission actually wanted when it presented its plan to the Council in April 1978. It had two main objectives in mind: (1) establishment of insolven cy funds in all of the states and (2) harmonization of rules on what an empl~yee should get if his employer goes bankrupt. Not only back-pay rules were sought to be har monized but also the rules on other benefits, such as vaca tion pay, bonuses, premiums, and severance pay, where the national differences are still considerable. Most member states were opposed to harmonizing nation al pay and benefits rules. In France and Germany the bene fits paid to former employees are generous, but in the U.K., Ireland, and Denmark they are considerably less so. ---------This Issue Is In two parts, consisting of 40 pages. This Is Part I. -------- COMMON MARKET REPORTS (ISSN 0588-649X), published weekly by Commerce Clearing House, Inc., 4025 W. Peterson Ave., Chicago, Illinois 60646. Subscription rate $635 per year. Second-class postage paid at •Chicago, Illinois. Printed in U. S. A. All rights reserved . EUROMARKET NEWS - p. 2 • Insolvency Harmonization would have meant either bringing the Communi (contd.) ty standards up to the German and French levels or Germany and France having to cut back on their legislative frame work. (The Commission's original proposal had contained the main features of the German law - Doing Business in Eu rope, Par. 30,691.) The. Council's working group chose nei ther of the two; hence, the measure will leave it up to the member. states to legislate rules on pay and compensation. Some critics maintain that the directive can hardly be called a harmonization measure if it requires only one mem ber state to bring its provisions in line with the Communi ty directive, Commission lawyers say, however, that the measure has broader connotations affecting all member states in that it limits what the states might do in amend ing their existing rules. For example, a member state could not change its existing law to make employees con tribute to the back-pay claims fund that employers are sup posed to finance, However, the member states would be free to put the burden on the taxpayers' shoulders. Company Law In its last session the outgoing European Parliament failed Draft Returned to reach a consensus on one of the most controversial piec to EP Unit es of proposed Community legislation - the fifth company law coordination draft directive. This proposal concerns the management organs of stock corporations (managing boa. and supervisory board) and labor's participation in the corporate decision-making process. The Commission submit ted the measure to the Council in 1972 (Common Market Re ports, Par. 1401), and the EP's legal committee has been considering it ever since. The lack of a quorum on the EP's last day in session on May 10 prevented the full house from voting on the legal committee's report on the proposal and an accompanying resolution. The measure, one of the few left over for the first directly elected Parliament to deal with, was sent back to committee. In any case, a _largely Conservative majority of EP members was determined to block a vote by the full house and prevent the Council from taking up the measure. Without a formal opinion from the EP, the Council may not proceed with its deliberations. EP members opposed to the measure were not prepared to go along with several of the legal committee's recommenda tions that went partly beyond the scope of labor's codeter mination rights in the German coal mining and steel indus tries (Doing Business in Europe, Pars. 23,222A, 23,441), There was not as much opposition to the recommendation that a corporation should have both a managing board and a su pervisory board (the Commission's proposal also calls for two bodies). Most of the criticism was directed against the committee's suggestions involving the composition of the two boards and the scope of the measure •. The legal commit tee wants an employee director on the managing board who could be neither elected nor recalled against the will of • •EUROMARKET NEWS - p. J Company Law the labor representatives on the supervisory board. Sever (contd.) al EP members thought that management's efficiency would be prejudiced by the appointment of employee directors. Some members of Parliament also objected to a supervisory board of which one-third each would be made up of shareholder and of labor representatives, while the final one-third would be jointly chosen by shareholder and labor representatives. This recommendation is generally in line with what the Com mission proposed in its amended European Company Draft Statute and what it suggested in its 1975 Green Paper on employee participation and company structure (Common Market Reports, Pars. 9745, 9785). Still, there was widespread apprehension among the Christian Democrats and other Con servative groups in the EP that the proposed composition of the supervisory board could possibly tip the balance in management's decision-making process in favor of labor. The Conservatives maintained that an attempt was being made to give labor a greater say in corporate affairs via Commu-· nity legislation that would have no chance in the national legislatures. The legal committee also recommended that the scope of the measure be extended. Instead of applying the measure to stock corporations with at least 500 employees, the com mittee suggested a threshold figure of 250 employees or an nual sales of at least 1.5 million units of account as the governing criteria. The committee believes that the lower figure is more appropriate because rationalization and au tomation, especially in capital-intensive corporations with • high annual sales, has reduced the number of employees in many firms. Some EP members objected to the more stringent criteria recommended by the legal committee, saying that the measure would then cover several thousand more small stock corporations which otherwise would be exempt under the Commission's original proposal. Italy: In connection with the current collective pay negotiations Unions Complain involving leading sectors of Italian industry, the labor About 'Hidden' unions have voiced complaints about the effects on wage Incoil}e Tax earners of an "undeclared" (i.e., hidden) income tax in crease of 25-35% during the past three years. They charge that this rise resulted from the aggregate 31.2% rate of inflation in 1976-78, combined with the fact that 1975 was the last year in which the graduated income tax rates were adjusted. The unions reject the position repeatedly advanced by both the government and employers that actually no spending power had been lost during that three-year period because wages had risen at a rate almost identical to that of pric es. They have produced figures showing that earnings have been eroded by the effect of graduated tax rates on inflat • ed wages •. For example, a worker who earned the equivalent EUROMARKET NEWS - p. 4 • Income Tax of 57,200 in 1976 paid a tax of 5766, or 10.63% of his in (contd.) come, while in 1978 (presuming he "stayed even" in real terms) he earned 59,446 and paid 51,278 in taxes - at a higher rate of 13.53%. Had the tax rates been adjusted to conform to inflation, it is argued, then the worker's 1978 income tax would have been only 51,004. Thus, in this hy pothetical case, the worker lost 5274 in 1978, and his tax es rose by 27.3% in real terms since 1976, without any such increase having been declared or legislated. Mathematically, the percentage of tax increase is con siderably greater in lower-paid categories, the unions say, although the percentage of "lost" income is between 2.3% and 3% at all (1976) levels between 53,000 and 525,000, (The greatest loss is at the 514,000 level.) Still, the unions contend that the working man is being "nibbled to death," that every percentage point of income made by low wage earners must be fiercely protected, and that the grad uated rates should be altered. A final argument for such an alteration is seen in the "disadvantaged" position held by wage earners as opposed to businesses or self-employed individuals. Whereas the for mer have no choice but to pay taxes (81% of Italy's income taxes are raised through employee withholding), the latter often avail themselves of various avenues of evasion and •. avoidance. In the meantime, Italy is again well in the lead as the West European country with the highest price expansion rate.