Although I voted for Mr Prodi as President of the Commission, I do not accept the strongly federalist views regarding a common defence and a common system of taxation that were put forward by Mr Prodi in his policy statement.

I voted in favour of the report on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States as these legal transactions result in fundamental changes to commercial companies' legal status.

Mr President, I am presenting the report adopted by the Committee on Economic and Monetary Affairs on the proposal for a Council directive on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.

Directive 90/434/EEC (known as the ‘Merger Directive’) already provides for a solution regarding a common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares in cases where these involve different Member States, but the Directive needs improvement, and its scope needs to be enlarged.

The first one was the expansion of the framework of Directive 90/435/EC on the common system of taxation for parent and subsidiary companies through Council Directive 2003/123/ES, which eliminates the economic and legal double taxation of cross-border flows of dividends within the framework of the Community.

In the action plan for the single market presented at the Amsterdam European Council almost two years ago, the Commission pointed to the need to work towards a common system of taxation in the area of VAT, which would eventually replace the current transitional system, while at the same time modernising and simplifying it.