Official Journal of the European Union

C 143/46

Opinion of the European Economic and Social Committee 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 (recast)’

COM(2011) 714 final — 2011/0314 (CNS)

2012/C 143/10

Rapporteur: Mr MORGAN

On 20 December 2011 the Council of the European Union decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, 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 (recast)

COM(2011) 714 final – 2011/0314 (CNS).

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 2 February 2012.

At its 478th plenary session, held on 22 and 23 February 2012 (meeting of 22 February 2012), the European Economic and Social Committee adopted the following opinion by 230 votes to 4 with 10 abstentions.

1.   Conclusions and recommendations


The EESC welcomes the scope of the proposed amending Directive. The Committee is pleased that the amended Directive and the Parent-Subsidiary Directive will now be aligned. The 10 % shareholding threshold to establish that companies are associated is particularly welcome. This requirement had been highlighted by the Committee as long ago as July 1998 (1).


The Committee notes that many Member States will have their tax revenues reduced by this proposal. In this period of Member State fiscal crisis it must be assumed that it will take time to get approval from 27 Member States. The previous Directive was not finally adopted by the Council until five years after the proposal was published.


The EESC supports this proposal and urges Member States to give their approval sooner rather than later so that withholding taxes can be rationalised and another barrier to the smooth operation of the internal market can be removed.

2.   Introduction


In the European Union there have been two parallel streams of legislation relating to the elimination of double taxation between parent companies and cross border subsidiaries. The Parents-Subsidiaries Directives have been concerned with the double taxation of dividends. The second stream of legislation has been designed to eliminate double taxation of interest and royalty payments. These two streams have not been synchronised.


The first Parent-Subsidiary Directive (90/435/EEC) was adopted in 1990. The key point was that the parent company had to hold at least 25 % of the shares in the subsidiary company for the exemption to apply. An amending Directive (2003/123/EC) was adopted by the Council at the end of 2003. This reduced by stages the minimum shareholding needed to qualify for the exemption to 10 % by January 2009. The amending Directive also updated the list of companies covered by the Directive.


There was a proposal to move on Interest and Royalties in the same time-frame as the Parent-Subsidiary Directive. Indeed, it was a priority issue in the 1992 Ruding report (2). However, no consensus could be achieved until the Commission published its proposals in 1998 (COM(1998) 67). This still proved to be contentious – there were winners and losers amongst Member States – and so it was not until June 2003 that the Council adopted the Directive (2003/49/EC). Because of the contention involved, transitional periods were put in place for both interest and royalties for Greece, Spain and Portugal. A further Directive of 2004 extended transitional arrangements to certain of the NMS (Czech Republic, Latvia, Lithuania and Poland with a 2005 protocol to include Bulgaria and Romania).


The EESC approved the 1998 Interest and Royalty proposal in its opinion adopted at its plenary meeting in July 1998 (3). The opinion contained four specific comments: one was a proposal that the 25 % threshold should be reduced to 10 %, the other three were points of clarification.


The European Commission in June 2006 published a survey on the implementation of the Directive. Following this survey, on 11 November 2011, the Commission has adopted a new proposal to recast the Directive with a view to expand its scope. This will bring the Interest and Royalty provisions in line with the Parent-Subsidiary Directive.


An impact assessment was carried out on a number of options before the Commission decided to propose the option which would align the Interest and Royalty Directive with the provisions of the Parent-Subsidiary Directive for interest payments.


According to the impact assessment:

Concerning interest payments, the loss should not exceed EUR 200 to EUR 300 million and would affect the 13 EU Member States that still apply withholding taxes to outgoing interest payments – Belgium, Bulgaria, the Czech Republic, Greece, Hungary, Ireland, Italy, Latvia, Poland, Portugal, Romania, Slovenia and United Kingdom.

Concerning royalty payments, the loss should not exceed EUR 100 to EUR 200 million and would affect the seven countries with the largest negative royalty balances as a share of GDP - Bulgaria, the Czech Republic, Greece, Poland, Portugal, Romania and Slovakia. This is the option preferred by the majority of stakeholders responding to the public consultation.


According to the impact assessment, the initiatives contained in this recast proposal to eliminate withholding taxes in a larger number of cases would entail compliance cost savings for business estimated at between EUR 38.4 and EUR 58.8 million.

3.   Gist of the proposal


The proposal of 11 November 2011 is adopted by the Commission with a view to:

changing the scope of the Directive by extending the list of companies to which it applies;

reducing the shareholding requirements to establish that companies are associated, from a 25 % direct holding to a 10 % holding;

broadening the definition of "associated company" to include indirect shareholdings;

making it clear that Member States have to grant the benefits of the Directive to relevant companies of a Member State only when the interest or royalty payment concerned is not exempt from corporate taxation. In particular this addresses the situation of a company which, while subjected to corporate tax, also benefits from a special national tax scheme exempting foreign interest or royalty payments received. The source State would not be obliged to exempt from withholding tax under the Directive in such cases;

The transitional periods remain unchanged.


As under the Merger and the Parent-Subsidiary Directives, the benefits of the Interest and Royalty Directive are only granted to companies which are subject to corporate tax in the EU, tax resident in an EU Member State and of a type listed in the annex to the Directive. As the annex to the Directive only includes the types of companies existing in the 15 Member States that were already members of the EU before 1 May 2004, the types of companies in the new Member States have now been added by Council Directive 2004/66/EC of 26 April 2004.


The new amending proposal adopted by the Commission recasts all these Directives to provide for an update of the list of companies in the annex to the Directive. The proposed new list would also include:

the European Company (Council Regulation (EC) 2157/2001 and Council Directive 2001/86/EC) which may be created from 2004, and

the European Cooperative Society (Council Regulation (EC) 1435/2003 and Council Directive 2003/72/EC) which may be created from 2006.


The revised Directive is to be applicable with effect from 1 January 2013.

Brussels, 22 February 2012.

The President of the European Economic and Social Committee


(1)  Opinion of the EESC 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, OJ C 284, 14.9.1998, p. 50.

(2)  Report of the Committee of Independent Experts on Company Taxation, March 1992.

(3)  OJ C 284, 14.9.1998, p. 50.