No C 53/26 Official Journal of the European Communities 28. 2. 91 
Proposal for a Council Directive on a common system of taxation applicable to interest and royalty 
payments made between parent companies and subsidiaries in different Member States 
COM(90) 571 final 
(Submitted by the Commission on 6 December 1990) 
(91/C 53/02) 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 100 
thereof, 
Having regard to the proposal from the Commission, 
Having regard to the opinion of the European Parliament, 
Having regard to the opinion of the Economic and Social 
Committee, 
Whereas, in a common market having the characteristics of a 
domestic market, transactions between companies in 
different Member States must not be subject to less 
favourable tax conditions than those applicable to the same 
transactions carried out between companies in the same 
Member State; 
Whereas this requirement is not currently met as regards 
interest and royalty payments; whereas national tax laws 
coupled, where applicable, with bilateral agreements do not 
ensure complete elimination of double taxation, and whereas 
their application entails administrative formalities and 
cash-position problems for the companies concerned; 
Whereas abolition of all withholding taxes on interest and 
royalty payments is the most appropriate means of 
eliminating such formalities and problems and of ensuring 
equality of tax treatment as between national and 
transnational transactions; whereas it is necessary, initially, 
to abolish withholding tax in respect of such payments of 
special1 importance made between parent companies and 
subsidiaries; whereas the arrangements should not apply 
Cinder certain conditions where the payment is made to a 
permanent establishment of the recipient company located in 
the Member State of the debtor; whereas Greece and 
Portugal should, for budgetary reasons, be authorized to 
retain a withholding tax temporarily; 
Whereas it is necessary to ensure that interest and royalty 
payments are actually taxed; whereas it is therefore necessary 
to permit Member States to take the appropriate measures to 
combat fraud or abuse, HAS ADOPTED THIS DIRECTIVE: 
Article 1 
Member States shall exempt from any withholding tax 
interest and royalty payments made between parent 
companies and subsidiaries in different Member States. 
Article 2 
For the purposes of this Directive: 
(a) 'interest' means income from debt-claims of every kind, 
whether or not carrying a right to participate in the 
debtor's profits, including premiums and prizes 
attaching to bonds or debentures; 
(b) 'royalties' means payments of any kind received as a 
consideration for the use of, or the right to use, any 
copyright of literary, artistic or scientific work including 
cinematograph films, any patent, trade mark, design or 
model, plan, secret formula or process, or for the use of, 
or the right to use, industrial, commercial, or scientific 
equipment, or for information concerning industrial, 
commercial or scientific experience. 
Article 3 
For the purposes of this Directive, 'company of a Member 
State' means any company which: 
(a) takes one of the forms listed in the Annex hereto; 
(b) according to the tax laws of a Member State, is 
considered to be resident in that State for tax purposes 
and, under the terms of a double taxation agreement 
concluded with a third State, is not considered to be 
resident for tax purposes outside the Community; 
(c) is subject to one of the following taxes, without the 
possibility of an option or of bfein'g exempt in respect of 
the income covered by this Directive: 
— impot des societes/vennotschapsbelasting in 
Belgium, 
— selskabsskat in Denmark, 
— Korperschaftsteuer in the Federal Republic of 
Germany, 
— (popo Eico8f|naTo<; voniKtfov Ttpoowncov 
KEp8ooKoniKoO xapaKtripa in Greece, 
28. 2. 91 Official Journal of the European Communities No C 53/27 
— impuesto sobre sociedades in Spain, 
— impot sur les societes in France, 
— corporation tax in Ireland, 
— imposta sul reddito delle persone giuridiche in 
Italy, 
— impot sur le revenu des collectivites in 
Luxembourg, 
— vennotschapsbelasting in the Netherlands, 
— imposte sobre o rendimento das pessoas colectivas in 
Portugal, 
— corporation tax in the United Kingdom, 
or to any other tax which may be substituted for any of 
the above taxes. 
Article 4 
1. For the purposes of this Directive: 
(a) the status of parent company shall be attributed at least 
to any company in a Member State which fulfils the 
conditions set out in Article 3 and has a minimum 
holding of 25 % in the capital of a company in another 
Member State fulfilling the same conditions; 
(b) 'subsidiary' means that company the capital of which 
includes the holding referred to in (a). 
2. By way of derogation from paragraph 1, Member 
States shall have the option of: 
— replacing, by means of bilateral agreement, the criterion 
of a capital holding by that of a holding of voting 
rights, 
— not applying this Directive to companies in their 
countries which do not retain, for an uninterrupted 
period of at least two years, holdings qualifying them as 
parent companies, or to those companies in their 
countries in which a company in another Member State 
does not retain such a holding for an uninterrupted 
period of at least two years. 
Article 5 
Notwithstanding Article 1, Greece and Portugal may levy a 
withholding tax on interest and royalty payments made by 
subsidiaries to parent companies in other Member States 
until a date not later than the end of the seventh year 
following the date of application of this Directive. Subject to the existing, bilateral agreements concluded 
between Greece or Portugal and a Member State, the rate of 
this withholding tax may not exceed 10% during the first 
five years and 5% during the last two years of that 
period. 
Before the end of the seventh year, the Council shall decide 
unanimously, on a proposal from the Commission, on a 
possible extension of the provisions of this Article. 
Article 6 v 
The provisions of this Directive shall apply to interest and 
royalty payments made to a permanent establishment of the 
recipient company located in the Member State of the debtor 
company only if that Member State does not apply 
withholding tax to payments of the kind made between 
resident parent companies and subsidiaries. 
Article 7 
This Directive shall not preclude the application of domestic 
or agreement-based provisions required for the prevention of 
fraud or abuse. 
Article 8 
1. Member States shall bring into force the laws, 
regulations and administrative provisions necessary to 
comply with this Directive before 1 January 1993. 
They shall immediately inform the Commission thereof. 
When Member States adopt these measures, these shall 
contain a reference to this Directive or shall be accompanied 
by such reference at the time of their official publication. The 
procedure for such reference shall be adopted by Member 
States. 
2. Member States shall ensure that the texts of the main 
provisions of national law which they adopt in the field 
covered by this Directive are communicated to the 
Commission. 
Article 9 
This Directive is addressed to the Member States. 
No C 53/28 Official Journal of the European Communities 28. 2. 91 
ANNEX 
List of forms of companies referred to in Article 3 
(a) companies under Belgian law known as 'societe anonyme'/'naamloze vennootschap', 'society en commandite 
par actions'/'commanditaire vennootschap op aandelen', 'societe privee a responsabilit£ limit^e'/'besloten 
vennootschap met beperkte aansprakelijkheid' and those public-law bodies that operate under private 
law; 
(b) companies under Danish law known as: 'aktieselskab', 'anpartsselskab'; 
(c) companies under German law known as: 'Aktiengesellschaft', 'Kommanditgesellschaft auf Aktien', 
'Gesellschaft mit beschrankter Haftung', ,'bergrechtliche Gewerkschaft'; 
i 
(d) companies under Greek law known as: 'avcbvu^ri Exaipeia'; 
(e) companies under Spanish law known as: 'sociedad an6nima', 'sociedad comanditaria por acciones', 'sociedad 
de reponsabilidad limitada' and those public-law bodies which operate under private law; 
(f) companies under French law known as 'soci£t6 anonyme', 'society en commandite par actions', 'soci6t£ a 
responsabilit£ limitde' and industrial and commercial public establishments and undertakings; 
(g) the companies in Irish law known as 'companies incorporated under Irish law', 'registered building societies', 
and 'registered industrial and provident societies'; 
(h) companies under Italian law known as 'society per azioni', 'societa in accomandita per azioni', 'societk a 
responsabilit^ limitata', and public and private entities carrying on industrial and commercial activities; 
(i) companies under Luxembourg law known as 'soci£t6 anonyme', 'society en commandite par actions', 'society & 
responsabilit6 limine'; 
(j) companies under Dutch law known as: 'naamloze vennotschap', 'besloten vennootschap met beperkte 
aansprakelijkheid'; 
(k) commercial companies or civil-law companies having a commercial form, cooperatives and public 
undertakings incorporated in accordance with Portuguese law; 
(1) companies incorporated under the law of the United Kingdom. 
28. 2. 91 Official Journal of the European Communities No C 53/29 
Withholding tax rates on royalties (J) 
Situation on 1 July 1990 
(in percent) 
Residence State 
of the debtor 
Residence State 
of the beneficiary Belgium Denmark Spain France Greece Ireland Italy Luxem­
bourg Nether­
lands Portugal Germany United 
Kingdom 
Country without 
tax treaty 10 30 25 33V3 25 30 21 12 0 15 25 25 
Belgium — 0 5 0 5 0 5 0 0 5 . 0 0 
Denmark 0 — • 6 0 25 H 0 5 0 0 10 0 0 
Spain 5 6 — 6 25 (2) 30 (2) 4 10 0 5 5 10 
France 0 0 6 — 5 0 0 0 0 5 0 0 
Greece 5 30 (2) 25 (2) 5 — 30 H 0 12 H 0 15 (2) 0 0 
Ireland 0 0 25 (2) 0 25 (2) — 0 0 0 15 (2) 0 0 
Italy 5 5 8 0 0 0 — 10 0 12 0 8 
Luxembourg 0 0 10 0 25 (2) 0 10 — 0 15 (2) 5 5 
Netherlands 0 0 6 0 7 0 0 0 — 15 (2) 0 0 
Portugal 5 10 5 5 25 (2) 30 (2) 12 12 (2) 0(2) — 10 5 
Germany 0 0 5 0 - 0 0 0 5 0 10 — 0 
United Kingdom 0 0 • 10 0 0 0 0 5 0 5 0 — 
(') The possible value added tax applied is not included in these rates. 
(2) No tax treaty. 
Withholding tax rates on ordinary interest payments by a non-resident subsidiary to its parent company 
Situation on 1 July 1990 
(in percent) 
, Residence State 
^\of the debtor 
Residence State 
of the beneficiary Belgium Denmark Spain France Greece (') Ireland Italy Luxem­
bourg Nether­
lands Portugal Germany United 
Kingdom 
Country without 
tax treaty 10 0 25 0 46 30 30 0 0 20 0 25 
Belgium — 0 15 0 15 15 15 0 0 15 0 15 
Denmark 10 — 10 0 46 (2) 0 15 0 0 15 0 0 
Spain 10 0 — 0 46 (2) 30 (2) 12 0 0 15 0 12 
France 10 0 10 — 10 0 15 0 0 12 0 0 
Greece 10 0(2) 25 (2) 0 — 30 (2) 10 0(2) 0 20 (2) 0 0 
Ireland 10 0 25 (2) 0 46 (2) — 10 0 0 20 (2) 0 0 
Italy 10 0 12 0 10 10 — 0 0 15 0 10 
Luxembourg 10 0 10 0 46 (2) 0 10 — 0 -20 (2) • 0 0 
Netherlands 0 0 10 0 10 0 15 0 — 20 (2) 0 0 
Portugal 10 0 15 0 ' 46 (2) 30 (2) 15 0(2) 0(2) — 0 10 
Germany 10 0 10 0 10 0 0 0 0 15 — 0 
United Kingdom 10 0 12 . 0 0 . 0 15 0 0 10 • 0 — . 
(') Moreover, 2,4% stamp duty withheld from interest other than interest on bonds and bank deposits. 
(2) No tax treaty.