6. 5. 91 Official Journal of the European Communities No C 120/15 
ties that imports—either of the substances or of prod­
ucts containing them—must not be allowed to jeopard-
Done at Brussels, 20 March 1991. 
Preliminary comment 
The Committee notes that the proposal falls within the 
framework of the Commission communication to the 
Parliament and the Council, dated 20 April 1990 (doc. 
SEC(90) 601 final). 
The Committee would like to be kept informed of the 
conclusions of the study carried out by the Commission 
on the company taxation problems caused by more 
advanced economic integration. 
In the meantime, the Committee reserves the right to 
draw up an additional Opinion on the Communication 
of 20 April 1990. 
Introduction 
The Committee welcomes the Commission proposal as 
a step towards the abolition of tax frontiers, which 
unfairly penalize financial flows between companies 
f1) OJ No C 53, 28. 2. 1991, p. 26. ize the application of the measures taken within the 
EC. 
The Chairman 
of the Economic and Social Committee 
Francois STAEDELIN 
operating in different Member States. In the run up to 
the Single Market, it is essential that such flows should 
not be treated less favourably than those between com­
panies in a single country. 
Nevertheless, the abolition of withholding taxes on 
interest and royalties payments between parent com­
panies and subsidiaries established in different Member 
States is only a first step. All interest and royalty pay­
ments within the Community should be exempt from 
withholding taxes, irrespective of any connection 
between the companies concerned. 
1. General comments 
1.1. The Commission defines parent companies and 
subsidiaries on the same basis as the Directive on parent 
companies and subsidiaries of 23 July 1990 (minimum 
holding of 25 % in the subsidiary). Opinion on the 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 (x) 
(91/C 120/05) 
On 5 February 1991 the Council decided to consult the Economic and Social Committee, 
under Article 100 of the Treaty establishing the European Economic Community, on the 
abovementioned proposal. 
The Section for Economic, Financial and Monetary Questions, which was responsible for 
preparing the Committee's work on the subject, adopted its Opinion on 12 March 1991. The 
Rapporteur was Mr R. Pelletier. 
At its 285th plenary session (meeting of 20 March 1991) the Economic and Social Committee 
adopted the following Opinion unanimously. 
No C 120/16 Official Journal of the European Communities 6. 5. 91 
The logic of this definition is more apparent than 
real, however. The parent company-subsidiary directive 
aims principally to facilitate the formation of intra-
Community groups of companies, most often leading to 
the creation of groups of companies located in different 
Member States. The primary concern was to avoid 
double taxation of profits distributed within a single 
group. Under these circumstances, a specific percentage 
holding is required for the group to be deemed a single 
economic entity exempt from double taxation of profits 
ploughed back into investment within the group. 
1.2. The intention behind the abolition of withhold­
ing taxes on moneys flows in payment of royalties and 
interests between parent companies and subsidiaries 
is quite different, representing only the first step in 
comprehensive arrangements for the complete exemp­
tion of financial flows within the Community, applying 
equally to dividends. 
1.3. The 25 % holding requirement, quite responsible 
for the abolition of double taxation on group profits 
seems excessive when assessing subsidiary sta­
tus—which is only an initial step in a process of total 
abolition of withholding taxes on all financial flows 
within the Community. 
Since a 10% holding is sufficient in most Member 
States, it should be possible to use the same figure for 
the Directive. 
1.4. Lastly, the scope of the arrangements should be 
extended to interest and royalty payment flows involv­
ing commercial cooperatives. 
Done at Brussels, 20 March 1991. 2. Specific comments 
2.1. Commentary on Article 2 
It is proposed to add the following sentence after the 
third paragraph of (b): 
'It should be borne in mind moreover that the 
Organization for Economic Co-operation and 
Development (OECD) Tax Affairs Committee has 
spoken out clearly against withholding taxes on 
non-royalty payments, arising from agreements 
within a group of companies, or contributions from 
affiliated companies to central research costs or 
joint services.' 
2.2. Article 4 
In Article 4(a), replace '... a minimum holding of 25% 
...' by '... a minimum holding of 10%'. 
2.3. Commentary on Article 7 
Word the first paragraph of the comments on Article 
7 as follows: 
'Steps must be taken to ensure that interest and 
royalty payments are defined as taxable, since they 
are in principle tax-deductible for the company from 
which they are due.' 
2.4. Annex 
Add the following to paragraphs (a) to (g), (i) and (j): 
'together with commercial cooperatives'. 
The Chairman 
of the Economic and Social Committee 
Francois STAEDELIN