EN    EN  
 EUROPEAN COMMISSION 
Brussels, 11.11.2011 
SEC(2011) 1332 final 
  
COMMISSION STAFF WORKING PAPER 
IMPACT ASSESSMENT 
Accompanying the document 
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 version) 
 
{COM(2011) 714 final} 
{SEC(2011) 1333 final}  
 
      
This report commits only the Commission's services involved  in its preparation and does not prejudge the final form of 
any decision to be taken by the Commission. 
 
EN 1   EN TABLE OF CONTENTS 
1. Procedural issues and consulta tions of interested parties ............................................ 3 
1.1. Organisation and timing............................................................................................... 3 1.2. Consultation and expertise ........................................................................................... 4 1.3. Impact Assessment Board............................................................................................ 5 2. Problem definition........................................................................................................ 6 2.1. Identification of the problems that may require action ................................................ 6 2.2. Description, underlying causes and measur ement of the problems identified............. 8 
2.2.1. Dimension of the economic probl ems caused by withholding taxes ........................... 8 
2.2.2. Reference to the economic distor tions caused by withholding taxes........................... 8 
2.2.3. Compliance costs linked to withholding taxes........................................................... 11 
2.2.4. International Double taxation..................................................................................... 12 2.2.5. Specific legal requirements in the ca se of payments made through permanent 
establishments ............................................................................................................ 15 
2.2.6. Risk of tax avoidance................................................................................................. 15  
2.3. How would the problem evolve , all things being equal?........................................... 15 
2.4. Who is affected?......................................................................................................... 1 6 
2.5. Treaty base and the subs idiarity principle.................................................................. 16 
3. Objectives.................................................................................................................. . 17 
3.1. What are the general policy objectives?..................................................................... 17 3.2. What are the more specifi c/operational objectives?................................................... 18 
3.3. Are these objectives consiste nt with other EU policies? ........................................... 18 
4. Policy options............................................................................................................. 1 8 
4.1. What are the options for meeting the object ives and tackling the problems described? 
Description of the different options ........................................................................... 19 
4.2. Which options have been discarde d at an early stage and why?................................ 21 
5. Analysis of impacts.................................................................................................... 22 5.1. Impacts of the different options ................................................................................. 22 5.2. Comparison of options ............................................................................................... 29 6. Monitoring and Evaluation ........................................................................................ 33 6.1. What are the core indicators of pr ogress towards meeting the objectives? ............... 33 
 
EN 2   EN 6.2. What is the broad outline for possible monitoring and evaluation arrangements?.... 34 
Annex 1 ....................................................................................................................... ............. 35 
Annex 2 ....................................................................................................................... ............. 39 
Annex 3 ....................................................................................................................... ............. 42 
Annex 4 ....................................................................................................................... ............. 46 
Annex 5 ....................................................................................................................... ............. 50 
Annex 6 ....................................................................................................................... ............. 51 
Annex 7 ....................................................................................................................... ............. 52 
Annex 8 ....................................................................................................................... ............. 54 
Annex 9 ....................................................................................................................... ............. 55 
Annex 10 ....................................................................................................................... ........... 57 
Annex 11 ....................................................................................................................... ........... 59 
Annex 12 ....................................................................................................................... ........... 60 
Annex 13 ....................................................................................................................... ........... 61 
Annex 14 ....................................................................................................................... ........... 62 
Annex 15 ....................................................................................................................... ........... 76 
Annex 16 ....................................................................................................................... ........... 77 
Annex 17 ....................................................................................................................... ........... 78 
Annex 18 ....................................................................................................................... ........... 80 
Annex 19 ....................................................................................................................... ........... 81 
 
 
EN 3   EN 1. PROCEDURAL ISSUES AND CONSULTATIONS OF INTERESTED PARTIES  
1.1. Organisation and timing 
On 3rd June 2003, the Council adopted the Directive 2003/49/EC on a common system of 
taxation applicable to interest and royalty pa yments made between associated companies of 
different Member States1 (hereinafter, the Directive or th e Interest and Royalties Directive) 
which was due to be impleme nted by 1 January 2004. Later,  the Council amended this 
legislation through the Directives 2004/66/EC2 and 2004/76/EC3. The former extended its 
application to companies and taxes of the new Member States, while the latter granted some of the new Member States temporary deroga tions from one or more provisions of the 
Directive. More recently, th e Council Directive 2006/98/EC
4 extended its application to 
companies and taxes of Bulgaria  and Romania. In addition, th e Accession Treaty  of Bulgaria 
and Romania included temporary der ogations in its annexes VI and VII5.  
The Commission adopted an amending proposal  to the Directive, COM (2003) 841 on 30 
December 2003 aiming at its extension to cove r a larger range of companies (i.e, the 
European Company, SE and the European Co-ope rative Society, SCE). This proposal also 
intended to exclude from its benefits companie s already exempted from tax on interest and 
royalties received in order to exclude tax avoidance opportunities. The discussions in the 
working groups of the Council between 2004 and 2006 were unsuccessful and were blocked 
due to this latter issue.  
Article 8 of the Directive states that: th e Commission should report to the Council on its 
operation, in particular with a view to extend ing its coverage to companies or undertakings 
other than those under its scope. In  order to obtain the required in formation to draft the report, 
DG TAXUD asked the International Bureau of Fiscal Documentation (IBFD) to carry out a survey of the implementation of  the Directive (the Directive survey) which was delivered in 
June 2006. The Directive survey indicates that overall implem entation has been satisfactory 
and refers to possible amendments in order to extend its coverage. 
The report on the functioning of the Direc tive was presented on 23 April 2009 (COM (2009) 
179 – the Commission's report of the Directive). It s adoption was delayed in  order to facilitate 
discussion in the Council on the 2003 proposal a nd was only finished when agreement on this 
latter text did not seem feasible. The main el ements of the report were discussed during a 
Financial Questions Group called by the Swedish Presidency on 23 November 2009.  
On December 2009, Directorate D of TAXUD launched a study to  prepare for an impact 
assessment of the possible amendments to the Directive. This was requested to provide 
technical assistance and input, information and analyses in a manner that would make it 
possible for the Commission services to draft such an impact assessment. 
On 22 April 2010, TAXUD called for the creati on of a steering group within the Commission 
services to follow the work and feed in views from other services of the Commission in order 
                                                
 
1 OJ L 157, 26.6.2003, p. 49. 
2 OJ L 168, 1.5.2004, p. 35. 
3 OJ L 157, 30.4.2004, p. 106. 
4 OJ L 363, 20.12.2006, p. 129. 
5 OJ L 157, 21.6.2005, p. 278 and p. 311. 
 
EN 4   EN to prepare the impact assessment of the pr oposal. The SG, SJ, COMP, ECFIN, EMPL, ENTR. 
MARKT, TRADE, INFSO and RTD departments we re invited. On May 4, the first meeting 
of the steering group to discu ss the intermediate report of the impact assessment study was 
held. A group formed by officials from TAXUD (D1 and D4), LS, COMP, TRADE and 
INFSO participated in the meeting. On 7 Jul y, a second meeting of the steering group to 
discuss the draft final report of the impact assessment study was held. The group was formed 
by officials from TAXUD (D1 and D4), LS a nd RTD. A third meeting of the steering group 
was held on 12 November to agree on this impact assessment. Th e group was formed by 
officials from TAXUD (D1 and D4), RTD and COMP. 
1.2. Consultation and expertise 
International double taxation on cr oss-border interest and royalty  payments is an identified 
and well-known obstacle to the smooth functioning of the internal market. We can refer to 
abundant academic studies such as, among others, the Report of the Committee of Independent 
Experts on Company Taxation , the Ruding Report, March 1992; to EC Tax Law , by Paul 
Farmer and Richard Lyal, Clarendon Press, Oxford 1994; to Company Taxes in the European 
Union: Criteria and Options for Reform , by S. Cnossen, ed. Fiscal St udies (1996), vol. 17; to 
European Tax Law,  by B. Terra and P. Wattel, 5th edit ion, Kluwer Law International, 2007; 
and to the comments by Bruno da Silva on the Report Functioning of  the Interest and 
Royalties Directive, Highlights Insights on European Taxation , number 6, 2009. 
The Directive IBFD survey releas ed after its implementation has been a source of information 
on its operation and on the issues that could requ ire further policy action to better achieve its 
objective of eliminating this tax obstacle to cross-border activities. 
The study for an impact assessment of the possi ble amendments to the Directive launched by 
TAXUD has been made by Copenhagen Economics (the CE survey)6. It offers a broad 
overview of the withholding ta xes effects on cross-border tran sactions and measures, where 
possible, its economic impact for business. At the request of TAXUD, it analyses the possible 
consequences of different policy options targeted  to the difficulties linked to such tax charges 
and offers some quantitative estimati ons derived from its implementation. 
The TAXUD services have also taken active pa rt in seminars and events concerning the 
functioning of the Directive. It is relevant to  mention the meeting of the Tax Policy Working 
Group of Business Europe, held on 2 October 2008:  there was a debate with experts involved 
in tax issues concerning multinational comp anies after a presentation by the Commission 
services on these topics. On 4 December 2008, a working session followed with a steering 
group from Business Europe aiming at a more in depth discussi on on future improvements to 
the Directive. A similar event was organized by the Confédération Fiscale Européenne, CFE, 
in Brussels on 16 April 2010, organization that ga thers European tax advi sors and practitioner 
of companies with interests in cross-border activi ties. Other informal meetings have also been 
held with interested parties to capture their views and sound out any problems they have encountered. There have been also some in- house events to discuss issues concerning the 
Directive with tax experts of different area s concerning the Commissi on tax policy and action. 
                                                
 
6 Copenhagen Economics: Taxation of interest and royalties – impact assessment of amendments to the 
present Directive,  October 2010. 
 
EN 5   EN A public consultation on proposed amendments to  the current legislatio n, including the areas 
covered by the impact assessment run from 24 August until 31 October 2010 on the "Your Voice in Europe" web portal and on the DG TAXUD website. 71 responses were received 
from various stakeholders, including multinationa ls (25 replies), large firms (3 replies), 
business and industry associations  (18 replies), tax practitione rs (16 replies), professional 
associations (8 replies) and one civil servant from a Memb er State. The comments were 
generally supportive of  the objectives of  this Commission service's initiative. The responses 
were also used to finalise the policy opti on parameters on certain  specific issues.  
1.3. Impact Assessment Board 
The draft impact assessment (IA ) was discussed with the Impact  Assessment Board (IAB) of 
the Commission on 12 January 2011. This revise d IA report takes into account the comments 
of the IAB as follows. 
Concerning the problem defin ition included in the IA 
a) The IAB required that the IA presents a fuller explanation of the context of this initiative 
and the interrelations of the Directive w ith the Directive 90/435/CEE on the common tax 
regime applicable in the case of  parent companies and subsidiari es of different Member States 
(the Parent-Subsidiary Directive)
7. In particular, the report shoul d refer to the reasons why the 
issue of extending the scope of the Directive to intra-company payments is not subject to 
analysis, as recommended by the report on the functioning of the Directive.  
For this purpose, section 2.1 of the IA on the id entification of the probl em has been completed 
with references to the general taxation of the three types of capital flows – dividends, interest 
and royalties – and the context in which the existing Directives were adopted and modified. 
Concerning the issue of the intr a-company payments, it has been decided to modify section 
4.2 and consider it as a policy opti on discarded at an earlier stage. 
b) The IAB required more clarity on the types and scale of distortions being addressed 
including why they cannot be addr essed satisfactorily by Member States to establish a better 
evidence base and rationale for EU action.  
For this purposes, section 2.2 on the underlying cau ses of the problems identified has been 
reorganized and completed with new text. The economic problems and distortions caused by 
withholding taxes have been identified in three subsections. A new subsection has been 
incorporated including data to illu strate the dimension of the problem. 
Further explanation is given in section 2.3 to illustrate the baseline  scenario. Section 2.5 
gathers new arguments to justify EU action on the basis of the s ubsidiary principle. 
Concerning the objecti ves of the recast 
The IAB required further clarification on the ob jectives. It asked if the alignment of the 
Directive and the Parent-Subsidiary Directive is an objective. It also asked to present the 
                                                 
7 OJ L 225, 20.8.1990, p. 6, as amended by Council Directive 2003/123/EC of 22 December 2003 
amending Directive 90/435/EEC on the common system  of taxation applicable in the case of parent 
companies and subsidiaries of different Me mber States, OJ L 7, 13.1.2004, p. 41. 
 
EN 6   EN position of Member States on the options, and explain why certain options have not been 
considered for analysis.  
In this regard, sections 3.1 a nd 3.2 of the IA have been redr afted to clarif y the objectives 
pursued. Also, section 4.2 refers now to othe r policy options which had been discarded. 
Section 5.2 on the comparison of options includ es a new paragraph referring to the Member 
State known positions on the considered options. 
Concerning the comparison of options 
The IAB required elaborating on the non-quantifie d benefits of the pr eferred option, how its 
impacts would be distributed by Member State,  and why it has less negative side-effects than 
option 2. The report should asse ss the importance of the benefits related to the removal of the 
different types of distortions and in what proportion they are likely to be achieved under the 
preferred option. The report should  also show how the impacts of  the preferred option will be 
distributed over Member States. It should better explain the ne gative side-effects associated 
with the removal of distortions  due to different withholding ta x rates, including why they 
could be used as an argument against opt ion 2. The report should also specify more 
systematically the assumptions made for the calculation of the monetised impacts. 
For this purpose, section 5.1 on the analyses of impacts a nd section 5.2 on the preferred 
option include new text in order to explain the effects of the op tions in the Member States in 
the extent possible. New text has been added to section 5.2 on the comparison of options in 
order to evaluate further on th e impact of the preferred optio n on the distortions detected. 
2. PROBLEM DEFINITION  
2.1. Identification of the problems that may require action 
The problems addressed by this initiative to recast the Interest and Royalties Directive arise 
from the existence of particular corporate ta x obstacles to the functioning of the internal 
market: cross-border interest and royalty paymen ts are subject to a more burdensome taxation 
as compared to that borne by domestic transa ctions. In case of purel y domestic operations, the 
recipient of the payment is subject to corporate tax as a resident taxpayer in the Member State 
where it is resident for tax purposes (the home St ate). In case of international payments, they 
may be also subject to withhol ding taxes in the Member Stat e from which it is made (the 
source State or the host country) and there is a risk of double taxation. 
It may be that the residence State allows the ta xpayer to reduce the corporate tax liability with 
a tax credit related to the withholding tax char ged at source. Alternatively, it may exempt 
foreign income. The taxpayer mu st attest the right to this tax relief through the corresponding 
documentation. There is also a period elapsing fro m the withholding date to that in which the 
taxpayer applies the tax credit  to reduce its tax liability. 
The bilateral tax relations between the source St ate and the residence State are usually ruled 
by double tax conventions (DTCs). These agreements provide for the reduction or the exemption of the withholding taxes charged at source. However, the reduction or exemption 
requires attesting the co nditions established in the DTC through administ rative procedures. If 
those are not attested when the withholding is due, this is charged. The reimbursement 
required to make effective the tax reduction is only obtained after a claim is submitted and the 
 
EN 7   EN tax authorities verify the right to the tax re lief. So, there are additional compliance and 
liquidity costs. 
In recognition of the double taxa tion burden and the inefficienci es caused by high withholding 
taxes on dividends, interests and royalties, the EU Council of Mi nisters has adopted two sets 
of legislation. In firs t instance, in 1990, the Council adopted the Parent -Subsidiary Directive 
which aims at eliminating withholding taxe s on dividend payments between associated 
entities in EU Member States. This Directive was adopted toge ther with the Directive on the 
tax regime applicable to merger s and other business reorganizations8. Both pieces of 
legislation aim at easing the gr ouping together of companies of  different Member State in 
order to guarantee conditions for companies to adopt an European dimension. These Directives are applicable to companies which ar e resident for tax purpose s in a Member State, 
are subject to corporate tax and have a specific legal form as included in the list annexed to 
them. The Parent-Subsidiary Directive requires that the parent company holds at least, 
directly or indirectly, 10 % of the capital or  voting rights of the subsidiary. 
At the same time, there are other capital fl ows subject to withholding taxes according to 
general international tax practice which limits the smooth functioning of the internal market. 
The Commission had presented pro posals to harmonize the tax regi me of interest and royalty 
payments. These two items together with divide nd payments, already covered by the Parent – 
Subsidiary Directive, are the main types of  capital flows arisen from business activities 
subject to withholding taxes at source. Only recently, in 2003, the Council adopted the Interests and Royalties Directive. However, its coverage is narrower than that foreseen by the Commission initial proposal. Thus, at the time  of adoption of the Directive, the Commission 
made a protocol declaration that further meas ures for extending the scope of the Directive 
would be pursued and the legal text  included Article 8, referred above. 
The results of the different legislative procedur es lead to having two directives which have 
followed different policy initiatives. In a ddition, the Parent-Subsidiary Directive was 
amended in 2003 and its scope was widened and now is broader than that of the Interest and 
Royalties Directive: the latter requires a minimum direct holding of 25% to consider companies as associated and the list of legal fo rm to which it applies is  narrower. It may be 
noted that in 2003 the Commission adopted an am ending proposal to the Interest and Royalty 
Directive (COM (2003) 841) which inter alia pr ovided for an update of the coverage of the 
types of companies. This proposa l intended also to require that  the recipient of the payment 
would only enjoy the Directive benefits wher e it would be subject to tax on the payment 
received in its Member State. This element wa s subject of some cont roversy since a Member 
State had introduced a special regime to calcu late the tax base and there were reasonable 
doubts on the fulfilment of such requirement by the eligible companies if introduced. Thus, 
the proposal did never reach an unanimous ag reement and was not adopted by the Council. 
Currently, the Directive scope is limited and does not cover payments between companies 
which in turn do enjoy the benefits of the Pare nt-Subsidiary Directive. If entities seek to enjoy 
the full benefits of tax harmonization they have to meet the conditions of the former Directive 
so that the amendments introduced to th e latter in 2003 are ineffective for them.  
                                                
 
8 Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to 
mergers, divisions, transfers of assets and exchanges of shares concerning companies of different 
Member States, OJ L 225, 20.8.1990, p.1. 
 
EN 8   EN This tax situation may increase the costs of  doing business by raising the pre-tax required 
return on cross-border investment s and may limit cross-border activities. These are important 
factors for distortions on the allocation of resources between the multinational and the domestic sector. This situation reduces the level of internatio nal economic integration and the 
effectiveness of the internal market. 
2.2. Description, underlying causes and meas urement of the problems identified 
2.2.1.  Dimension of the economic problems caused by withholding taxes 
The withholding tax rate charged on non-resident corporations is established in national tax 
laws. As mentioned, these char ges are modified in DTCs prevailing over domestic rules. 
These treaties provide for lower rates between th e relevant countries. In the EU context, the 
Directive already provides for the exemp tion of withholding taxes. Thus, while the 
withholding tax on outgoing interest payments fi xed in domestic laws ranges from zero (e.g. 
in Austria, Finland, Luxembourg, Malta and the Netherlands) to 30% in  Hungary (see annex 
1) and the withholding tax on outgoing roya lty payments ranges from zero (e.g. in 
Luxembourg, Malta and the Netherlands) to 33.3%  in France (see annex 2), the applicable 
rates provided for in DTCs are lower and range mainly from 0 to 15% (see annex 3 for rates on interest payments and annex 4 for rates on royalty payments). 
Concerning the companies and cap ital flows affected, we shoul d recall that those under the 
scope of the Directive already enjoy a tax ex emption. The requirements for the tax exemption 
are to have a specific legal form and to be asso ciated with the payer of the income. The legal 
forms covered are listed in the annex of the Dir ective. According to the CE survey, in 82% of 
the cases, both the parent company and the subs idiary have a legal form that falls under the 
scope of the Directive; nearly  95% of the royalty payments and approximately 90% of the 
interest payments are covered by the Directive. In fact, the main part of the economic activity 
(82% of total employment and 85% of total tur nover) is concentrated in the subsidiaries that 
already fall under the Directive (s ee annex 15). As regards the a ssociation requirement, in the 
Amadeus database used in the CE study non-associated companies (0 to 25% holding) represent 12% of holding links. These companies represent, however, a large share of employment and turnover: 32% and 28 % respectively
9. It should also be added that most of 
the interest payments between non-financial institutions that fall outside the scope of the present Directive will take pl ace between associated companie s since direct loans between 
non-associated companies are relatively ra re. The CE study expects 80-90% of these 
payments to take place between associated companies. The opposite is the case for royalty payments. OECD
10 finds that the proportion of EU compan ies’ patent portfolio that is being 
licensed to non-associated companies lies in th e range 80-100% and are outside the scope of 
the Directive.  
2.2.2.  Reference to the economic distortio ns caused by withholding taxes 
a. Economic distortions due to di fferences in withholding taxes 
                                                 
9 These shares are lower, however, if weighted by in tangible assets (28% and 13% respectively) and also 
compared with the share weighted by financial asse ts (32% and 15% respectively) implying that cross-
border payments between the companies mainly take  the shape of interest payments. See annexes 13 
and 19. 
10 OECD: Who Licenses Out Patents and Why? Lessons  from a Business Survey- STI Working  Paper 
2009/5- Statistical Analysis of Science, Technology and Industry.  
 
EN 9   EN In the first place, each DTC signed on a bilatera l basis fixes its own withholding tax rate. In 
consequence, each bilateral relation between the Member Stats may be subject to a different 
withholding tax rate, that fixed by each nationa l law or that provided for in each DTC. This 
tax situation may distort patterns of cross-border investment flow s in two ways. To the extent 
that investment is attracted to certain locations by the promise of low tax charges rather than low production costs, production will be less e fficient as a result. Firms may undertake sub-
optimally low levels of real investment in c ountries with high effec tive withholding taxes and 
sub-optimally high levels of real investment in  countries with low effective withholding taxes. 
The result is a misallocation of real investme nt that reduces the average productivity of 
capital. Although the low-tax country gains from  the increased investment, resources are 
wasted since companies do not operate as efficien tly as they could othe rwise. Real resources 
employed with the sole aim of reducing tax lia bilities generate a welfare loss equal to the 
productivity of these resources in  the best alternativ e use. Second, for a gi ven location of real 
investment firms may incur in costs of im plementing avoidance techniques that reduces 
effective taxation on cross-border  capital flows: instead of making a direct payment to a 
Member State that is subject to withholdi ng taxes, company gr oups may establish an 
intermediate conduit entity in a different Me mber State so that the payment received by it 
enjoys a tax exemption (tax planning). On  the government side, opportunities for tax 
avoidance result in a loss of tax revenues. On the firm side, tax planning activities result in 
suboptimal choices by EU firms, and the administ rative and compliance co sts of tax planning 
largely represent unproductive use of scarce resources. 
b. Economic distortions deriving from the conditions to enjoy tax relief provided for in 
DTC and in the Directive 
DTCs and the Directive condition the relief from withholding taxes on ownership shares, 
holding periods and organisational form of th e entities involved. Th ese provisions introduce 
an incentive for firms to distort holding structures  and organisational forms in order to qualify 
for the relief. Requirements related to holding st ructure impose economic costs on firms in the 
event of restructurings and mergers where fl exibility may be severely limited. Requirements 
related to organisational form ma y induce firms to make use of t ypes of legal entities that are 
suboptimal compared to the first choice of the company. 
In particular, the European Company (SE) a nd the European Cooperative Society (SCE) are 
legal forms which are not in the Directive scope. These legal types were created after the adoption of the Directive by the ECOFIN Council and were not included in its text. The aims 
pursued with these two European legal types - creation and management of companies with a 
European dimension, free from the obstacles arising from the disparity and the limited 
territorial application of national law – will not be fully achieved since they will have to face the economic distortions deri ved from withholding taxes
11. 
A number of studies show how the tax system affects the organisational choice of firms. 
Some of these papers focus on the choice between corporations and non-corporations. 
Effective taxation of capital invested in corpora tions is determined by th e statutory tax at the 
company level and the withholding tax at the investor level, wh ereas the effective taxation of 
capital invested in non-corporations is give n by the income tax. To the extent that the 
                                                 
11 Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company – see 
paragraph 7 of the explanatory memorandum and Council Regulation (EC) No 1435/2003 of 22 July 
2003 on the Statute for a Euro pean Cooperative Society – see paragraph 6 of the explanatory 
memorandum. 
 
EN 10   EN effective taxation differs, there is an incentive to shift income between the two organisational 
forms. De Mooij and Nicodème12 find that an increase in the corporate tax of 1 percentage 
point reduces the corporate tax base by 1%, re flecting income shifting from the corporate 
sector to the non-corporate sector. In sum, th ere is robust evidence that the tax system, 
including withholding taxes, affects the organi sational choice of firms. Thus, payments not 
covered by the Directive and suffering from wit hholding taxes will indu ce business agents to 
opt for organization forms which ar e eligible for the tax relief. 
c. Economic distortions caused by different taxation of dividends, interest and royalties; 
the different scope of the Directive an d the Parent-Subsidiary Directive.  
Withholding taxes might also distort the capital  structure and allocation of intangibles. The 
applicable withholding taxes rates and the specific method to provide relief for double 
taxation differ across types of cap ital flows (dividends, interest and royalties). In addition, 
they are often subject to different tax regimes;  dividends are not deductible from the corporate 
tax base at the level of the paying entity and are taxable at a low rate or are exempt at the level of the receiving entity; in terest payments are deductible from the corporate tax base at the 
level of the paying entity and fully taxable at the level of the receiving entity; royalty 
payments are generally treate d like interest payments fo r tax purposes although some 
jurisdictions apply a favourable tax rate to r oyalty income. In addition, the Directive and the 
Parent-Subsidiary Directive establish different co nditions in order to enjoy the benefits of the 
withholding tax exemptions char ged at source. Since the three types of capital are to some 
extent substitutes, tax differences might cause  distortions of capital structure. Collins and 
Shackelford
13 find that dividend, royalty, and sometime s interest cross-border payments are 
structured to mitigate net tax transfer costs (i .e., payer deductions and withholding taxes, and 
payee income taxes and credits). Thus, taxes a ffect the location of the supplier and the terms 
of the contracts for the provision of equity and intangible capital within the worldwide 
organisation.  
If the effective taxation of in tra-firm dividend payments is hi gher than effective taxation of 
intra-firm interest payments, firms may empl oy sub-optimally high levels of debt. Desai, 
Foley and Hines14 find that a 10% increase in tax rates is associated with 2.8% higher debt-
asset ratios in their sample of US multinationa ls. External borrowing is more sensitive (1.9%) 
than borrowing from parent companies (0.35%). Also, Ramb and Weichenreider15 find that 
the corporate tax rate in the home counties of the parent company has no significant impact on 
the financial structure of a German subsidiary. However, if intra-firm royalty payments are 
taxed more lightly than intra-firm dividend pa yments, firms may rely too much on intra-firm 
licensing of intellectual prope rty. The economic costs associated with a distorted capital 
structure may be considerable. For instance, the ro le of debt as a corporate governance tool is 
often emphasised in the corporate finance lit erature, which suggests that tax motivated 
departures from the optimal capital structure may have adverse consequences in terms of 
                                                 
12 De Mooij, R. A. and Nicodème, G. (2008), “Corporate Tax Policy and Incorporation in the EU”, 
International Tax Public Finance 15, 478-498. 
13 Collins, J. H., and Shackelford, D. A. (1998), “G lobal Organizations and Taxes: An Analysis of the 
Dividend, Interest, Royalty and Management Fee Payments between US Multinationals’ Foreign 
Affiliates”, Journal of Accounting and Economics 24, 151-173. 
14 Desai, M. A., Foley, C. F. and Hines Jr., J. R. (2004), “A Multinational Perspective on Capital Structure 
Choice and Internal Capital Markets”, The Journal of Finance 6. 
15 Ramb, F. and Weichenrieder, A. J. (2005), Taxes and the Financial Structure of German Inward FDI , 
Kiel Institute for World Economic. 
 
EN 11   EN suboptimal governance16. Dischinger and Riedel17 find that an increase in the average tax 
differential to other European group affiliates by 10 percentage points reduces a subsidiary’s intangible property investment by around 11% on average. 
In addition, the Directive scope is limited and does not cover payments between companies 
which in turn do enjoy the benefits of the Pare nt-Subsidiary Directive. If entities seek to enjoy 
the full benefits of tax harmonization they have to meet the conditions of the former Directive 
so that the amendments introduced to the latter  in 2003 are ineffective for them. The Directive 
functioning, as already evaluated through th e Commission's report, re veals the need to 
improve its coverage in order to better achieve  its objectives. In particular, the limited scope 
of the Interest and Royalties Di rective as compared to that of  the Parent-Subsidiary Directive 
may affect and distort busin ess decisions, guided by the obj ective of avoiding withholding 
taxes at source: it may distort the intra-firm cap ital structure and the a llocation of intangibles. 
2.2.3.  Compliance costs linked to withholding taxes 
International taxation is usually made effec tive through withholding taxes charged on the 
crossborder payments according to the tax rate provided for in domestic laws. If the taxpayer 
is eligible for a tax relief provided for in a double tax treaty, the resu lting reimbursement has 
to be made effective th rough a tax claim for refund. In this procedure, th e taxpayer rights have 
to be credited through documenta tion – tax residence certificates  – and the payment has to be 
identified. The tax administration has to control the claim and after verifying it, it will order 
the refund. The final tax charged at source may be  credited against the co rporate tax liability 
due in the Member State where the taxpayer is considered as tax resi dent. There is a period 
elapsing since the tax is withheld  at source and the annual tax retu rn in the State of residence 
is only submitted after the closing of the tax period concerned. At the same time, the relief 
may require to submit documents crediting th e tax paid and the right for the relief. 
Thus, withholding taxes cause compliance cost s to firms, including both administrative 
burdens and liquidity costs. Admi nistrative burdens are the part of administrative costs that 
businesses sustain simply because it is a regulat ory requirement. Some of the most important 
administrative cost drivers are the requireme nt to use paper forms and by the different 
document formats, different documents to be attached, different confirmations, certificates, 
etc. Since the costs of reclaim do not depe nd on the size of the tax claim, SMEs are 
particularly disadvantaged. 
To quantify the size of the administrative co sts the CE survey draws on the findings of DG 
MARKT in the European Commission
18, where the amount of occurri ng costs related to the 
reclaim procedures account on average for 2% of the refundable amount. This means that 
administrative costs of withholding taxes on ro yalty payments amounts to €26 million (2% of 
€1.3 billion) if full tax relief is provided. Those associated with intere st payments amount to 
approximately €16 million (2% of €0.8 billion)19. In total, it is expected that the cost to EU 
                                                 
16 Jensen, M. (1986), “Agency Costs of Free Cash Flow, Corporate Finance and Takeovers”, American 
Economic Review 76, 323–329. 
17 Dischinger, M. and Riedel, N. (2008), “Corporate Taxes and the Location of Intangible Assets Within 
Multinational Firms”, Munich Discussion Paper 15. 
18 DG Internal Market and Services:  Simplified Withholding Tax Relief Procedures , Brussels 2010. 
19 Source: Copenhagen Economics: Taxation of interest and royalties – impact assessment of amendments 
to the present Directive,  October 2010, on the basis of Eurostat, International Transactions in Royalties 
and Licence Fees  and Eurostat, International Transactions in Interest and Dividend payments.  For 
 
EN 12   EN firms of reclaiming withholding tax paid on interest and royalty payments is around €42 
million.  
Concerning liquidity costs, the issue arises si nce firms are required to withhold taxes and are 
subsequently reimbursed if the tax administ ration deems that they qualify for the DTC 
exemption or reduction. Also, when withholding tax rates are matched by tax credits in the 
home country, it has to be taken into account that the withholding is levied on the payment 
while its reduction in the residence State is only possible later during the period to submit the 
tax return. It could also be th e case that no corporate taxes are due in the home country, for 
instance because the firm is running losses; th e tax credit yields no immediate tax saving. 
Losses may typically be carried forward for tax pur poses, but even if the ta x credit is used in 
subsequent tax years, this represen ts a liquidity cost to the firm. 
Regarding the timing of the tax refund procedure, th e CE survey refers to a time lag of at least 
six months (see annex 6)20. To estimate the opportunity costs of claiming withholding tax 
relief on dividends, interest and other secu rities income, the DG MARKT study applies the 
interest paid for taking out a lo an. In their calculations, an in vestor who receives the tax relief 
without delay could invest thei r relief with at present at least a 4% return per year. 
Consequently, the €1.3 billion paid  in withholding tax on royalty payments carry a cost for the 
investors due to the delay of approximately  €52 million per year (4% of €1.3 billion).For 
interest payments, we find that the liquidity cost amounts to €32 million (4% of 0.8 billions). 
2.2.4.  International Double taxation 
In addition to the withholding tax charged by the source State, the recipient's residence State 
charges corporate tax on the income derived from  the cross-border payment. In order to avoid 
such double taxation, the residence State either exempts this inte rnational income or allows a 
tax credit to reduce its tax on th e said income, as provided for in its national law or in the 
relevant DTC. This tax credit is normally limited to the residence corporate tax on the corresponding profit; as well, it is calculated on the basis of  the net profit, while the 
withholding tax is charger on  the gross payment. Thus, wh en withholding taxes are high 
compared to statutory taxes in th e residence State or the royalty or interest payments are large 
compared to profits, there is a risk of a higher taxation in the case of an international payment 
than that borne by an equivalent dom estic payment (excessive taxation).  
According to the CE survey, the effective w ithholding taxes on interest payments received 
from other EU countries lie in the range of 4 to 9%; the average withholding tax on interest 
payments is 6.2% in all EU countries.
 The withholding taxes on r oyalty payments range 
between 3 and 8%. The average withholding tax on royalty payments in EU countries is 5.5%. 
These numbers tell us that the withholding tax charged on royalty payments is slightly lower 
than the withholding tax paid upon cross-border interest paym ents. In order to gain an 
understanding of how important th e excessive taxation problem is we also need to look at 
statutory tax rates in EU Member States. We  find that the EU27 cor porate tax rates range 
between 35% and 10%. The average (unweighted) corporate tax rate is 23.5%. Also, we see 
                                                                                                                                                         
further details on the amount of the withholding taxes on interests and royalties, see below section 5.1, 
option 2 of this impact assessment. 
20 The European Commission's general Impact Assessment study on Clearing and Settlement of 2006 
concluded that in the EU, an investor pays on average between twice and six times more for a cross-
border equity transaction compared to a domestic one. The report can be downloaded from 
http://ec.europa.eu/internal_market/financial -markets/docs/clearing/draft/draft_en.pdf. 
 
EN 13   EN that the old EU Member States typically have  higher corporate taxes than the new Member 
States (see annexes 1 to 5). 
The conclusion of the CE survey is that it will ra rely be the case that the corporate tax rate is 
lower than the withholding tax. Even for the c ountries with the lowest corporate tax rates 
(Slovakia, Romania, Latvia, Ireland, Bulgaria a nd Cyprus) it is the case that the bilaterally 
negotiated withholding taxes on both  interests and royal ties are much lower than the corporate 
tax rate. Table 1 shows that thos e Member States in group A ha ve higher corporate tax rates 
and low withholding rates in the DTCs so that the risk of excessive taxation is low. The 
excessive taxation problem is most pronounced in the new EU Member States in group D, 
where statutory tax rates are relatively low but where withholding ta xes paid on royalty 
income from other EU countries are relatively high (the shaded area). 
Table 1. Risk of excessive taxation of  royalty payments within the EU 
 High statutory tax in residence 
State Low statutory tax in residence 
State 
Low withholding tax on 
royalty income from DTC source State Group A: 
Austria, Luxembourg, Denmark, Belgium, Finland, Netherlands, 
Sweden, United Kingdom, France 
Germany, Greece, Spain and 
Italy, Group C: 
 Bulgaria, Cyprus, Ireland and 
Hungary 
High withholding tax on 
royalty income from DTC source State Group B: 
Portugal and Malta Group D: 
Estonia, Romania, Latvia,  
Lithuania, Poland, Slovenia, Czech 
Republic and Slovakia 
Source: Copenhagen Economics: Taxation of interest and royalt ies – impact assessment of 
amendments to the present Directive,  October 2010. 
According to the CE survey, the impression of  relatively modest excessive taxation of 
royalties is confirmed when we consider the ec onomic variables of country size and flows of 
foreign direct investment (FDI) and royalty pa yments (see table 2). In fact, group A has the 
lowest potential excessive taxation problem a nd accounts for 95% of the total intra-EU FDI 
stock, more than 60% of the total EU income on royalties and licence s fees, and 97% of the 
total intangible fixed assets recorded in the Am adeus data base. By cont rast, the group of new 
Member States in group D, where potential excessive taxation problems are the largest, 
account for just a small fraction of the economic variables that reflect cross-border and intra-
company royalty payments. This finding suggest s that companies in th e new Member States 
are more prone to excessive taxation whereas  their governments earn net revenues from high 
withholding taxes. 
 
EN 14   EN Table 2. Indications of size of excessive taxa tion of royalties acro ss groups of countries 
 Group A Group B Group C Group D 
Share of EU intra 
FDI stock 95.1 1.0 3.1 0.8 
Share of EU 
royalty income 61.4 0.5 34.6 3.4 
Share of EU 
patent firm's 
intangible assets 97.2 1.1 1.4 0.2 
Source: Data on the FDI stock is from Eurostat, European Union Di rect Investment ; data on 
royalty income is from Eurostat, International Trade in Servi ces. Data on intangibles fixed 
assets is from Amadeus. 
Again, we find that it is mainly companies in the new EU Member States that face high 
withholding taxes on interest income fr om other EU countries, cf. Table 3. 
Table 3. Risk of excessive taxation of  interest payments within the EU 
 High statutory tax in residence 
State Low statutory tax in residence State 
Low withholding tax on 
royalty income from DTC 
source State Group A: 
Sweden, Spain, Austria, Finland, 
United Kingdom, Germany, 
Netherlands and France Group C: 
 
Bulgaria, Slovakia , Hungary, Czech 
Republic and Ireland 
High withholding tax on royalty income from DTC 
source State Group B: 
Belgium, Portugal, Italy, Malta, 
Denmark, Greece and 
Luxembourg Group D: 
Romania, Latvia,  
Lithuania, Estonia, Poland, Cyprus 
and Slovenia 
Source: Copenhagen Economics: Taxation of interest and royalt ies – impact assessment of 
amendments to the present Directive,  October 2010. 
For interest payments it also seems to be the ca se that the excessive ta xation problem is less 
serious in cases where cross-border payments are expected to be the largest, cf. Table 4. Here, 
we see that the countries in Group A account fo r 70-80% of the assets that generate cross-
border interest payments. 
Table 4. Indications of size of double taxati on of interests across groups of countries 
 Group A Group B Group C Group D 
Share of EU intra 
FDI stock 81.5 14.6 3.2 0.7 
Share of EU 
interest income 73.2 21.0 4.1 1.8 
Share of EU patent 
firm's financial revenue 82.3 15.3 2.0 0.4 
 
EN 15   EN Source: Data on the FDI stock is from Eurostat, European Union Di rect Investment ; data on 
interest income is from Eurostat, International Trade in Services. Data on financial revenue is 
from Amadeus. 
2.2.5.  Specific legal requirements in the case  of payments made through permanent 
establishments 
The Directive covers the cases where the companies make the payments through their 
permanent establishments. These are cases where th e entity does not create a subsidiary to run 
its activities in another country  but decides to do it through a fi xed place of business without 
own legal personality, i.e. a branch. In th e case of payments made through a permanent 
establishment, the Directive requires that these have to be a tax deductible expense for this taxpayer in the Member State where it is situat ed. The "tax-deductibility" requirement ensures 
that the benefits of the Directive accrue only  when the payments are attributable to the 
permanent establishment. However, on its wording the Directive would not apply to cases where deduction is denied on othe r grounds, such as the failure to  comply with all the formal 
requirements. This could result in an unjustifiable difference of treatment between subsidiaries and permanent establishments. 
2.2.6.  Risk of tax avoidance 
The Directive exempts from withholding taxes in the host country interest and royalty 
payments but does not guarantee that its r ecipient is actually subject to tax on the 
corresponding income in the home country. This  taxpayer may be exempted from corporate 
tax on these payments. There is a risk of non-taxation and abusive practices cannot be 
excluded. This is a result beyond the purposes of  the Directive, whos e recitals mention 
expressly that such payments should be subjec t to tax at least once in a Member State.  
Thus, there could be an important loophole in the provisions of the Directive allowing for 
circumvention of taxation of interest and royalty payments. This could lead to a suboptimal allocation of capital and intangibles. We should recall that resources employed with the sole 
aim of reducing tax liabilities generate a welf are loss equal to the productivity of these 
resources in the best alternative use. 
2.3. How would the problem evolve, all things being equal? 
The compliance costs linked to withholding ch arges and the risk of double or excessive 
taxation result mainly in a tax discriminatory  treatment between cross-border activities and 
purely domestic ones. Their direct effect is the increase of the cross-border investment costs, 
requiring higher yield thresholds in order to decide entering into international activities. 
There are important disparities among the tax burden borne in the different international 
investments and according to the type of capital flows. As well,  the lack of tax coordination 
would ease tax evasion since firms would explo it tax differentials with the aim of reducing 
their tax charges. Main taining the current scen ario will lead to continuous distortions on 
business behaviour: firms will respond to the ri sk of excessive taxation by taking advantage 
artificially of differences in effective tax ra tes in EU Member Stat es through tax planning; 
they may make suboptimal choices regarding th eir cross-border invest ments, concerning the 
intra-firm capital structure or regarding their organizational form. 
 
EN 16   EN In conclusion, maintaining the current costs associat ed with the assessme nt of withholding 
taxes will have as a consequence less cros s-border capital flows, reducing capital and 
technology transfers. The process of cross-borde r allocation of resources will be altered 
negatively. 
The CE survey concludes that the Directive adoption made a significant contribution to 
eliminating withholding taxes on interests a nd royalties payments between associated 
companies. This study also mentions that there has been a trend in Me mber States to reduce 
these levies at source. In f act, between 2003 and 2009 taxation of royalties has been put on a 
more equal footing with interest payments in most EU countries. Als o, an increasing number 
of DTCs have been signed and have reduced or eliminated withholdi ng taxes between country 
pairs. Thus, there has been a convergence of  national tax policies after the adoption and 
implementation of the Directive. This is a positive trend since the costs and distortions linked to withholding taxes have been reduced. However,  there is no guarantee that this trend will 
continue in the future without fu rther EU action in this  tax policy area. Efforts should be made 
to reinforce tax policies that contribute to the smooth func tioning of the internal market. 
2.4. Who is affected? 
The problems addressed by this initiative affect any busine ss entering into cross-border 
transactions within the EU and making or receiving inte rest or royalty payments. 
Interest and royalty payments are neither exclus ive to any specific sect or nor any geographical 
area. The size of the company is not relevant either. Concerning SMEs, there no specific elements in the problems detected that could affect them in a specific manner requiring special action. However, it is true that compliance costs typically constitute a larger share of their total costs. 
Interest covers essentially payments from a ll sorts of credit, loans and similar financial 
transactions. The problems here addressed affect  mainly the financial sector. Financial groups 
enter daily in internal lending and borrowing. Any solution to the problems identified will 
benefit more frequently their activities. Still, the capital structure of co rporate groups in any 
sector of activity is generally made up of equity and debt. Th is means that all sectors of 
activity are affected. 
Concerning royalties, these shoul d cover payments in consideration for the use of intangibles, 
including industrial property, know-how and other information, processes and formulas 
relevant for business activities, as well as the consideration for the use of intellectual rights. 
Thus, sectors intensive in the use of technology will also be nefit more often from this 
initiative as they are facing the tax burdens more  frequently (see annex 7 for further details on 
the sectors affected). The same conclusion can be extended to  sectors with intense use of 
intellectual property rights. 
Member States are also affecte d. They receive income from wit hholding charges. At the same 
time, they assume the cost of the tax credit  applied by those companies bearing withholding 
levies at source. 
2.5. Treaty base and the subsidiarity principle. 
The Interest and Royalties Dire ctive, adopted by the Council in 2003, was based on Article 94 
of the EU Treaty, currently Article 115 of the TFUE; thus, it refers to cross-border activities 
 
EN 17   EN of multinational groups hampered by tax obstacl es affecting the smooth functioning of the 
internal market. 
EU action must respect the subsid iarity principle. This involves assessing two aspects. Firstly, 
it is important to be sure th at the objectives of the proposed  action could not be achieved 
sufficiently by Member States in the framew ork of their national constitutional system 
(necessity test). Withholding rates are fixe d by each Member State in its national law 
according to its corresponding tax policy options . These charges may be reduced or excluded 
according to bilateral DTCs. However, each partic ular DTC fixes it own rate as a result of the 
trade-off between the two Stat es agreeing it. The result is  that withholding taxes vary 
according to each bilateral relation between th e Member States. These cannot even succeed 
on having a unique tax rate for a ll their bilateral relations. Less, it does not seem that 
exemption could be achievable so that all th e problems described – economic distortions due 
the existing different rates, dist ortions caused by tax relief re quirements, those deriving from 
the different tax regime applicable across the ca pital flows, compliance costs and the cases of 
double taxation – will be hampering crossborder activities. The resu lt is that there will not be 
a spontaneous coordinated action of the Member States. 
The second aspect to consider is whether and how the objective s could be better achieved by 
action on the part of th e EU (test of European value-adde d). The rationale for a European 
action stems from the cross-border nature of  the problem and the impossibility for each 
individual Member State to esta blish a unique tax pol icy for itself and ac ross the EU. Clearly, 
action at EU level will guarantee harmonized and coordinated tax policies  in this particular 
taxation area. Member States would be bound by the exemption of withholding taxes to the 
same extent. This exemption will also diminish tax compliance costs faced by firms. This will reduce the costs of doing cross-border business a nd assimilate taxation of foreign income to 
that imposed on domestic profits with gains in  productivity in EU Member States. It is 
therefore in the interest of all EU Member St ates to remove these obstacles to the free 
movement of capital across EU borders. 
Thus, the subsidiarity principl e is respected, since the policy objectives cannot be sufficiently 
achieved by actions of the Member States, a nd can be better achieved at EU level. 
3. O
BJECTIVES  
3.1. What are the general policy objectives? 
The proposal aims at strengthening the obje ctives pursued by the Interest and Royalties 
Directive, i.e. the elimination of the tax obstacles to the sm ooth functioning of the internal 
market concerning cross-border in terest and royalty payments, as  foreseen in Article 115 of 
the TFEU. In particular, the goal is that th e tax treatment of these payments between 
companies of different Member States is not less  favourable than that applicable to the same 
transactions carried out between  companies of the same Member State. These aims should be 
accomplished with the least costs possible in terms of distortions and efficiency in the raising 
of taxes by the Member States. 
In sum, the policy objectives are related to the identified problems as described above, but 
weighted according to their impor tance. For this purpose, we shoul d take into account that the 
reduction of distortions due to differences in withholding rates will not solve those deriving 
from differences in corporate ta x rates charged by the State of residence so that this should 
 
EN 18   EN not be a primary objective. On the other hand, introducing less restrictiv e requirements for the 
withholding tax exemption and making them similar to thos e of the Parent-Subsidiary 
Directive would be efficient to reduce the di stortions due to the difference tax regime 
applicable on different crossborder payments in each EU bilateral relation. 
This initiative aims also at recasting the three existing Directives in this area of tax law. 
Gathering existing legislation in one single act will simplify, clarify and facilitate the 
application of harmonised law by businesses an d professionals deali ng with these matters. 
3.2. What are the more specific/operational objectives? 
The more specific objective of the proposal is the extension of the withholding tax exemption 
provided for in the Dir ective to a wider range of cases in order to reduce the economic 
distortions derived from the lack of harmoni zation, the compliance costs faced by companies 
and the risk of excessive or double taxation.  
In particular, it is important to eliminate or reduce the distortions derived from the different 
taxation of the three types of capital flows, dividends, interests and royalties., which should 
also contribute to reduce the e ffect of the other distortions: being the tax requirements for the 
Directives benefits the same will diminish thei r importance as tax driven factor; as well, it 
will increase the number of cases enjoying tax ex emption so that distortions due to different 
rates will also be reduced. Th ese should be achieved by ali gning the scope of the Directive 
with that of the Parent-Subsidiary Directive.  
The Directive should also be amended with a vi ew to close loopholes that may be abused for 
tax avoidance purposes. Some types of companie s may engage in tax planning strategies to 
enjoy non-taxation of cross-border payments. The legislation should guarantee taxation at 
least once in a Member State.  
3.3. Are these objectives consistent with other EU policies? 
The objectives pursued by this pr oposal will have a positive im pact in other policy areas of 
the EU. The Communication from the Commi ssion, "Europe 2020 - A strategy for smart, 
sustainable and inclusive gr owth" COM (2010) 2020, includes w ithin its prio rities: smart 
growth, developing an economy based on knowledge  and innovation; sustainable growth and 
promoting a more resource efficient, greener and more competitive economy;  concerning the 
financial system, this document refers to the easy availability of credit. In this context, this document refers specifically to the contribution of tax systems to achieve its priorities. In 
particular, it refers to the reduction of admi nistrative burdens and removing tax obstacles. 
Thus, eliminating tax obstacles to cross-border interest and r oyalty payments should improve 
economic performance in the internal market. These actions will address and improve taxation 
associated to financing, technol ogy, industrial and business inform ation as well as intellectual 
rights. This should promote th e corresponding activit ies and reinforce other EU specific 
policies in these areas. 
4. P
OLICY OPTIONS  
When assessing tax policy options, it should be kept in mind the aims of the Directive: the 
abolition of taxation at source on interest and royalty payments as the most appropriate means 
of ensuring the equality of tax treatment between national and cr oss-border transactions. This 
 
EN 19   EN review process finds its origin in its Article 8, where it refers to the Commission's report of 
the Directive on its operation with a view to extending its coverage. 
The proposed amendments should be proportionate. On the bases of the problems detected, it 
should offer solutions capable to meet the objec tives fixed. The conclusions from previous 
sections of this impact assessm ent report is that the main cause of compliance costs, economic 
distortions and the risk of excessive or double taxation is the existen ce of withholding taxes 
charge at source; as well, the disparities on th e taxation of the different types of cross-border 
capital flows alter business behaviour. Thus, amendments to the Di rective should try to 
achieve tax neutrality in a larger number of  cases so that economic operators allocate 
resources more efficiently. 
Below we will refer to different policy options addressing the problems found in this area of 
taxation. Options 1, 2 and 3 are exclusive alte rnatives. Options 4 and 5 can be combined 
either with option 2 or with option 3. 
4.1. What are the options for meeting the objectives and tackling the problems 
described? Description of the different options 
Option 1 – No action 
The first option is to maintain the curren t state of play and disregard any possible 
amendments. The legal forms out of the scope of  the current Directive and payments between 
non-associated companies as defined in its te xt will have to face the problems described. 
Option 2 - Extending the scope of the Dir ective to transactions between unrelated 
undertakings 
It could be considered extending the benefits of the Directive to  interest and royalty payments 
between unrelated undertakings, i.e. non-associat ed companies. In fact, international double 
or excessive taxation, burdensome administrati ve formalities and cash-flow problems, as 
cross-border obstacles are also present in the case of payments between unrelated parties. The 
result would be the full elimination of withhol ding taxes on all interest  and royalty payments 
between companies covered by the Directive. 
Option 3 – Aligning the requirements of the In terests and Royalties Directive to those of the 
Parent- Subsidiary Directive 
One of the main problems detected is the distor tions in business behaviour deriving from the 
different scope of the two directives ruling the taxation of cross-border capital flows. The tax 
regime applicable to dividends included in the Parent-Subsidiary Di rective has a broader 
scope than that applicable to interest and royalty payments.  
Firstly, the Directives are only applicable to comp anies which have a legal type listed in their 
corresponding annexes.  The list of entities of both Directives is made by reference to the 
national company laws. The one annexed to the Parent-Subsidiary Directive is broader and 
includes in its scope the SE and the SCE. There is no obvious ju stification for these 
differences. The Parent-Subsidiary Directive app lies to profit distributions and shares the aim 
of the Interest and Royalties Directive, the e limination of withholding taxes and the risk of 
double taxation in the case of cross-border capital  flows. The amendment to the Interest and 
Royalties Directive would consist of  the extension of its list with a view to make it identical to 
that of the Parent-S ubsidiary Directive. 
 
EN 20   EN The second issue to address concerns the re quirements to consider that companies are 
associated. In the Interests and Royalties Directiv e association is deemed to exist when one of 
the companies has a direct minimum holding of 25%  in the capital of the other company, or a 
third company has a direct minimum holding of 25% in the capital of both the payer and the 
recipient companies. However, the Parent-Sub sidiary Directive reduc es the threshold for 
‘holdings’ to apply its benefits to 10% of capital or voting righ ts and indirect participations 
can be computed. Again, there is no obvious jus tification to maintain these differences. The 
amendment to the Interest and Royalties Dire ctive would consist of the reduction of the 
minimum shareholding requirements from 25% to  10% and including indirect shareholdings 
to calculate if the minimum participation exists. 
This tax policy option extends the scope of the w ithholding exemption and is useful to tackle 
the distortions derived from different taxation of cross-border capital fl ows. The cross-border 
capital flows often affected by these problems take place between associated companies and 
will therefore be closely related to FDI. EU c ountries’ outward FDI has increased enormously 
during the last few decades, and the stock of total outward FDI by EU companies constitute 
60% of GDP out of which the stock of intra-EU FDI is 40%21. These figures show the 
importance of such type of international activ ities. Limiting the amendments to transactions 
between associated companies would be  proportionate to the goals pursued.  
Option 4 – Clarifying the tax deductibility re quirement applicable to payments made by 
permanent establishments 
The amendment would consist of rewording the Directive text in order to make it more 
precise by replacing "tax -deductible expense for the perman ent establishment" with "expense 
attributable to the permanent establishment". This modification is important for the sake of legal certainty. This text would contribute to avoid tax disputes over these legal references 
and will achieve better the aim pursued. On the other hand, it will not extend the scope of the 
withholding tax exemption. Both  tax authorities a nd taxpayers would benefit from a more 
clear text and the reducti on of juridical disputes. 
Option 5 –Requiring for the exemption of withho lding tax that the recipient of the payment 
is subject to tax on the income derived from it 
At the time of the adoption of the Interest and R oyalties Directive, the statements for entry in 
the minutes of the Council mentioned that "t he Council and the Commission agree that the 
benefits of the Interest and R oyalty Directive should not accrue to companies that are exempt 
from tax on income covered by this Directive". The Council invited the Commission to propose any necessary amendments. The recitals of  the Directive already provide that "it is 
necessary to ensure that interest and royalty payments are subject to tax once in a Member 
State". For that purpose, the Commission adop ted the 2003 proposal whic h was close to an 
agreement in the ECOFIN Council. 
The Commission withdrew this proposal when  adopting its Communica tion to the European 
Parliament, the Council, the European Economi c and Social Committee and the Committee of 
the Regions, Commission Work Programme 2010 - Time to act, COM (2010) 135 final. 
However, this is due to the fact that this new recast of the Directive was foreseen: Annex II of 
this Communication includes a revision of the Directive scope  among the indicative list of 
                                                
 
21 Source: Eurostat, European Union Direct Investment . 
 
EN 21   EN possible strategic and priority initiatives under cons ideration. Thus, the amendments proposed 
in 2003 are still in the Commission's agenda and ar e considered to be in cluded in this recast. 
This option is the most suitable one to tackle loopholes  that could ease ta x avoidance, since 
taxation is guaranteed: either the exemption of withholding tax on the payment in the host 
country is denied or the bene ficiary of the payment is ta xed in the residence State. 
4.2. Which options have been discarded at an early stage and why? 
The option of repealing or reducin g the scope of the Directive has never been on the table. It 
took around 5 years of discussions  and negotiations to get the m easures into place and it has 
been in operation for 6 years. This is the first re view and clear benefits are identified from its 
existence. The Commission's report of th e Directive concludes that the overall 
implementation has been satisfactory. As men tioned before, the adoption of the Directive 
produced a tax policy convergence but nothing gu arantees that this trend will continue. 
It could also be considered combining option 2 with abolishing withholding taxes on 
dividends between unrelated companies or co mbining option 2 with the extension of the 
coverage of the Parent-Subsidiary Direc tive to below the 10% minimum shareholding 
threshold. However, this ini tiative responds to th e conclusions of the Commission's report on 
the Directive, foreseen only to extend its partic ular scope, issue that had been carefully dealt 
with. It does not pretend to very ambitious. Co ncerning the Parent-Subsidiary Directive, it is 
currently the object of a different recast proposal. Both Directives have had their own legislative process and their own path traditio nally. This recast does not seem the suitable 
time to address more ambitious op tions targeting the scope of the Parent-Subsidiary Directive. 
Another solution could be extend ing the Directive to  other types of co mpanies beyond those 
referred to in the Parent-Subsidiary Directive. However, such a proposal would be contrary to 
one of the main objectives of this recast: making the scope of this Direc tive similar to that of 
the Parent-Subsidiary Directive. The public c onsultation launched in pararell with this 
initiative shows more consensu s on aligning both a pplication scopes (89%  of the responses 
received) that extending the Directive to a wider number of entities (47%). 
On the other hand, the Directive covers paymen ts between two different companies and does 
not refer to intra-company situations, for inst ance actual or notional payments between a head 
office and a permanent establishment, or between two permanent establishments of the same company. The Commission' report refers to them and to the OECD work on the attribution of profits to permanent establishments, where th e question had arisen. The issue arose since 
during the debate in the framework of that or ganization some OECD c ountries had indicated 
that they would be minded to impose a withho lding tax on the above payments. Taxation at 
source on intra-company payments would create disadvantages for crossborder investment 
similar or identical to those that prompted the adoption of the Directive. The report stated that 
if that would be the result of the work undert aken, it would seem appropriate to consider 
extending the scope of th e latter to cover such payments. Finally, this initiative does not deal 
with this issue since the OECD did not conc lude on the possibility to charge withholding 
taxes on notional payments. 
 
EN 22   EN 5. ANALYSIS OF IMPACTS  
5.1. Impacts of the different options 
This section deals with the impacts of the po licy options described. These impacts are largely 
economic by nature, as we cannot expect that  any of the options would have significant 
environmental or social impacts, except a s light positive impact on employment through 
productivity increases. 
The policy options proposing the extension of the current cove rage of the Directive would 
reduce the number of companies which curren tly pay withholding taxe s. As described in 
section 2, withholding taxes entail  distortions and costs to the companies. Hence eliminating 
withholding taxes would bring forth economic bene fits of the following kind. First, the gap in 
the rates of return between cr oss-border and domestic investments would be reduced, which 
would encourage cross-border i nvestment and enhance in this  way productivit y, technological 
transfer and economic growth. Through this ch annel also employment could be enhanced. 
Second, the costs of doing business in the EU w ould be reduced. Compliance costs related to 
withholding taxes are a particular form of such costs and may be significant to the companies 
subject to withholding taxes. 
These tax policy options would also entail some costs to the Member States, as eliminating 
withholding taxes would reduce their tax revenues. On the ot her hand, these revenues costs 
would be mitigated by the fact that the count ries receiving withholding taxes would also 
reduce tax credits provided for in  DTCs or in domestic laws. 
The scope of the Directive is limited to EU co mpanies. Thus, the tax policy options described 
above will not have any effect in third countri es. Non-EU firms may, however, benefit from 
the proposed amendments to the Directive to the extent that they own EU subsidiaries. But the 
effects on these are computed within the general effects on EU based companies. 
We will refer to the impact of the policy opt ions on the economic distortions described, on 
compliance costs for companies and on the Member States' tax revenues. Concerning their measurement, approximate estimates of their magnitude are given, based on the CE study. 
Option 1 – No action 
The current tax regime applicable to cross-bo rder transactions of interests and royalties 
creates the problems that have been described in section 2. We should recall that withholding 
taxes increase the cost of doing business, reduce cross-border capital flows and, as a 
consequence, diminish productivity. Companies facing high effective withholding taxes might 
engage in tax planning and re structuring processes to in or der to reduce tax burdens and 
compliance costs. On the government side, opport unities for tax avoidance result in a lost of 
tax revenues. Leaving the current Directiv e unchanged would not solve these problems. 
In particular, this situation will  limit the interest in adopting the legal form  of a SE or of a 
SCE, legal types which are not curren tly included in the Directive scope. 
Concerning the legal context of this tax policy ar ea, it will continue to be established in the 
four Directives and the annexes of the Acces sion Treaty of Bulgaria and Romania in the 
absence of a consolidated text. This situation results in legal complexity for those needing to consult the legislation in force. 
 
EN 23   EN Option 2 - Extending the scope of the Dir ective to transactions between unrelated 
undertakings 
Economic benefits  
The exemption of withholding tax will eliminate the differen ces found in withholding rates 
applicable in the different country pairs. Thes e should reduce the distortions in the patterns of 
capital flows. As well, the suppression of some of the tax requirements to enjoy the Directive 
should contribute to reduce dist ortions in holding structur es and organizational forms 
currently faced by firms. However, the differe nces in taxation of dividends, interests and 
royalties will remain and their distortive consequences regard ing the capital structure of 
companies and their allo cation of intangibles. 
Social impact  
The reduction of compliance costs,  risks of double taxation and lo wer liquidity costs deriving 
from this option would reduce the costs of FDI-related activities and spur cross-border investments. This could have a positive im pact on productivity and employment.. The gains 
are larger when the EU firm’s activities gi ve access to new technology and knowledge. Thus, 
outward FDI has a positive impact on employment in EU countries
22. However, this impact is 
likely to be small and it has not been possibl e to quantify it in the impact assessment.  
Impact from the point of view of companies  
This option would eliminate withholding taxe s on all cross-border payments for the 
companies not currently covered by the Directive,  i.e. to those with holding links lying below 
the current 25% ownership interval. As already mentioned, in the Amadeus database used in 
the CE study such companies represent 12% of  holding links (the sh are of holding links 
within 10-25% ownership interval is 5% and the share of th ose within 0-10% interval is 7%, 
see tables in annexes 8 and 18). These companies represent, however, a large share of employment and turnover: 32% (5% + 27%) and 28 % (4% + 24%) respectively
23. Hence the 
economic benefits that coul d be obtained by re moving withholding ta xes on cross-border 
payments for these companie s could be significant.  
Moreover, it should be taken into account th at the above presented shares do not cover 
SMEs24, since these are not included in the Amadeu s database consulted. Hence the share of 
companies benefiting form the removal of wit hholding taxes on cross-border payments could 
actually be larger than indicated by the num bers above, and also the economic benefits. 
                                                 
22 Cuyvers, L., Dumont, M., Rayp G. and Stevens, K.  (2005), “Home Employment Effects of EU Firms’ 
Activities in Central and Eastern European Countrie s”, Open Economies Review 16, 153–174; Falk, M. 
and Wolfmayr, Y. (2008), “The Impact of Outward FDI in Central and Eastern Europe on Employment in the EU-15 Countries”, FIW Research Report 16; and. Konings, J. (2004), “The Employment Effects 
of Foreign Direct Investment”, EIB Papers 9. 
23 These shares are lower, however, if weighted by in tangible assets (28% and 13% respectively) and also 
compared with the share weighted by financial asse ts (32% and 15% respectively) implying that cross-
border payments between the companies mainly take  the shape of interest payments. See annexes 13 
and 19. 
24 For the purposes of this impact assessment and due  to the use of the Amadeus database as source of 
information, SMEs are: in UK, Germany, France, Italy and Spain, those companies with operating 
revenue below €1.5 million, or total assets below €3 million, or less than 20 employees; in all other 
countries, they are compan ies with operating revenue below €1 million, or total assets below €2 million, 
or less than 15 employees. 
 
EN 24   EN As explained in section 2, pa ying withholding taxes on cr oss-border payments and the 
procedures needed to avoid double taxation coul d entail considerable compliance costs for 
companies. The full elimination of withholding taxes would entail comp liance cost savings in 
the amount estimated above: €126 million, which would constitute a direct economic benefit for the companies not currently covered by the Directive. 
It should be kept in mind, however, that th e above estimates are based on a number of 
assumptions and should therefore be taken with  caution. Thus, the amount of capital flows 
derives from statistical data; its amount subjec t to tax has been determined by grouping them 
in large economic categories regardless of the actual qualification for tax law purposes; as 
well, the gross amount of tax revenues has been calculated on the bases of average withholding tax rates; concerning complianc e costs of refund procedures, it has been 
estimated in a forfeit, 2% of the refundable amount. An additional caveat is that they do not cover SMEs. Compliance costs could constitute a larger burden on smaller firms compared to 
larger firms that absorb such costs more easil y. Extending the coverage  of the Directive to 
cover any cross-border interest and roya lty payment is therefore likely to reduce 
administrative burdens laid upon SMEs and at th e same time remove the financial burden of 
paying withholding taxes. 
Impact from the point of view of the Member States
 
The extension of the withholding tax exempti on may reduce the tax revenues of the source 
States as host countries; at the same time, as home countries, they will see reduced the amount 
of tax credits applied by their companies to relieve double taxation due to the elimination of 
the withholding taxes charged at source. 
For interest payments, we find that the tax re venue impact of extending the scope of the 
Directive will be limited in more than half  of the EU Member States since cross-border 
interest payments are generally exempted from  withholding tax due to national tax law or 
DTC. In total, 13 countries will be affected by the  amendments with respect to interest 
payment. By comparison, only 5 EU Member States levy no withhol ding taxes on cross-
border royalty payments to other EU Member States (see annex 9). 
As regards withholding taxes on interest, the CE survey shows that the total EU outflow of 
interests is more than €500 billi on out of which it is expected that €334 billion go to other EU 
countries25. According to this study, the tax revenue impacts of eliminating withholding taxes 
on interest payments will be very limited. First , 74% of the interest payments are exempted 
from withholding tax due to na tional tax law in the host c ountries. Tax revenue in these 
countries will therefore not be affected. The remaining 13 EU countries that impose 
withholding taxes on outgoing interest paymen ts – Belgium, Bulgaria, the Czech Republic, 
Greece, Hungary, Ireland, Italy, Latvia, Polan d, Portugal, Romania, Slovenia and United 
Kingdom - account for intra-EU interest payments equal to almost €11.2 billion. These 
outgoing interest payments constitute 0.22% of GDP in these countries (see annex 10). 
Second, only a minor part of the cross-border in terest payments are affected by the present 
Directive or even the proposed amendments. Th is is so because the measure of EU cross-
border interest payments originates from balance sheet information and therefore captures all 
                                                 
25 Source: Eurostat, International Transactions in Interests and Dividend Payments.  The expected EU 
outflow to other EU countries is based on the sp lit between intra-EU and extra EU FDI stock; the 
former is 2/3 of the total flows. 
 
EN 25   EN types of cross-border in terest payments, including intra-ba nk payments, governmental interest 
payments, payments between persons and paym ents between (affiliated and non-affiliated) 
companies. However only 10% of the gross de bt position in EU countries is between 
companies and an even smaller share is intra-firm debt26. Under the assumption that the 
interest rate paid on the diffe rent types of debt  is the same, and applying the average 
withholding rate in the count ries that impose withholding ta x on cross-border interest 
payments, 7,1% (annex 11), the CE survey finds that gross income from withholding tax on 
inter-company payments amounts to €0.8 billion. Th e loss of tax revenues from eliminating 
withholding taxes on out going interests would, however, be o ffset by gains from lower credits 
for withholding taxes paid in host countries. A ccording to the CE survey, it is likely that 
netting for this effect would amount to a lo ss not exceeding €200 to €300 millions (see annex 
10). 
Concerning royalty payments, the total EU out flow of royalties an d licences fees is €46.5 
billion or 0.4% of GDP27. By assuming that intra-EU paymen ts constitute two thirds of these 
payments (using the same split as between intr a-EU and extra-EU FDI stock) the intra-EU 
royalty payments are estimated to be around €3 1 billion in 2008. This amount must be further 
reduced by the fact that part of the cross-bo rder payments is exempted from withholding tax 
due to national tax law in certain countries  (Luxembourg, Malta, Netherlands, Sweden and 
Slovak Republic). In the remaining 22 EU countri es intra-EU royalty payments are estimated 
to be equal to €23,3 billion (see annex 12). By a pplying the average EU withholding tax rate 
of 5,5% on this amount (annex 13), the gross inco me from outgoing royalty payments before 
considering the effect of the pr esent Directive is es timated to be around €1.3 billion for EU as 
a whole. It must be further taken into accoun t that losses on revenues on outgoing royalties 
will tend to be offset by gains from lower cred its for withholding taxes paid in host countries 
for incoming royalty payments. Some countries w ill indeed gain on a net basis, namely those 
with a positive balance in royalty payments – Denmark, France and the United Kingdom (see annex 12). As well, the present Di rective covers a substantial part  of the revenues associated 
with outgoing royalty. Hence it is likely that netting for this effect leaves very limited net 
revenue effects: for the seven c ountries with the largest negative royalty balances as a share of 
GDP – Bulgaria, the Czech Republic, Greece, Po land, Portugal, Romania and Slovakia - , the 
loss should not exceed €100 to €200 million (annex 12). 
Concerning the obligation to transpose the amendm ents into national legislation, this option 
would go beyond of the current scope of the harm onized corporate tax law. The Directive and 
the Parent-Subsidiary Directive limit their cove rage to associated companies. Extending the 
Directive benefits to unrelated undertakings w ould be a new feature affecting the EU tax 
relations of all Member States. It is difficult to  foresee how this proposal could affect national 
tax policy and practices and its inte rrelation with the DTC networks. 
Option 3 – Aligning the requirements of the In terests and Royalties Directive to those of the 
Parent- Subsidiary Directive 
Economic benefits
 
                                                 
26 Source: The Quarterly External Debt Database  (QEDS), jointly developed by the World Bank and the 
IMF. 
27 Source: Eurostat, International Transactions in Royalties and Licence Fees.  
 
EN 26   EN Under this option the share of companies that would not need to pay withholding taxes on 
their cross-border payments would be larger th an in the current situation, although not as large 
as under option 2. Hence economic benefits would be of similar nature as under option 2, but 
somewhat smaller in magnitude. However, the harmonization of the conditions to apply the 
two directives on taxation applicable to the diffe rent types of capital flows will contribute to a 
more neutral regime. This option offers better re sults that option 2 conc erning the reduction in 
the economic distortions on capital structure of companies and on their allocation of 
intangibles. In the following it is examined more closely which share of companies would 
benefit from extending the coverage of the Directive as described in option 3. 
Social impact  
This option should also have a positive imp act on employment for the reasons explained 
under option 2, though smaller than those derived from this latter option. 
Impact from the point of view of companies  
a. Extending the list of legal form s benefiting from the Directive 
Option 3 refers to the harmonisation of the lis t of legal types covere d by the Interest and 
Royalty Directive with the same list annexed to the Parent-Subsidiary Directive. We find that 
in 11 countries (Bulgaria, Cyprus, Estonia,  Finland, Latvia, Lithuania, Malta, Poland, 
Portugal, Romania and the United Kingdom) the list of entities covered by the Interest and 
Royalty Directive is identical to the list of enti ties covered by the Pare nt-Subsidiary Directive 
(see annex 14). For the remaining 16 countries the impact of this option will depend on the 
extent to which the interest and royalty paym ents are concentrated in companies where the 
payment is already covered by the Directive.  
As already mentioned, according to the CE su rvey, in 82% of the cases, both the parent 
company and the subsidiary have a legal form that falls under the scope of the Directive; nearly 95% of the tax base corresponding to royalty payments is already covered; 
approximately 90% of the tax base  corresponding to interest paymen ts is also und er its current 
coverage; in fact, the main part of the ec onomic activity (82% of to tal employment and 85% 
of total turnover) is con centrated in the subsidiaries that already fall under the Directive (see 
annex 15). 
We are also interested in assessing to what exte nt the volume of interest and royalty payments 
are affected by the current Direct ive. The CE survey assumes that if all of the intangible fixed 
assets are located in the parent companies that  do not fall under the Directive (the remaining 
18%) then the Directive will continue to pose a constraint of the flow of payments between 
the two entities. It therefore weights the employment and turnover data by the amount of 
assets in the parent company. If the weighted  and the unweighted numbers are the same, the 
parent companies hold the same amount of assets as the parent companies that do not fall under the Directive. This survey  finds that the parent compan ies hold more assets than the 
average (see annex 15). This evidence indicate s that the current Directive does not seem to 
constitute a binding constraint on cross-bor der interest and roya lty payments between 
companies at the aggregate level. However, fo r a small number of comp anies the legal form 
could be a binding constraint and for these co mpanies the amendment could be important. The 
CE survey expects that this amendment would increase up to 84% of the holding links that 
will be covered by the Directive, representing nearly 97% of the tax base corresponding to 
 
EN 27   EN royalty payments and approximately 92% of the tax base corresponding to  interest payments 
(see annex 16).  
b. Extending the Directive to cover indirect holdings 
In the first place, it should be mentioned that there are already two Member States (Belgium 
and Spain, see annex 17) that have implemented  the Directive generously and have provided 
the computation of indirect holdings to es tablish that the companies are associated. 
This amendment could have some impact on tax planning opportunities of companies. In most 
cases, where indirect holdings are above 25% whereas direct holdings fall short of this 
threshold, there are ways in which a tax pla nning company can alter the finance and holding 
structure in order to ensure coverage by the Dir ective. However, it is important to keep in 
mind that tax planning may be costly since it requires detailed knowledge  of national tax laws 
across EU countries. According to  the CE survey such an amen dment may produce benefits in 
terms of increased flexibility and lower restructuring costs. 
c. Reducing the shareholding requirements from 25 to 10% 
According to the CE study, the holding share in EU firms is concentrated around 50% and 
100%. Since the Directive offers more favourable tax treatment for associ ated entities if the 
direct ownership share is at least 25%, tax pl anning companies might take advantage of this 
by increasing their ownership share above 25% of  their intra-group entities. By lowering the 
threshold value for the ownership share from 25 to 10%, the amendments of the Directive 
might allow EU firms to move closer to thei r preferred ownership structure and therefore 
reduce or eliminate the distorti on caused by the limited coverage of the present Directive. In 
fact, the holding links that lie in  this ownership interval, rest ricting it to companies having a 
legal form under the Directive as amended, accounts for a small number, only 5% of entities, i.e. 5% of the holding links. The subsidiari es that would benefit from lower holding 
requirements only account for a small share of employment and turnover, approximately 5% 
(annex 18). Hence, the economic benefits of th is extension would be relatively limited. 
Savings in compliance costs 
To estimate the compliance cost savings that c ould be expected from this option, the CE 
survey differentiate between interest and ro yalty payments. Thus, most of the interest 
payments between non-financial institutions that fall outside the scope of the present Directive will take place be tween associated companies si nce direct loans between non-
associated companies are relati vely rare. This study expects 80-90% of the compliance cost 
savings to materialise under this option 3: th at is, 80 to 90% of the 48 millions of the 
compliance costs accounted for interest payments, €38,4–43,2€. The opposite is the case for royalty payments. OECD
28 finds that the proportion of EU comp anies’ patent portfolio that is 
being licensed to non-associated companies lie s in the range 80-100%. Thus, out of the €78 
millions of compliance costs associated to roya lty payments, the economic gain linked to this 
option would amount €0-€15,6 millions. In total, out of the compliance costs of €126 million, 
this option 3 is estimated to offer a saving of €38,4-€58,8 millions.  
                                                 
28 OECD: Who Licenses Out Patents and Why? Lessons  from a Business Survey- STI Working  Paper 
2009/5- Statistical Analysis of Science, Technology and Industry.  
 
EN 28   EN Again, it should be kept in mind that the above estimates are based on a number of 
assumptions and should theref ore be taken with caution. 
Impact from the point of view of the Member States  
As we can infer from the analyses of opti on 2, the net revenue e ffects from removing 
withholding taxes on all cross-bo rder payments would be rela tively limited. In the case of 
option 3 these effects would affect the Member States in similar terms but in a more limited way, since the amendments now considered are less ambitious. Concerning the obstacles that 
Member States may find to transpose the ne w harmonized rules they should be minor. We 
should mention that they have already the expe rience gained with the obligations imposed by 
the Parent-Subsidiary Directive. 
Concerning the tax revenue effects of  this option, the CE survey c onsiders that it is possible to 
make calculations on the basis of the weights of the interest and royalty transactions described 
above. Thus, if the total reduction of tax re venue expected from the elimination of 
withholding taxes in all trans actions of interests amount €200- €300 millions, this particular 
option 3 would account for a reduction of 80 to  90%, that is €160-€270 millions. In the case 
of royalties, the tax revenue redaction es timated was €100-€200 millions. This option would 
affect to 0-20% of this type of transactions , so that the reduction of tax revenue could be 
estimated at a range of €0-€40 millions. In total,  the tax revenue reduction could be estimated 
roughly at a range of €160-€310 millions. 
Option 4 – Clarifying the tax deductibility re quirement applicable to payments made by 
permanent establishments 
The amendments that would derive from this tax policy option look for legal certainty and the 
reduction of conflicting cases in marginal circ umstances. This could be concluded from the 
IBFD survey, which did not find cases in the su rveyed Member States of relief having been 
denied on the grounds that the payment was a non-deductible expense. The economic impact 
of this tax policy opti on should be negligible. 
As to the transposition of the new legal text, it should not cause major problems. The issue is 
discussed in the Commission's report of the Di rective where the main  elements of this 
amendment are considered. Any tax expert can evaluate the problem raised and the solution 
foreseen. The changes in nati onal legislation should be minor and easy to implement.  
Option 5 –Requiring for the exemption of withho lding tax that the recipient of the payment 
is subject to tax on the income derived from it 
The aim of this tax policy opti on is to tackle tax avoidance strategies. On the government 
side, opportunities for tax avoidanc e result in a loss of tax reve nues. Also, tax administrations 
have to incur in administrative costs since they have to conduct investigation procedures 
related to tax avoidance practic es. On the firm side, tax pl anning activities result in 
suboptimal choices, and the administrative a nd compliance costs of tax planning largely 
represent unproductive use of sc arce resources. Hence, this op tion could potentially have a 
positive impact on the tax revenues in the Member  States. However, it is difficult to make 
estimations and a proper assessm ent of this revenue impact a nd of the administrative costs 
associated with tax planning. We do not have statistics offering relevant information to 
conclude on the quantitative consequences de rived from the abuse of the exemption of 
 
EN 29   EN withholding taxes on interest and royalty paym ents combined with the non-taxation of the 
corresponding income in the home country.  
Concerning the obstacles that may be found to implement this option, we should mention that 
in the ECOFIN Council invited the Commission to present a proposal to address this issue. In 
addition, if Member States want  to check if taxpayers are s ubject to tax on the payments 
received in their home country, they have cross-border administra tive cooperation. Council 
Directive 77/799/EEC of 19 December 1977 con cerning mutual assistance by the competent 
authorities of the Member States in the field of direct taxation29 establishes the rules for 
administrative cooperation and the exchange of information between Member States with the 
purpose, among other things, to enable Member Stat es to carry out a correct tax assessment in 
the case of cross-border activities. 
Table 5. Table of impacts 
 Option 1 
No action Option 2 
Extension of 
the exemption 
to unrelated 
undertakings Option 3 
Aligning 
with Parent-
Subsidiary 
Directive Option 4 
Exemption of 
payments 
connected to 
PE Option 5 
Subject to tax 
requirement 
on the 
recipient 
company 
Reduction of 
distortions due to 
differences in withholding rates  
--  
++  
+  
=  
+ 
Reduction of 
distortions due to 
requirements for the exemption  
--  
++  
+  
=  
= 
Reduction of 
distortions due to 
different taxation of dividends, interests 
and royalties  
--  
-  
+  
=  
= 
Savings in compliance 
costs None €126 mill. €38,4-58,8 
mill. negligible Unknown 
Changes in tax 
revenue None  - €300-500 
mill. - €160-310 
mill. negligible Unknown 
Note: Positive: +; Strongly positive: ++; Negative: -; Strongly negative: --; Neutral/marginal: =  
5.2. Comparison of options 
The objective of this initiative is the eliminat ion of withholding taxes in a wider range of 
cases with the final aim of reducing the econom ic distortions, the compliance costs and the 
risk of excessive or double taxation linked to them. As a more specifi c objective, it is 
important to highlight the need to have a more  neutral tax regime a pplicable to dividends, 
                                                 
29 DO L 336 de 27.12.1977, p. 15. 
 
EN 30   EN interest and royalties by aligning the scope of the Directive with that of the Parent-Subsidiary 
Directive.  
In view of the above analysis, option 1, whic h represents the business as usual scenario, 
should be rejected. Withholding tax rates conti nue to affect the investment decisions and 
financing structures for a numb er of firms within the EU. It  is shown in this impact 
assessment that the static budgetary costs of exte nding the Directive benef its to a wider set of 
firms tend to be small while providing benef its in terms of fewer distortions, reduced 
compliance costs for EU firms and gains in  productivity following from increased cross-
border investments. Hence, ot her policy options la rgely outweigh the business as usual 
scenario. 
On the other hand, both options 2 and 3 give important advantages. They would meet the 
objective fixed to extend the Directive cove rage. At the same time, they could be 
complemented with the policy options 4 and 5, wh ich as such will surely contribute to a better 
functioning of the Directive and sh ould for this reason be include d in any future proposal for 
its amendment. Thus, we will refer to two a lternatives: the alternative I would combine 
options 2, 4 and 5 and the alternativ e II would combine options 3, 4 and 5. 
Concerning the reduction of economi c distortions due to the diffe rences in withholding rates, 
while the alternative I would have  more positive effects than th e alternative II since it covers 
all payments between companies, both solutions pose the question of their efficiency and their 
coherence. Alternative I implies a bigger imp act on public finances. The reduction of Member 
State tax revenues is an important element to consider as stated in the Commission 
Communication on the 2020 st rategy, where reference is made to the need for consolidation 
of public finances in the current crisis context.  The alternative I would have a bigger impact in 
the reduction of Member St ates tax revenue (roughly esti mated at a range of €300-€500 
millions) than alternative II (€100-€240 millions), As well, the difficulties for implementation 
will be bigger in the case of alternative I since it would be the first case where the taxation of 
the relations between non-associat ed parties is harmonized. At the same time, the coherence 
of both options is also limited: since the payments will no longe r suffer withholding taxes, the 
relative importance of the corporate tax rate ch arged by the home country will increase. Thus, 
the major distortions could now be  due to the different corporate tax rates in force in the home 
Member States; it is not proposed to harmonize this tax element which is a general feature 
applicable to all the taxpayers' income. Thus, the reduction of the distortions due to different 
withholding tax rates should be weig hed against these considerations.  
As regards the distortions due  to the requirements to enj oy the Directive benefits, the 
alternative I also have slightly more positiv e effects than the alternative II since it will 
eliminate the condition that companies are associat ed. However, this same  effect restricts the 
capacity of this alternative to reduce the distortions deriving from the different tax regime 
applicable to the different types of capital flows (dividends, interest and royalties) as we will 
see below. Thus, such a proposal will not be cohe rent with other objectives of this initiative. 
Nor is it very efficient due again to its bigger budgetary costs for the Member States and the 
implementation costs. Concerning alternative II, the reduction of the threshold holding to be 
considered as associated compan ies should allow EU firms to m ove closer to their preferred 
ownership structure and therefore reduce the di stortion caused by the limited coverage of the 
present Directive. As regards the computation of  indirect holdings, it may produce benefits in 
terms of increased flexibility and lower restructuring costs. If such a proposal would be 
adopted, companies will not be forced to main tain holdings over a certa in limit to enjoy the 
Directive benefits, reducing part of the financia l costs linked to a partic ular holding structure. 
 
EN 31   EN It will neither have such negative consequences as  those attributable to alternative I, since the 
tax revenue effort and the implementation costs will be lower. 
On the other hand the alternativ e II will reduce the economic distortions due to the different 
scope between the Directive and the Parent -Subsidiary Directive. The exemption of 
withholding taxes on dividends, interest and r oyalties will be applicable under the same 
circumstances. The firms' legal form, holding st ructure and their allocation of intangibles will 
not be altered so negatively as up to present du e to the different withholding tax regime across 
the different capital flows. The new legal cont ext will offer a more neutral solution and reduce 
the influence of taxation on business decisions. It can  be said that it is an effective, since it 
meets this particular achievement; it is effici ent since there are no important costs associated 
to it; and coherent with the other objectives of reducing compliance costs and the other distortions. The alternative I will not have this effect and these distortions will remain since it 
would maintain the different treatment of different capital flows: the exemption of 
withholding taxes on dividends would still requ ire a minimum holding between the payer and 
the recipient of 10% while the benefits on intere st and royalty payments would not require so. 
Different types of capital flows are to some ex tent substitutable and the differences in tax 
treatment have an impact on the investment deci sions of the EU investors. A reduction of the 
tax costs associated with interest and royalties as compared to dividends may lead to sub-
optimally high levels of debt and inefficient al location of intangibles. The financial structure 
of groups and the allocation of intangibles will be  decisions where the tax factor will have to 
be weighted. This, this latter alternative is inefficient to achieve this particular goal. 
As regards the reduction of compliance costs, the alternative I would have bigger effects 
(roughly estimated at €126 millions) than the alte rnative II (roughly estimated at a range of 
€38,4-€58,8 millions) since it would affect a larg er number of transactions. Again, these 
results should be measured considering the negative consequences on public finances and 
implementation costs, larger in the case of Alte rnative I. This would reduce the efficiency and 
coherence of this proposal. 
Concerning the effects on the elimination of  excessive or double taxation, this impact 
assessment considered this as minor problem si nce in the current scenario it appears in a 
limited number of cases (see se ction 2.2.2). Thus, the achieveme nt of this objective should 
have a minor weight at the time to value the different alternatives. For the reasons already 
referred to, alternative I is more effective (w ider exemption) but less efficient (more tax 
revenue and implementation costs) and less cohe rent (could increase distortions due to the 
different tax regime applicable to capital flows). 
SMEs are likely to benefit form both alternatives . In the first place, when the legal types that 
they normally adopt are included in  the list annexed to the Dir ective. It should be mentioned 
that the economic impact of alternative I assu mes that the list of entities covered by the 
Directive is extended to make it equal to that included in the Parent-Sub sidiary Directive. In 
the second place, we should recall that for these,  the weight of tax burden is proportionally 
higher. 
It is possible to summarize these comparisons in the following table. 
 
EN 32   EN Table 6. Comparison of alternatives 
Objectives/ 
Options Reduction of 
distortions due 
to differences in withholding 
rates
 Reduction of distortions due 
to requirements 
for the 
exemption
 Reduction of 
distortions due 
to different taxation of 
dividends, 
interests and royalties
 Savings in 
compliance 
costs Elimination 
of double taxation 
Option 1 Ineffective Ineffective Ineff ective Ineffective Ineffective 
Alternative I More effective, 
but lower 
efficiency and 
coherence More effective, 
but lower 
efficiency and 
coherence Ineffective More effective, 
but lower 
efficiency and 
coherence Effective, but 
lower efficiency 
and coherence 
Alternative II Effective, higher 
efficiency and 
coherence Effective, higher 
efficiency and 
coherence Very effective, 
efficient and 
coherent Effective, 
higher 
efficiency and 
coherence Effective, 
higher 
efficiency and 
coherence 
The public consultation offered also a view of stakeholders on these tax policy options30. The 
first conclusion from the responses received confir ms their interest in the initiatives raised by 
the Commission services. There is a clear tendency to support the need to take tax policy action and amend the Directive. Only 7% of th e replies do not consid er necessary to update 
the list of entities covered by the Directive and 4% do not agree to the change of the 
shareholding threshold to consider entities as  associated. Thus, option 1 receives hardly any 
support. As well, it can be concluded that the ma jority shows alternative II as preferred option 
(aligning the list of entities to that of the Pare nt-Subsidiary Directive is supported by 90% of 
the responses; the computation of indirect hol dings, 91%; lowering the threshold requirement 
to 10%, 87% of replies). On the other hand, th e main option of alternative I, extending the 
Directive to payments between  unrelated undertaki ngs receives very li ttle support, 28%. 
Finally, the public consultation did not address questions on option 5 since this issue was 
brought up in the ECOFIN Council meeting that adopted the Directive in 2003. There, it was 
agreed to require from the Commission a proposal to deal with the issue. That same year the 
proposal was adopted by the Commission. The ECOFIN Council di d not agree on a text due 
to the opposition of one Member State in succe ssive discussions. Still, there is a need to 
maintain this amending proposal and included in this new initiative for a recast. In this context, it did not make much sense to include  the issue in the public  consultation since the 
decision to amend the Directive on this partic ular topic had been taken at that time. 
Member States had also an opportunity to stre ss their views on these options during a meeting 
to discuss the Commission's report on the Directive held on 23 November 2009. The Commission services could consid er which the general position on these matters was: they 
were more included to accept initiatives on the option 3; some of them rejected clearly any 
amendment on the basis of option 2. Concerning the technical modifications proposed in 
option 4, a majority of the Member States' de legates understood the problem and agreed the 
need for a solution. Concerning option 5, it has b een already mentioned that the subject was 
brought up in the ECOFIN Counc il agreeing on the Directive and there has been a large 
majority of Member States supporting the Commi ssion initiatives in this area. However, it 
                                                
 
30 See annex 19 including a briefi ng of the responses received. 
 
EN 33   EN should be stressed that the said meeting had a technical purpose and delegations were not 
asked to take a political position on the initia tives. In fact, a number of delegates remained 
silent during the debate. 
On the basis of this analysis, we prefer the al ternative II, combining opt ions 3, 4 and 5 since it 
offers a more balanced solution between bene fits and costs. As al ready mentioned, this 
solution gathers more support from the public than alternative I. 
As regards the distribution of alternative II im pacts between the Member States, it will rely on 
the importance of reduction of withholding ta x revenue currently obtained. Following the 
tables 1 to 4 of this report, it can be concl uded that Member States  with high withholding 
taxes on interest and royalty payments will be  more affected. In order to measure more 
properly this effect, it also should be taken in to account the actual capital flows affected by 
the initiative comprised in these options. In the case of royalty payments, the more affected Member States are the Czech Republic, Estonia,  Latvia, Lithuania, Romania, Slovakia and 
Slovenia. In the case of interest payments, these are Cyprus, Estonia, Latvia, Lithuania, 
Poland, Romania and Slovenia. However, it has to be considered the reduced amount of the 
flows affected as shown in tables 2 and 4. 
6. M
ONITORING AND EVALUATION  
6.1. What are the core indicators of prog ress towards meeting the objectives? 
The main objectives of the Directive are the e limination of the risk of excessive or double 
taxation, the reduction of compliance costs and le ss tax distortions in the functioning of the 
internal market. 
The Commission will ensure Member States' complia nce with the obligations laid down in the 
amending Directive. Its services will offer assistance for the implementation of the legislative changes in the form of transposition workshops with tax authorities and officials from all the 
Member States or in the framework of its wo rking parties for direct tax matters. Further 
discussion and guidance in respec t of key Directive concepts ma y be necessary in order to 
achieve uniformity of interpretation and reduction in legal uncertainty. 
As entrusted by the TFEU, the Commission will ta ke the necessary and due action if any of 
them fails to respect its duties concerning th e implementation and application of Community 
Law. 
Concerning the performance of the internal market, it will be difficult to establish a closed 
and direct link between the amendments proposed  and the reduction of tax distortions. Still, 
the increase in tax revenues or in tax bases co rresponding to income from debt claims or from 
intangibles in the home countries could be a good approximation. Howe ver, there are other 
variables to consider which may have an infl uence on these indicators. In broad terms, the 
total amount of cross-border interest and royalt y payments would show the evolution of these 
transactions after the implem entation of the amendments. 
Other indicators should be referred to busin ess behaviour and analyse compliance costs, 
companies capital structure and organizationa l form, as well as the holding structure of 
company groups. 
 
EN 34   EN 6.2. What is the broad outline for po ssible monitoring and evaluation 
arrangements? 
The evaluation of the consequences of the appl ication of the legislative measure could take 
place three years after the entry into force of  the legislative measures implementing the 
Directive. This period should a llow the Commission services to gather sufficient and relevant 
data after a minimum one year period of the applica tion of the amendments, to analyse the 
results and to draw up some conclusions. Th e Commission should submit to the European 
Parliament and the Council a report on the techni cal functioning of the Directive as amended.  
The content of such a report will vary according to the scope of th e Directive as finally agreed 
in the Council. It may be necessary to evalua te the need of further developments to fully 
achieve the objectives pursued. 
 
EN 35   EN Annex 1  
Withholding taxes on interests from non-treaty countries in 2003 and 2009 
Country Tax rate 2003 Tax rate 2009 Notes 
Austria 0% (25%) 0% (25%) 25%  tax applies to interest paid on loans secured by mortgage on immovable property. A 
withholding tax of 25% is levied on bank deposit interest paid to resident individuals and, unless the 
company opts to be paid gross, on such in terest paid to resident companies.  
Belgium 15% (0%) 15% (0%) Exemptions include interest on government bonds, registered bonds , mortgage loans on immovable 
property and bond interest paid by non-residents, in terest on registered cor porate bonds and interest 
on registered bonds issued by resident banks and ot her financial institutions as well as interest paid 
in relation to loans to non-profit associations and other fixed revenue loans issued by corporations 
and deducted from income. 
Bulgaria 15% 10%  
Cyprus 20% (25%) 0% (25%) 25% on the ex cess amount on annual payments over £40,000. 
Czech Republic 15% 15%  
Denmark 0% 0% (25%) From 1 April, a withholding tax of 25% may apply in certain circumstances if interest paid to a 
foreign controlling entity (having 50% of voting po wer or share capital). However, the withholding 
tax only applies if the foreign resident company is  a financial company situated in a tax haven (as 
defined) or (b) a jurisdiction that does not have a double taxation treaty with Denmark. 
Estonia 26% 0% (21%) There is no withhol ding tax on interest payments to non-resi dents on the condition that the interest 
charged does not significantly exceed the arm’s length rate at the time the debt is incurred and the 
interest payments are made. 21% Estonian withhol ding tax will thus apply only to the part of the 
interest that significantly exceeds the arm’s length amount. 
 
EN 36   EN  
Finland 0% (29%) 0% (28%) Interest on bonds , debentures, deposits on bank accounts, fo reign tax credits and other loans that ar e 
not similar to the borrower's own capital is exempt from tax if paid to a non-resident. 
France 0% (15%) 0% (18%) In practice, loan interest is exempted from French withholding tax provided specific formal 
conditions are fulfilled (e.g. loans with a contract). 
Germany  0% (25%) 0% (25%) Interest paid to non-residents on instruments other than convertible or profit-sharing bonds or 
mortgage loans is generally free of withholding tax.  
Greece 37.5% (15%) 25% (10%) Interest earned on deposits with banks operating in Greece, as well as on any kind of bonds and 
other interest-bearing securities issued by private en terprises, was subject to a tax withheld at the 
source of 15% in 2003 and 10% in 2009. 
Hungary Bilateral 30% From 1 January 2010 30% withholding tax will be in troduced on interests, royalties and certain 
service fee payments made to comp anies, which are resident in countries with which Hungary does 
not have a double tax treaty. 
Ireland 20% 20%   
Italy 0%, 12.5%, 27% 0%, 12.5%, 27% 0% applies on loan agreemen ts and ordinary notes; 12.5% on bonds if the term of the bond is sue is 
more than 18 months; 27% if the a bove mentioned period is shorter. 
Latvia 10% (5%) 10% (5%) Interest paymen ts to related non-resident parties are generally subject to a 10% WHT. If a bank 
registered in Latvia pays interest to related compan ies at the bank’s normal interest rate level, then a 
5% WHT applies. 
Lithuania 0% (10%) 0% (10%) Wit hholding tax is not applied on Government secur ities issued on international financial markets, 
interest accumulated and paid on deposits, and intere st on subordinated loans which meet the criteria 
established by legal acts adopted by the Bank of Lithuania. 
 
EN 37   EN Luxembourg 0% 0% (15%) Interest paid to non-residents is gene rally not subject to withholding tax in Luxembourg. However, 
interest that represents a right to profit partic ipation on a bond may be assimilated as a dividend and 
subject to a withholding tax of 15%. 
Malta 0% 0% Interest and royalty income by non-r esidents is exempt from tax in Malta as long as certain 
conditions are complied with (e.g. they are not ef fectively connected to a permanent establishment 
of the recipient situated in Malta). 
Netherlands 0% 0% (15%) A nil withholding tax rate applies to payments to a resident corporation when its shareholding 
qualifies for the participation exemption and the sh ares form part of a company whose activities are 
carried out in the Netherlands. However, dividend withholding tax may be levied on certain profit 
participating loans (15%). 
Poland 20% 20%  
Portugal 20% 20%  
Romania 10% 16% (0%) Interest income obtained from Romani a by EEA registered pension funds will be exempt from 
withholding taxes. 
Slovak Republic 25% 0% (19%) Interest paid  to related EU-resident companies is gene rally not subject to withholding tax. Under 
certain conditions the tax rate is 19%. In 2002 it was 25% 
Slovenia 25% 15%  Spain  0% (18%) 0% (18%) Spanish internal legislation provid es withholding tax exemption on interest obtained by EU lenders 
not established in Spain. Under certa in conditions the tax rate is 18%. 
Sweden 0% 0%  
United Kingdom 20% (0%) 20% (0%) Interest paid on debts not capab le of exceeding one year (short interest) is not subject to wi thholding 
tax. 
 
EN 38   EN Note: The withholding taxes listed in the table refer to the rates applicable to non-treaty countries. 
Source: IBFD (2005) and various tax ta bles provided by PriceWaterhouseCoopers. 
 
EN 39   EN Annex 2  
Withholding taxes on royalties 
Country Tax rate 2003 Tax rate 2009 Notes 
Austria 20% 20%  
Belgium 15% 15%  
Bulgaria 15% 10%  
Cyprus 10% (5%*) 0% (10%**) *5% on film and TV royalties. **Where royalties are earned 
on rights used within Cyprus there is a 10 % withholding tax.
Czech Republic 25% 15%  Denmark 30% (0%) 25% (0%) Exemptions include payments for copyrights, e.g. software, 
manuscripts, music, movies and videos and payments for the use of industrial, commercial or scientific equipment. 
Estonia 15% 10% (5%) The lower 5% rate applies to royalties paid for the use of 
industrial, commercial or scientific equipment. 
Finland 29% 28%  
France 33.3% 33.3%  
Germany 25% 15%  
Greece 20% (10%) 20% Before 1.1. 2003 the withholding tax was 10% for film 
rentals of fixed amounts or film rentals based on a percent of 
 
EN 40   EN receipts. 
Hungary Bilateral 30% Fr om 1 January 2010 30% withholding tax will be 
introduced on interests, royalties and certain service fee payments made to companies, which are resident in countries with which Hungary does not have a double tax treaty. 
Ireland 0% (20%) 0% (20%) 20% tax applies to patent royalties. 
Italy 22.5% (30%) 22.5% (30%) A 30% withholding tax must be applied to 75% of the gross 
income, making the effective rate 22.5% (30% x 75%). A 30% withholding tax, levied on the entire amount, applies to 
the payments for the use, or the right to use, industrial, 
commercial or scientific equipment if the property is physically situated in Italy. 
Latvia 15% (5%) 5% Rental income from pr operty located in Latvia is subject to a 
5% withholding tax in 2003.  
Lithuania 10% 10%  
Luxembourg 10% 0%  
Malta 0% 0% Interest and royalty inco me is exempt from tax when certain 
conditions are complied with (e .g. they are not effectively 
connected to a permanent est ablishment of the recipient 
situated in Malta). 
Netherlands 0% 0% A nil withholding tax ra te applies to payments to a resident 
corporation when its shareholding qualifies for the 
participation exemption and the shares form part of a company whose activities are carried out in the Netherlands. 
 
EN 41   EN Poland 20% 20%  
Portugal 15% 15%  
Romania 15% 16%  
Slovak Republic 25% (1%) 19% The lower rate  applies to lease contracts under which the 
lessee has the right to purchase the leased asset at the end of the lease period, provide that the lease is of a certain minimum duration. 
Slovenia 25% 15%  
Spain 25% 24%  
Sweden 0% (28%) 0% (28%)  Under domestic law there is no withholding tax on royalties. 
However, a non-resident recipient of royalties is deemed to have a permanent establishment in Sweden in respect of the royalties received. Thus, the recipient would be taxed in Sweden on the net royalty income, i.e. gross royalty less 
expenses related to the royalty, at the ordinary corporate 
income tax rate (28%). 
United Kingdom 22%  20% (0%) Under UK dom estic law, withholding tax is deducted from 
royalties in respect of UK registered patents, copyright 
royalties (other than film royalties), design royalties, certain 
mineral royalties and royalties which are regarded as annual payments. 
Note: The withholding taxes listed in the table refer to the rates applicable to non-treaty countries. 
Source: IBFD (2005) and various tax ta bles provided by PriceWaterhouseCoopers.  
 
EN 42   EN Annex 3  
Bilateral double taxation treaties on interest payments between EU Member States (2009) 
Payed from/ 
Recipient Austria Belgium Bulgaria CyprusCzech 
Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy 
Austria x 0 0 0 0 0 0 0 0 0 0 0 0 0 
Belgium 15 X 0/10 0/10 0/10 10 0/10 10 15 0/10 0/5/10 0/15 15 0/15 
Bulgaria 0 10/0 x 7 10/0 0 n.a. 0 0 0 10 10/0 5/0 0 
Cyprus 0 10 7 x 10 10 n.a. n.a. 10 10 10 10 0 10 
Czech  
Republic 0 10 0/10 0/10 x 0 0/10 0 0 0 0/10 0 0 0 
Denmark 0 0 0 0 0 x 0 0 0 0 0 0 0 0 
Estonia 0/21 0/21 0/21 0/21 0/21 0/21 x 0/21 0/21 0/21 0/21 0/21 0/21 0/21 
Finland 0 0 0 0 0 0 0 X 0 0 0 0 0 0 
France 0 0/15 0 0/10 0 0/18 0/10 0/10 x 0 0 0 0 0/10 
Germany 0 0/25 0/25 0/10 0 0/25 0/25 0 0 x 0/10 0 0 0/25 
Greece 10/0 5/10 10 10 10 8 10 10 10 10 x 10 5 10 
Hungary 0 15 10 10 0 0 10 0 0 0 0 x 0 0 
Ireland 0 0/15 0/5 0 0 0 0/10 0 0 0 0/5 0 x 10 
 
EN 43   EN Italy 0/10 0/15 0 0/10 0 0/10 0/10 0/15 0/10 0/10 0/10 0 0/10 x 
Latvia 0/5/10 0/5/10 0/5 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10
Lithuania 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 
Luxembourg 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 
Malta 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 
Netherlands 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
Poland 20 10 10 10 10 5 10 0 0 5 10 10 10 10 
Portugal 20 15 10 10 10 10 10 15 12/10 15/10 15 10 15 15 
Romania 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 
Slovakia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
Slovenia 5 10 5 10 5 5 10 5 5 5 10 5 5 10 
Spain 0/5 0/15 0 n.a. 0 0/10 0/10 0/10 0/10 0/10 0/8 0 0 0/12 
Sweden 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
United Kingdom 0 15 0 10 0 0 10 0 0 0 0 0 0 10 
 
EN 44   EN  
Payed from/ 
Recipient Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK 
Austria 0 0 0 0 0 0 0 0 0 0 0 0 0 
Belgium 0/10 0/10 0/15 0/10 0/10 0/5 15 0/10 0/10 0/10 10 0/10 15 
Bulgaria 5/0 10/0 10 0 0 10/0 10/0 15/0 10 5/0 0 0 0 
Cyprus n.a. n.a. n.a. 10 n.a. 10 n.a. 10 10 n.a. n.a. 10 10 
Czech  
Republic 0/10 0/10 0 0 0 0/10 0/10 0/7 0 0/5 0 0 0 
Denmark 0 0 0 0 0 0 n.a. 0 0 n.a. 0 0 0 
Estonia 0/21 0/21 0/21 0/21 0/21 0/21 0/21 0/21 0/21 0/21 0/21 0/21 0/21 
Finland 0 0 0 0 0 0 0 0 0 0 0 0 0 
France 0/10 0/10 0/10/12 0/10 0/10 0 0/12 0/10 0 n.a. 0/10 0 0 
Germany 0/25 0/25 0 0/25 0 0/25 0/25 0/25 0 0/25 0/10 0/25 0 
Greece 10 10 8 8 10/8 10 15 10 10 10 8 10 0 
Hungary 10 10 0 10 0 10 10 15 0 5 0 0 0 
Ireland 0/10 0/10 0 0 0 0/10 0/15 0/3 0 0/5 0 0 0 
Italy 0/10 0/10 0/10 0/10 0/10 0/10 0/15 0/10 0 0/10 0/12 0/15 0/10 
 
EN 45   EN Latvia x 0 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10 0/5/10
Lithuania 0/5 x 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 0/5 
Luxembourg 0¹ 0¹ x 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 
Malta 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 0¹ 
Netherlands 0 0 0 0 x 0 0 0 0 0 0 0 0 
Poland 10 10 10 10 5 x 10 10 10 10 0 0 5 
Portugal 10 10 15/10 10 10 10 x 10 10 10 15 10 10 
Romania 0/10 0/10 0/10 0/10 0/10 0/10 0/10 x 0/10 0/10 0/10 0/10 0/10 
Slovakia 0 0 0 0 0 0 0 0 x 0 0 0 0 
Slovenia 10 10 5 5 5 10 10 5 10 x 5 0 5 
Spain 0/10 0/10 0/10 0 0/10 0 0/15 0/10 0/5 0/5 x 0/15 0/12 
Sweden 0 0 0 0 0 0 0 0 0 0 0 x 0 
United Kingdom 10 10 0 10 0 5 10 10 0 5 12 0 X 
 
Note: Individual notes are prevalent in most bilateral double taxation treaties. 
Source: PriceWaterhouseCoopers (2009).  
 
EN 46   EN Annex 4  
Bilateral double taxation treaties on royalty pa yments between EU Member States (2009) 
Payed 
from/Recipient Austria Belgium Bulgaria Cyprus Czech 
Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy 
Austria x 0/10 0 0 5 0 10/5 5 0 0 7 0 0/10 0/10 
Belgium 10 x 5 0 5/10 0 5/10 5 0 0 5 0 0 5 
Bulgaria 0 5 x 10 10 0 n.a. 0/5 5 5 10 10 10 5 
Cyprus 0 0 0/10 x 0/5 0 n.a. n.a. 0 0 0 0 0 0 
Czech Republic 0/5 0/10 10 0/5 x 0/5 10 0/1/5/1
0 0/5 5 0/10 10 10 0/5 
Denmark 10/0 0 0 0 0 x 10/5 0 0 0 5 0 0 5 
Estonia 0/10 0/10 0/10 0/10 0/10 0/10 x 0/10 0/10 0/10 0/10 0/10 0/10 0/10 
Finland 5 5 5 28 10 0 10 x 0 5 10 5 0 5 
France 0 0 5/0 0 0/5/10 33,33/0 5/10/0 0 x 0 5/0 0 0 5/0 
Germany 0 0 5 0/5 5 0 10 0/5 0 x 0 0 0 0/5 
Greece 10/0 5 10 5/0 10 5 5/10 10 5 0 x 10 5 5 
Hungary 0 0 10 0 10 0 5/10 5 0 0 10 x 0 0 
Ireland 0 0 0/10 0 0/10 0 0/10 0 0 0 0/5 0 X 0 
 
EN 47   EN Italy 0/10 5 5 0 0/5 0/5 5/10 0/5 0/5 0/5 0/5 0 0 x 
Latvia 5/10 5/10 0/5 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 
Lithuania 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 
Luxembourg 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
Malta 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
Netherlands 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
Poland 20 10 5 5 5 5 10 0 10 5 10 10 10 10 
Portugal 10/5 10 10 n.a. 10 10 10 10 5 10 10 10 10 12 
Romania 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 
Slovakia 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
Slovenia 5 5 5/10 10 10 5 10 5 5 5 10 5 5 10 
Spain 5 5 0 n.a. 5 6 10 5 5 5 6 0 10 8 
Sweden 0/10 0 5 0 0/5 0 5/10 0 0 0 0/5 0 0/5 0/5 
United Kingdom* 0 0 0 0 10 0 10 0 0 0 0 0 0 8 
 
EN 48   EN  
Payed from/Recipient Latvia Lithuania Luxembourg Malta Nether lands Poland Portugal Romania Slovakia Slovenia Spain Sweden UK 
Austria 10/5 10/5 0/10 0/10 0/10 5 5/10 3 5 5 5 0/10 0/10 
Belgium 5/10 5/10 0 0/10 0 5 10 5 5 5 5 0 0 
Bulgaria 7/5 10 5 10 0/5 5 10 15 10 5/10 0 5 0 
Cyprus n.a. n.a. n.a. 0/10 n.a. 5 n.a. 0/5 0/5 n.a. n.a. 0 0 
Czech Republic 10 10 0/10 5 5 5 10 10 0/10 10 0/5 0/5 0/10 
Denmark 5/10 5/10 0 0 0 5 n.a. 10 5 n.a. 6 0 0 
Estonia 0/10 0/10 0/10 0/10 0/10 0/ 10 0/10 0/10 0/10 0/10 0/10 0/10 0/10 
Finland 10 10 5 0 0 10 10 5 10 5 5 0 0 
France 5/10/0 5/10/0 0 10/0 0 10/0 5/0 10/0 5/0 n.a. 5/0 0 0 
Germany 10 10 5 0 0 5 10 3 5 5 5 0 0 
Greece 5/10 5/10 5/7 8 5/7 10 10 5/7 10 10 6 5 0 
Hungary 5/10 5/10 0 10 0 10 10 10 10 5 0 0 0 
Ireland 0/10 0/10 0 0/5 0 0/10 0/10 0/3 0/10 0/5 0/10 0 0 
Italy 5/10 5/10 10 0/10 5 10 12 10 0/5 10 4/8 5 8 
Latvia x 0 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 5/10 
 
EN 49   EN Lithuania 10/0 x 10/0 10/0 10/0 10/ 0 10/0 10/0 10/0 10/0 10/0 10/0 10/0 
Luxembourg 0 0 x 0 0 0 0 0 0 0 0 0 0 
Malta 0 0 0 x 0 0 0 0 0 0 0 0 0 
Netherlands 0 0 0 0 x 0 0 0 0 0 0 0 0 
Poland 10 10 10 10 5 x 10 10 5 10 10 5 5 
Portugal 10 10 10 10 10 10 x 10 10 5 5 10 5 
Romania 0/10 0/10 0/10 0/10 0/10 0/10 0/10 x 0/10 0/10 0/10 0/10 0/10 
Slovakia 0 0 0 0 0 0 0 0 0 0 0 0 0 
Slovenia 10 10 5 5 5 10 5 5 10 x 5 0 5 
Spain 10 10 10 0 6 10 5 10 5 5 x 10 10 
Sweden 5/10 5/10 0 0 0 0/5 0/10 0/10 0/5 n.a. 0/10 X 0 
United Kingdom* 10 10 5 10 0 5 5 15 10 5 10 0 x 
 
Note: Individual notes are prevalent in most bilateral double taxation treaties. 
Source: PriceWaterhouseCoopers (2009).  
 
EN 50   EN Annex 5  
Statutory corporate tax rates in EU countries 
0,05,010 , 015, 020,025,030,035,040,0Adj ust ed t op st at ut ory t ax rat e on corporat e i ncome i n 2009, i n percent age
 Lower  tax countries High er tax countries 
 
EN 51   EN Annex 6  
Duration of the tax refund procedure 
Duration of tax relief  Countries 
Less than 6 months Austria (6 months), Ireland (6 months) and Norway (3-6 months) 
Between 6 and 9 months Denmark (6-9 mont hs), Finland (6-9 months), Sweden (6 -9 months) and Switzerland (6-8 months) 
Between 9 and 24 months Belgium (18 mont hs), France (8-14 months), Portugal ( 12-24 months) and Spain (12-24 months) 
More than 24 months Italy (60-84 months) 
Note: The numbers show the average run time from point of dispatching to custodian/foreign tax office. The table lists informat ion for 12 EU host 
countries and no data is availabl e for the remaining EU countries. 
Source: Simplified Withholding Tax Relief Procedures , DG Internal Market and Services , European Commission, Brussels 2010. 
 
EN 52   EN Annex 7  
Sectors with large intangib le fixed assets, 2008 data 
  Mean intangible fixed assets as a share of 
operating revenue Share of 
intangible fixed 
assets Share of value 
added 
Patent-intensive sectors  6.0 56.4 41.3 
Chemicals and chemical products 28.6 6.4 3.3 
Machinery and equipment n.e.c. 0.1 1.5 3.6 
Electrical and optical equipment 0.5 2.1 2.1 
Manufacture of other transport 
equipment 2.7 1.5 1.0 
Wholesale trade and retail trade 0.1 5.9 17.5 
Research and development 8.9 0.7 n.a 
Other business activities 1.2 38.2 13.8 
Other royalty-intensive sectors 0.4 29.1 16.7 
Total credit institutions 1.0 4.9 n.a. 
Recreational, cultural and sporting 
activities 0.8 1.9 n.a. 
Food products and beverages 0.6 3.5 3.4 
 
EN 53   EN Post and telecommunications 0.5 13.7 4.3 
Computer and related activities 0.2 1.9 3.4 
Rubber and plastic products 0.1 0.6 1.4 
Motor vehicles, trailers and semi-
trailers 0.0 1.8 2.7 
Other non-metallic mineral 
products 0.0 0.8 1.5 
Note: We exclude the resource-intensive se ctors such as mining and oil extraction sinc e such exploitation rights enter as intan gible fixed assets in the 
companies’ balance sheet information but do not all under the Directive. The definition  of patent intensiv e industries follows Norden (2009). 
Source: Own calculations based on Amadeus data. 
 
EN 54   EN Annex 8  
The impact of lowering the holding requirements from 10% to 0% 
Share of holding links lying in the 0-10% ownership interval 
 Total Weighted by intangible fixed assets of parent Weighted by financial 
revenue of parent 
Holding links 7% . . 
Subsidiary employment 27% 12% 25% 
Subsidiary turnover 24% 10% 12% 
Note: The calculations are for 2008 and show the proportion of the holding links where the ownership share lies between 0 perce nt and 10 percent.  
Source: Copenhagen Economics, Taxation of interest and royalties – impact assess ment of amendments to the present Directive, October 2010. 
 
EN 55   EN Annex 9  
Impacts on tax base of reducing withhol ding taxes on interests and royalties 
No impact on tax revenues in host country Reduced tax revenues in host countries 
Interest Royalties Interest Royalties 
Austria* Luxembourg Belgium Austria 
Cyprus* Malta* Bulgaria Belgium 
Denmark* Netherlands* Czech Republic Bulgaria 
Estonia* Sweden Greece Cyprus 
Finland Slovak Republic* Hungary Czech Republic 
France*  Ireland Denmark 
Germany*  Italy Estonia 
Lithuania*  Latvia Finland 
Luxembourg*  Poland France 
Malta  Portugal Germany 
Netherlands*  Romania Greece 
Slovak Republic*  Slovenia Hungary 
Spain*  United Kingdom Ireland 
 
EN 56   EN Sweden   Italy 
   Latvia 
   Lithuania 
   Poland 
   Portugal 
   Romania 
   Slovenia 
   Spain 
   United Kingdom 
Note: * Indicates that there is generally no withholding tax on cross-border paymen ts to other EU Member States but that there might be few 
exemptions. 
 
EN 57   EN Annex 10  
Indicators of interest payments for different groups of countries 
  Group 1 
Italy and United Kingdom Group 2 
Portugal, 
Poland, Greece, 
Hungary and 
Ireland Group 3 
Romania, 
Latvia, 
Slovenia, Bulgaria, 
Czech Rep. Group 4 
Belgium Total 
Outgoing interest payments (billion €) 79.4 13.0 3.1 16.0 111.5 
Outgoing inter-company interest 
payments (billion €) 7.9 1.3 0.3 1.6 11.2 
Outgoing inter-company interest 
payments as share of GDP 0.23% 0.12% 0.08% 0.46% 0.22% 
Loss of gross income from withholding 
tax on inter-company payments(billion €) 0.5 0.1 0.0 0.2 0.8 
Net balance (billions €) 6.8 0.8 0.1 -0.1 0.8 
Net balance as share of GDP 0.20% 0.08% 0.03% -0.02% 0.01% 
Net revenue effects after netting for: 
Gains from reduced tax credits 0.5* 0.05* 0.0* -0.2* 0.35* 
 
EN 58   EN Effectives from existing Directive 0.3 0.03 0.0 -0.1 0.23 
Note: All the data is from 2008 except data  from Poland, Greece, Slovenia, Bulgaria w ith are from 2007 and Romania with are fro m 2006. Group 1 
includes countries with net interest payments above €10.000 billion;  Group 2 includes countries with net interest payments betw een €1000 and 
€10.000; Group 3 includes countries with positi ve net interest payments below €1000; a nd group 4 includes countries with negati ve net interest 
payments. The four groups represent 23 percen t of the total interest pai d. * These numbers should be interpreted with caution s ince average unweighted 
withholding taxes have been used in the calculations. 
Source: Eurostat, International Transactions in In terest and Dividend Payments . 
 
EN 59   EN Annex 11  
Average withholding taxes on interest payments to other EU countries 
 
0.01. 02.03.04.05.06.07.08.09.010 . 0Average wi t hhol di ng t ax pai d on corss-border i nt erest  i ncome accordi ng t o DDTs wit h 
other EU countries (2009)
 
Note: The withholding tax in the individual home country is calculated as the unweighted average of  the withholding tax paid in  other EU (host) 
countries.  
Source: PriceWaterhouseCoopers. High ertax countries Lower tax countries
 
EN 60   EN Annex 12  
Indicators of royalty payments for different groups of countries 
  Group 1 
Denmark, France and the 
United Kingdom Group 2 
Austria, Belgium, Finland, 
Hungary, Italy and Spain Group 3 
Greece, Portugal and 
Romania Group 4 
Bulgaria, Czech Rep., Poland 
and Slovenia Total 
Outgoing royalty payments (billion €) 11,5 8,8 1 2 23.3 
Outgoing royalty payments as share of GDP 0.29% 0.25% 0.18% 0.34% 0.27% 
Loss of gross income from withholding tax 
(billion €) 0.5 0.5 0.1 0.2 1.3 
Net balance (billions €) 6.6 -4.8 -0.9 -1.7 -0.8 
Net balance as share of GDP 0.16% -0.13% -0.17% -0.29% -
0.01% 
Net revenue effects after netting from gains 
from reduced tax credits 0.2 -0.2 -0.1 -0.2 -0.3 
Effectives from existing directive  0.1 -0.1 -0.05 -0.1 -0.15 
Note: Cyprus, Estonia, Germany, Latvia, Ire land and Lithuania have been excluded due to  lack of data. Group 1 consists of count ries with a positive net balance; 
Group 2 consists of countries with a negative net balance of less th an 0.25% of GDP and outgoing royalty payments greater than 0.4 billion; Group 3 consists of 
countries with negative net balance less than 0.25% of GDP a nd outgoing royalty payment less than 0.4 billion; and Group 4 cons ists of countries with net balance 
negative and greater than 0.25% of GDP. The four gr oups represent 49% of tota l EU royalty payments. 
Source: Eurostat, International Transa ctions in Royalties and Licence Fees. 
 
EN 61   EN Annex 13  
Average withholding taxes on royalty payments to other EU countries 
0.01. 02.03.04.05.06.07.08.09.0Average wi t hhol di ng t ax pai d on royal t y i ncome accordi ng t o DDTs wi t h ot her EU 
countries (2009)
 
Note: The withholding tax in the individual hom e country is calculated as the (unweight ed) average of the w ithholding tax paid in other EU (host) 
countries.  
Source: PriceWaterhouseCoopers. High ertax countries Lower tax countries
 
EN 62   EN Annex 14  
Legal entities covered by the two directives 
Country Legal entities covered by the Interest and 
Royalty Directive as listed  Legal entities covered by the 
Parent-Subsidiary Directive as listed Legal entities covered by 
the Interest and Royalty Directive as listed in Amadeus Legal entities 
covered by the Parent-Subsidiary Directive as listed in 
Amadeus 
Is the list of entities 
covered by the Parent-Subsidiary Directive less restrictive than the Interest and Royalty Directive? 
Austria Aktiengesellschaft (AG), Gesellschaft mit 
beschränkter Haftung (GmbH) Aktiengesellschaft (AG), 
Gesellschaft mit beschränkter Haftung (GmbH), 
Versicherungsvereine auf 
Gegenseitigkeit, Erwerbs- und Wirtschaftsgenossenschaften, Betriebe gewerblicher Art von Körperschaften des 
öffentlichen Rechts, 
Sparkassen and other companies constituted under Austrian law subject to Austrian corporate tax AG 
GmbH GmbH & Co KG 
 All 
companies in Amadeus 
Yes 
 
EN 63   EN Belgium Société anonyme (SA), Société en 
commandite par actions (SCA), Société 
privée à responsabilité limitée (SPRL) and Public law bodies that operate under private law Société anonyme (SA), 
Société en commandite par 
actions (SCA), Société privée à responsabilité limitée (SPRL), Société coopérative à responsabilité limitée (SCRL), Société coopérative 
à responsabilité illimitée 
(SCRI), Société en nom collectif (SNC), Société en commandite simple (SCS). public undertakings which 
have adopted one of the 
above mentioned legal forms and other companies constituted under Belgian law subject to Belgian corporate tax Private company limited by 
shares 
Private company with 
limited liability 
Company limited by shares Public company limited by 
shares 
 All 
companies in 
Amadeus 
Yes 
 
EN 64   EN Bulgaria Акционерно  дружество  (p.l.c), 
Командитно  дружество  с акции  (ltd.) and 
Дружество  с ограничена  отговорност  
(ltd.) Акционерно  дружество  
(p.l.c), Командитно  
дружество  с акции  (ltd.) and 
Дружество  с ограничена  
отговорност  (ltd.) Public limited company 
One-person public limited 
company 
One-person private limited 
company 
Private limited company Public 
limited 
company 
One-person 
public limited company 
One-person 
private limited company 
Private 
limited 
company No 
Czech Republic Akciová spole čnost (p.l.c), Spole čnost s 
ručením omezeným (ltd.), Ve řejná obchodní 
společnost (general partnership), 
Komanditní spole čnost 
Družstvo Akciová spole čnost (p.l.c), 
Společnost s ručením 
omezeným (ltd) Joint stock company 
Limited liability company Joint stock 
company 
Limited 
liability 
company Yes/No 
Cyprus Companies in accordance with the 
Company's Law, Public Corporate Bodies 
as well as any other Body which is 
considered as a company in accordance with the Income tax Laws εταιρείες ” as defined in the 
Income Tax laws Limited company 
Public limited company Limited 
company 
Public 
limited company No 
 
EN 65   EN Denmark Aktieselskab (ltd.) and Anpartsselskab 
(p.l.c) Aktieselskab (ltd.), 
Anpartsselskab (p.l.c) and 
other companies subject to tax under the Corporation Tax Act, insofar as their taxable income is calculated and taxed in accordance with 
the general tax legislation 
rules applicable to "aktieselskaber" Limited company 
Company with limited 
liability  
Limited company (Faroe 
Islands) 
Private limited company Private limited company 
(Faroe Islands) 
 Limited 
company 
Company 
with limited liability  
Limited 
company 
(Faroe 
Islands) 
Private 
limited company 
Private 
limited company (Faroe Islands) 
Cooperative 
with limited 
liability 
General 
partnership 
Limited 
partnership 
by shares 
Limited 
partnership 
Profit 
foundation Yes 
 
EN 66   EN Estonia Täisühing (general partnership), 
Usaldusühing (limited partnership), 
Osaühing (Ltd.), Aktsiaselts (p.l.c.), Tulundusühistu limited liability cooperative) Täisühing (general 
partnership), Usaldusühing 
(limited partnership), Osaühing (Ltd.), Aktsiaselts (p.l.c.), Tulundusühistu limited liability cooperative) Limited liability company 
Share company 
Profit oriented cooperatives Limited 
liability 
company 
Share 
company 
Profit 
oriented 
cooperatives No 
Finland Osakeyhtiö (ltd.), Osuuskunta 
(cooperative), Säästöpankki) and Vakuutusyhtiö (försäkringsbolag) Osakeyhtiö (ltd.), Osuuskunta 
(cooperative), Säästöpankki) and Vakuutusyhtiö (försäkringsbolag) Private limited company 
Public limited company Association/cooperatives  Private 
limited company 
Public 
limited 
company 
No 
 
EN 67   EN France Société anonyme (SA), Société en 
commandite par actions (SCA), Société à 
responsabilité limitée (SARL) and industrial and commercial public establishments and undertakings Société anonyme (SA), 
Société en commandite par 
actions (SCA), Société à responsabilité limitée (SARL), Sociétés par actions simplifiées (SAS), Sociétés d'assurances mutuelles, 
Caisses d'épargne et de 
prévoyance and Sociétés civiles which are automatically subject to corporation tax, Coopératives 
, Unions de coopératives, 
industrial and commercial public establishments and undertakings, and other companies constituted under French law subject to French 
corporate tax SA 
SA Directoire 
SARL SCA   All 
companies in 
Amadeus 
 
Yes 
 
EN 68   EN Germany Aktiengesellschaft (AG.), 
Kommanditgesellschaft auf Aktien (KGaA), 
Gesellschaft mit beschränkter Haftung (GmbH) and bergrechtliche Gewerkschaft Aktiengesellschaft (AG), 
Kommanditgesellschaft auf 
Aktien (KGaA), Gesellschaft mit beschränkter Haftung (GmbH), Versicherungsverein auf Gegenseitigkeit, Erwerbs- 
und 
Wirtschaftsgenossenschaft, Betriebe gewerblicher Art von juristischen Personen des öffentlichen Rechts, and other 
companies constituted under 
German law subject to German corporate tax AG 
KG  
GmbH GmbH & Co KG  All 
companies in 
Amadeus 
Yes 
Greece αvώvυµη εταιρ  (SA) αvώvυµη εταιρεία  (SA), 
εταιρεία  περιωρισ µέvης 
ευθύ vης (ltd.) and other 
companies constituted under 
Greek law subject to Greek corporate tax SA All 
companies in Amadeus Yes/No 
 
EN 69   EN Hungary Közkereseti társaság (community interest 
ltd.), Betéti társaság (partnership), Közös 
vállalat (joint venture), Korlátolt felelősségű társaság (ltd.), 
Részvénytársaság (limited company with shares), Egyesülés, Közhasznú társaság (general partnership) and Szövetkezet  Közkereseti társaság 
(community interest ltd.), 
Betéti társaság (partnership), Közös vállalat (joint venture), Korlátolt felel ősségű társaság 
(ltd.), Részvénytársaság (limited company with 
shares), Egyesülés and 
Szövetkezet Company limited by shares 
Cooperative company 
Limited liability company Limited partnership Company 
limited by 
shares 
Cooperative 
company 
Limited 
liability 
company 
Limited 
partnership Yes /No 
Ireland Public companies limited by shares or by 
guarantee (Public), private companies 
limited by shares or by guarantee (Private), 
bodies registered under the Industrial and Provident Societies Acts or building societies registered under the Building Societies Acts Companies incorporated or 
existing under Irish law, 
bodies registered under the 
Industrial and Provident Societies Act, building societies incorporated under the Building Societies Acts and trustee savings banks 
within the meaning of the 
Trustee Savings Banks Act, 1989 Private 
Public, A.I.M. 
Public, quoted 
Public, not quoted  Private 
Public, 
A.I.M. 
Public, 
quoted 
Public, not 
quoted 
Yes/No 
 
EN 70   EN Italy Società per azioni (SPA), società in 
accomandita per azioni (SAPA), società a 
responsabilità limitata (SRL) and public and private entities carrying on industrial and commercial activities Società per azioni (SPA), 
Società in accomandita per 
azioni (SAPA), Società a responsibilità limitata (SRL), Società cooperative, Società di mutua assicurazione, and private and public entities 
whose activity is wholly or 
principally commercial Joint stock company - SPA 
Limited liability company - 
SRL 
Limited liability consortium Limited partnership with 
shares - SAPA 
One-person company with 
limited liability 
One-person joint stock 
company - SPA All 
companies in 
Amadeus 
Yes 
Latvia Akciju sabiedr ība (AS), Sabiedr ība ar 
ierobežotu atbild ību (SIA) Akciju sabiedr ība (AS), 
Sabiedrība ar ierobežotu 
atbildību (SIA) Joint stock company - AS 
Limited liability company - 
SIA Joint stock 
company - 
AS 
Limited 
liability company - SIA No  
Lithuania Companies incorporated under the law of 
Lithuania Companies incorporated 
under the law of Lithuania All companies in Amadeus All 
companies in Amadeus No 
 
EN 71   EN Luxembourg Société anonyme (p.l.c), Société en 
commandite par actions (Limited 
partnership with shares) and société à responsabilité limitée (Ltd) Société anonyme (p.l.c), 
Société en commandite par 
actions (Limited partnership with shares), Société à responsabilité limitée (Ltd), Société coopérative, Société coopérative organisée comme 
une société anonyme, 
Association d'assurances mutuelles, Association d'épargne-pension, Entreprise de nature commerciale, 
Industrielle ou minière de 
l'Etat, Des communes, des syndicats de communes, Des établissements publics et des autres personnes morales de droit public, and other 
companies constituted under 
Luxembourg law subject to Luxembourg corporate tax Company limited by shares 
Limited partnership 
Private company with 
limited liability All 
companies in 
Amadeus 
Yes 
Malta Kumpaniji ta' Responsabilita' Limitata, 
Soċjetajiet in akkomandita li l-kapital 
tagħhom maqsum f'azzjonijiet Kumpaniji ta' Responsabilita' 
Limitata, So ċjetajiet en 
commandite li l-kapital 
tagħhom maqsum f'azzjonijietInternational Trading Co. – 
Private non-Exempt 
Limited Liability Co. - 
Public Non-Exempt International 
Trading Co. 
– Private 
non-Exempt 
Limited 
Liability Co. - Public Non-
Exempt No 
 
EN 72   EN Netherlands Naamloze vennootschap (NV) and Besloten 
vennootschap met beperkte 
aansprakelijkheid (BV) Naamloze vennnootschap 
(NV), Besloten vennootschap 
met beperkte aansprakelijkheid (BV), Open commanditaire vennootschap (CV), Coöperatie (C)), Onderlinge 
waarborgmaatschappij 
(Mutual insurance company), Fonds voor gemene rekening, Vereniging op coöperatieve grondslag, Vereniging welke 
op onderlinge grondslag als 
verzekeraar of kredietinstelling optreedt, and other companies constituted under Dutch law subject to Dutch corporate tax Private limited liability 
company (BV) 
Public limited liability 
company (NV) All 
companies in 
Amadeus 
 
Yes 
Poland Spó łka akcyjna (SA), Spó łka z ograniczon ą 
odpowiedzialno ścią (Sp. z.o.o) Spółka akcyjna (SA), Spó łka 
z ograniczon ą 
odpowiedzialno ścią (Sp. 
z.o.o) Joint stock company - SA 
Limited liability company - 
Sp. z.o.o. Joint stock 
company - SA 
Limited 
liability 
company - 
Sp. z.o.o. No 
 
EN 73   EN Portugal Commercial companies or civil law 
companies having a commercial form, 
cooperatives and public undertakings incorporated in accord ance with Portuguese 
law Commercial companies or 
civil law companies having a 
commercial form and cooperatives and public undertakings incorporated in accordance with Portuguese law All companies in Amadeus All 
companies in 
Amadeus 
No 
Romania Societ ăţi în nume colectiv (SNC), Societ ăţi 
în comandit ă simplă (SCS), Societ ăţi pe 
acţiuni (SA), Societ ăţi în comandit ă pe 
acţiuni (SCA) and Societ ăţi cu răspundere 
limitată (SRL) Societăţi în nume colectiv 
(SNC), Societ ăţi în comandit ă 
simplă (SCS), Societ ăţi pe 
acţiuni (SA), Societ ăţi în 
comandită pe acţiuni (SCA) 
and Societ ăţi cu răspundere 
limitată (SRL)    
Slovak 
Republic Aakciová spolo čnos (Limited liability 
company), Spolo čnosť s ručením 
obmedzeným (Limited company), 
Komanditná spolo čnos (Limited liability 
partnership), Verejná obchodná spolo čnos 
(general partnership or unlimited partnership), Družstvo (Cooperative) Akciová spolo čnosť (Limited 
liability company), 
Spoločnosť s ručením 
obmedzeným (Limited company), Komanditná spoločnosť (Limited liability 
partnership) Cooperative 
Joint stock company 
Limited liability company Joint stock 
company 
Limited 
liability company Yes 
 
EN 74   EN Slovenia Delniška družba (p.l.c.), Komanditna 
delniška družba, Komanditna družba, 
Družba z omejeno odgovornostjo (Ltd.), Družba z neomejeno odgovornostjo Delniška družba (p.l.c.), 
Komanditna družba, Družba z 
omejeno odgovornostjo (Ltd.)Cooperative with limited 
liability 
Joint-stock company Limited liability company Cooperative 
with limited 
liability 
Joint-stock 
company 
Limited 
liability 
company Yes/No 
Spain Sociedad anónima (SA), Sociedad 
comanditaria por acciones (SCA), Sociedad de responsabilidad limitada (SPRL) and those public law bodies which operate 
under private law Sociedad anónima (SA), 
Sociedad comanditaria por acciones (SCA), Sociedad de responsabilidad limitada 
(SPRL) and public law bodies 
which operate under private law. Other entities constituted under Spanish law subject to Spanish corporate tax ("Impuesto sobre 
Sociedades") Sociedad anonima (SA) 
Sociedad limitada All 
companies in Amadeus 
 
Yes 
Sweden Aktiebolag (Ltd.) and 
Försäkringsaktiebolag Aktiebolag (Ltd.), 
Försäkringsaktiebolag, 
Ekonomiska föreningar 
(economic association), Sparbanker and Ömsesidiga försäkringsbolag Private limited company 
Public limited company Private 
limited 
company 
Public 
limited company Yes/No 
 
EN 75   EN United 
Kingdom Companies incorporated under the law of 
the United Kingdom Companies incorporated 
under the law of the United 
Kingdom All companies in Amadeus All 
companies in 
Amadeus No 
Note: Yes/No means that the two lists are di fferent but that we are not able to detect the differences in the legal forms used in Amadeus. 
Source: Council Directive 2003/49/EC  and Council Directive 2003/123/EC. 
 
EN 76   EN Annex 15  
The coverage of legal forms in the Directive 
Share of holding links with a legal form is covered by the present Directive 
in 2008 
 Total Weighted by intangible fixed 
assets of parent Weighted by financial 
revenue of parent 
Holding links 82%   
Subsidiary 
employment 82% 95% 90% 
Subsidiary turnover 85% 95% 90% 
Note: The calculations are for 2008 and include all cases where both the parent and the subsidiary 
entity have a legal form that is already covered by  the Interest and Royalty Directive. The sample 
includes only the entities for which we have information on employment and turnover. 
Source: Copenhagen Economics Taxation of interest and royalties – impact assessment of 
amendments to the present Directive,  October 2010. 
 
EN 77   EN Annex 16  
The coverage of legal forms in the amended Directive 
Share of holding links with a legal form  is covered by the amended Directive  
(legal form as in the parent-Subsidiary Directive)  
 Total Weighted by intangible fixed assets of 
parent  Weighted by financial revenue 
of parent  
Holding links 84% . . 
Subsidiary employment 83% 97% 92% 
Subsidiary turnover 87% 96% 91% 
Note: The calculations are for 2008 and include  all cases where both the parent and the 
subsidiary entity have a legal form that is already covered by the Interest and Royalty 
Directive. The sample includes only the en tities for which we have information on 
employment and turnover. 
Source: Copenhagen Economics. Taxation of interest and royalt ies – impact assessment of 
amendments to the present Directive, October 2010. 
 
EN 78   EN Annex 17  
Transposition of criteria appli cable to “associated companies” 
Country Application to 
more types of 
entities Association 
threshold Indirect 
holdingsNotes 
Austria No1 25% No 1 Austrian law limits the benefits of the 
Directive to entities listed in the Directive with 
respect to the recipients of income; with 
respect to the payer of income the list of the types of benefiting entities is broader than that in the Annex. 
Belgium Yes 25% Yes  
Cyprus No 25% No  
Czech 
Republic Yes2 25% No 2 Czech law limits the benefits of the 
Directive to entities listed in the Directive with respect to the recipients of income; no limitation applies as to the payer of income 
resident in the Czech Republic. Czech entities 
subject to tax at the level of its members are listed in the Annex to the Directive. 
Denmark No 25% No  
Estonia Yes 25% No  
Finland No 25% No  
France No 25% No  
Germany No 25% No  
Hungary - - -  Ireland No 25% No  
Italy No 25% No  
Luxembourg - - -  
Malta - - -  
Netherlands Yes3 - - 3 The Netherlands limits the benefits of the 
Directive to entities listed in the Directive with respect to the recipients of income; the payer of income resident in the Netherlands may be an NV (public limited liability company), a 
 
EN 79   EN BV (private limited liability company), a 
mutual fund or a cooperative. 
Slovak Republic4 Yes 25% No 4 The Slovak law requires the recipient 
company to be a legal entity, which is a taxpayer in another EU Member State; no limitation applies as to the payer of income resident in the Slovak Republic. Slovak entities subject to tax at the level of its 
members are listed in the Annex to the 
Directive. 
Slovenia No 25% No  
Spain Yes5 No/25%6 Yes/ 
No6 5 No restrictions on the type of entity for 
interest payments; for royalties, only entities listed in the Annex to the Directive. 
6 Exemption from tax on interest payments 
applies to interest paid to companies resident 
in EU Member States irrespective of affiliation. 
Sweden No 25% No  
United 
Kingdom No 25% No  
Source: IBFD (2005) and PriceWaterhouseCoopers (2009). 
 
EN 80   EN Annex 18  
The impact of lowering the holding requirements from 25% to 10% 
Share of holding links lying in the 10-25% ownership interval 
 Total Weighted by intangible fixed 
assets of parent Weighted by financial 
revenue of parent 
Holding links 5% . . 
Subsidiary 
employment 5% 6% 7% 
Subsidiary turnover 4% 3% 3% 
Note: The calculations are for 2008 and show the proportion of the holding links where the 
ownership share lies between 10 percent and 25 percent.  
Source: Copenhagen Economics  Taxation of interest and royalties – impact assessment of amendments 
to the present Directive,  October 2010. 
 
EN 81   EN Annex 19  
Briefing on the Public consultation on th e taxation of cross-border interest and royalty 
payments between associated companies 
On August 24, TAXUD launched a public consulta tion on the possible amendments to the 
Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest 
and royalty payments made be tween associated companies of different Member States 
(hereinafter "the Directive"), which has been closed on 31 Oct ober. The questi ons referred to 
the policy options currently under analyses by TAXUD Directorate D. The main purpose of 
the amendments would be the extension of the Directive coverage, which is currently limited 
to payments between associated companies (2 5% shareholding); in addition, companies must 
have a legal forma as listed in the Directive annex. The results of the replies received can be summarised as follows. 
71 contributors have sent their responses. They  can be grouped in the following categories: 
25
3
161881
Multinationals
Large companies
Tax advisors/tax practioners
Business associations
Professional associations
Civil servants
 
 
EN 82   EN The contributors can be grouped accor ding to their place of establishment: 
012345678910111213141516
Belgium Denmark
Germany
Ireland Greece
Spain
France
Italy
Netherlands
AustriaPortugal
Romania
SwedenUK EU
 
There are replies from 14 Member States. They  correspond to the EU-1 5 (until 2004) with the 
exception of Finland and Luxembourg, while one  response was received from Romania. We 
should bring the attention to the difference level of  participation. It could be expected a larger 
share of French and Italian stakeholders. On th e other hand, it is important to mention that 
there are 11 replies from organizations with an  European dimension (6 business organizations, 
3 professional associations a nd 2 tax advisors – law firms). 
The questionnaire asked if there is a need to  update the list of companies covered by the 
Directive. A large majority consider that th e list should be updated. Only 7% of the answers 
do not consider necessary to update the scope of entities covered by the Directive. The responses can be seen in  the following figure: 
 
EN 83   EN 89%7%4%
yes
no
do not know
 
In addition, it was required if there is a need to change the minimum shareholding 
requirements. The results are the same as in the previous question. 
89%4%7%
yes
no
do not know
 
In the responses to the other policy options we can confir m that a large majority of 
contributors are of the opinion that the Direc tive needs an update. 
The questionnaire asked if the shareholding requ irements of the Directive should be reduced 
below 10%. The majority prefer the option of  not reducing the shareholding requirement 
below 10%. The second preferred alternative is  the extension of the Directive scope to non-
associated undertakings, but is li mited to 29% of the responses. 
 
EN 84   EN 41%
13% 1%28%17%
not below 10%
5% shareholding
1% shareholding
non-associated
do not know
 
The questionnaire asked if the shareholding requ irements of the Directive should be reduced 
to 10%. An important majority s upported this initiative, 87%. 
87%7%6%
yes
no
do not know
 
The questionnaire asked if indirect sharehol dings should be taken into account when the 
minimum shareholding is being determined. Almost all contributor s (91%) support this 
initiative. We can see the results in the following figure: 
 
EN 85   EN 91%3%6%
yes
no
do not know
 
The questionnaire asked if the lis t annexed to the Dire ctive should cover the same legal types 
as are included in the list of the Parent-Subs idiary Directive. Almost all contributors (89%) 
support this initiative. We can see the results in the following figure: 
90%4%6%
yes
no
do not know
 
The questionnaire asked if the list should be extended so as to include other types of 
companies not referred to in the Parent-Subsid iary Directive. The most common answer was 
affirmative, but it does not re ach half of the contributors. On the other hand, only 21,4% of 
the answers proposed the extension of the Directive to all types of entity. We can see the results in the following figure: 
 
EN 86   EN 47%
28%25%
yes
no
do not know
 
The questionnaire asked if the text of the Direc tive should be clarified in order to guarantee 
that its benefits apply to interest or royalty payments constituting an expense attributable to 
permanent establishments. Almost all contributors agree to this proposal. We can see the results in the following figure: 
87%3%10%
yes
no
do not know