Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States
Date: 2003-06-03
Institutions: Council of the European Union
Subjects: EU Member State, corporation tax, deduction at source, double taxation, firm governed by commercial law, group of companies, interest, transnational corporation

26.6.2003

EN

Official Journal of the European Union

L 157/49

COUNCIL DIRECTIVE 2003/49/EC

of 3 June 2003

on a common system of taxation applicable to interest and royalty payments made between asso-
ciated companies of different Member States

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Commu-
nity, and in particular Article 94 thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Parliament (2),

Having regard to the opinion of the European Economic and
Social Committee (3),

Whereas:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

In a Single Market having the characteristics of a
domestic market,
transactions between companies of
different Member States should not be subject to less
favourable tax conditions than those applicable to the
same transactions carried out between companies of the
same Member State.

This requirement is not currently met as regards interest
and royalty payments; national tax laws coupled, where
applicable, with bilateral or multilateral agreements may
not always ensure that double taxation is eliminated, and
their application often entails burdensome administrative
formalities and cash-flow problems for the companies
concerned.

is necessary to ensure that

It
payments are subject to tax once in a Member State.

interest and royalty

The abolition of
taxation on interest and royalty
payments in the Member State where they arise, whether
collected by deduction at source or by assessment, is the
most appropriate means of eliminating the aforemen-
tioned formalities and problems and of ensuring the
equality of tax treatment as between national and cross-
border transactions; it is particularly necessary to abolish
such taxes in respect of such payments made between
associated companies of different Member States as well
as between permanent establishments of such compa-
nies.

The arrangements should only apply to the amount, if
any, of interest or royalty payments which would have
been agreed by the payer and the beneficial owner in the
absence of a special relationship.

It is moreover necessary not to preclude Member States
from taking appropriate measures to combat fraud or
abuse.

Greece and Portugal should, for budgetary reasons, be
allowed a transitional period in order that
they can
gradually decrease the taxes, whether collected by deduc-

(1) OJ C 123, 22.4.1998, p. 9.
(2) OJ C 313, 12.10.1998, p. 151.
(3) OJ C 284, 14.9.1998, p. 50.

(8)

(9)

(10)

tion at source or by assessment, on interest and royalty
payments, until they are able to apply the provisions of
Article 1.

Spain, which has launched a plan for boosting the
Spanish technological potential, for budgetary reasons
should be allowed during a transitional period not to
apply the provisions of Article 1 on royalty payments.

It is necessary for the Commission to report
to the
Council on the operation of the Directive three years
after the date by which it must be transposed, in parti-
cular with a view to extending its coverage to other
companies or undertakings and reviewing the scope of
the definition of interest and royalties in pursuance of
the necessary convergence of the provisions dealing with
interest and royalties in national legislation and in bilat-
eral or multilateral double-taxation treaties.

Since the objective of
the proposed action, namely
setting up a common system of taxation applicable to
interest and royalty payments of associated companies of
different Member States cannot be sufficiently achieved
by the Member States and can therefore be better
achieved at Community level,
the Community may
in accordance with the principle of
adopt measures,
subsidiarity as set out in Article 5 of the Treaty.
In
accordance with the principle of proportionality, as set
out in that Article, this Directive does not go beyond
what is necessary in order to achieve that objective,

HAS ADOPTED THIS DIRECTIVE:

Article 1

Scope and procedure

1.
Interest or royalty payments arising in a Member State
shall be exempt from any taxes imposed on those payments in
that State, whether by deduction at source or by assessment,
provided that the beneficial owner of the interest or royalties is
a company of another Member State or a permanent establish-
ment situated in another Member State of a company of a
Member State.

2.
A payment made by a company of a Member State or by
a permanent establishment situated in another Member State
shall be deemed to arise in that Member State, hereafter
referred to as the ‘source State’.

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Official Journal of the European Union

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A permanent establishment shall be treated as the payer
3.
of interest or royalties only insofar as those payments represent
a tax-deductible expense for the permanent establishment in
the Member State in which it is situated.

A Member State shall have the option of not applying
10.
this Directive to a company of another Member State or to a
permanent establishment of a company of another Member
State in circumstances where the conditions set out in Article
3(b) have not been maintained for an uninterrupted period of
at least two years.

4.
A company of a Member State shall be treated as the
beneficial owner of interest or royalties only if it receives those
payments for its own benefit and not as an intermediary, such
as an agent, trustee or authorised signatory, for some other
person.

A permanent establishment shall be treated as the benefi-

5.
cial owner of interest or royalties:

(a) if the debt-claim, right or use of information in respect of
royalty payments arise is effectively

which interest or
connected with that permanent establishment; and

(b) if the interest or royalty payments represent income in
respect of which that permanent establishment is subject in
the Member State in which it is situated to one of the taxes
mentioned in Article 3(a)(iii) or in the case of Belgium to
the ‘impôt des non-résidents/belasting der niet-verblijfhou-
ders’ or in the case of Spain to the ‘Impuesto sobre la Renta
de no Residentes’ or to a tax which is identical or substan-
tially similar and which is imposed after the date of entry
into force of this Directive in addition to, or in place of,
those existing taxes.

6. Where a permanent establishment of a company of a
Member State is treated as the payer, or as the beneficial owner,
of interest or royalties, no other part of the company shall be
treated as the payer, or as the beneficial owner, of that interest
or those royalties for the purposes of this Article.

This Article shall apply only if the company which is the
7.
payer, or the company whose permanent establishment
is
treated as the payer, of interest or royalties is an associated
company of the company which is the beneficial owner, or
whose permanent establishment
is treated as the beneficial
owner, of that interest or those royalties.

8.
This Article shall not apply where interest or royalties are
paid by or to a permanent establishment situated in a third
State of a company of a Member State and the business of the
company is wholly or partly carried on through that permanent
establishment.

fulfilment of

The source State may require that

the
11.
requirements laid down in this Article and in Article 3 be
substantiated at the time of payment of the interest or royalties
by an attestation. If fulfilment of the requirements laid down in
this Article has not been attested at the time of payment, the
Member State shall be free to require deduction of tax at
source.

The source State may make it a condition for exemption
12.
under this Directive that it has issued a decision currently
granting the exemption following an attestation certifying the
fulfilment of the requirements laid down in this Article and in
Article 3. A decision on exemption shall be given within three
months at most after the attestation and such supporting infor-
mation as the source State may reasonably ask for have been
provided, and shall be valid for a period of at least one year
after it has been issued.

For the purposes of paragraphs 11 and 12, the attesta-
13.
tion to be given shall,
in respect of each contract for the
payment, be valid for at least one year but for not more than
three years from the date of
issue and shall contain the
following information:

(a) proof of the receiving company's residence for tax purposes
and, where necessary, the existence of a permanent estab-
lishment certified by the tax authority of the Member State
in which the receiving company is resident for tax purposes
or in which the permanent establishment is situated;

(b) beneficial ownership by the receiving company in accor-
dance with paragraph 4 or the existence of conditions in
accordance with paragraph 5 where a permanent establish-
ment is the recipient of the payment;

(c) fulfilment of the requirements in accordance with Article

3(a)(iii) in the case of the receiving company;

(d) a minimum holding or the criterion of a minimum holding

of voting rights in accordance with Article 3(b);

(e) the period for which the holding referred to in (d) has

existed.

9.
Nothing in this Article shall prevent a Member State from
taking interest or royalties received by its companies, by perma-
nent establishments of its companies or by permanent estab-
lishments situated in that State into account when applying its
tax law.

Member States may request in addition the legal justification
for the payments under the contract (e.g. loan agreement or
licensing contract).

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If the requirements for exemption cease to be fulfilled,
14.
the receiving company or permanent establishment shall imme-
diately inform the paying company or permanent establishment
and, if the source State so requires, the competent authority of
that State.

15.
If the paying company or permanent establishment has
withheld tax at source to be exempted under this Article, a
claim may be made for repayment of that tax at source. The
Member State may require the information specified in para-
graph 13. The application for repayment must be submitted
within the period laid down. That period shall last for at least
two years from the date when the interest or royalties are paid.

16.
The source State shall repay the excess tax withheld at
source within one year following due receipt of the application
and such supporting information as it may reasonably ask for.
If the tax withheld at source has not been refunded within that
the receiving company or permanent establishment
period,
shall be entitled on expiry of the year in question to interest on
the tax which is refunded at a rate corresponding to the
national interest rate to be applied in comparable cases under
the domestic law of the source State.

Article 2

Definition of interest and royalties

For the purposes of this Directive:

(a) the term ‘interest’ means income from debt-claims of every
kind, whether or not secured by mortgage and whether or
not carrying a right to participate in the debtor's profits,
and in particular, income from securities and income from
bonds or debentures,
including premiums and prizes
attaching to such securities, bonds or debentures; penalty
charges for late payment shall not be regarded as interest;

(b) the term ‘royalties’ means payments of any kind received as
a consideration for the use of, or the right to use, any copy-
right of literary, artistic or scientific work, including cine-
matograph films and software, any patent,
trade mark,
design or model, plan, secret formula or process, or for
information concerning industrial, commercial or scientific
experience; payments for the use of, or the right to use,
industrial, commercial or scientific equipment shall be
regarded as royalties.

Article 3

Definition of company, associated company and perma-
nent establishment

For the purposes of this Directive:

(ii) which in accordance with the tax laws of a Member
State is considered to be resident in that Member State
and is not, within the meaning of a Double Taxation
Convention on Income concluded with a third state,
considered to be resident for tax purposes outside the
Community; and

(iii) which is subject to one of the following taxes without
being exempt, or to a tax which is identical or substan-
tially similar and which is imposed after the date of
entry into force of this Directive in addition to, or in
place of, those existing taxes:

— impôt

des

sociétés/vennootschapsbelasting

in

Belgium,

— selskabsskat in Denmark,

— Körperschaftsteuer in Germany,
— Φόρος εισοδήµατος νοµικών προσώπων in Greece,

— impuesto sobre sociedades in Spain,

— impôt sur les sociétés in France,

— corporation tax in Ireland,

— imposta sul reddito delle persone giuridiche in

Italy,

— impôt sur le revenu des collectivités in Luxem-

bourg,

— vennootschapsbelasting in the Netherlands,

— Körperschaftsteuer in Austria,

— imposto sobre o rendimento da pessoas colectivas

in Portugal,

— yhteisöjen tulovero/inkomstskatten för samfund in

Finland,

— statlig inkomstskatt in Sweden,

— corporation tax in the United Kingdom;

(b) a company is an ‘associated company’ of a second company

if, at least:

(i) the first company has a direct minimum holding of

25 % in the capital of the second company, or

(ii) the second company has a direct minimum holding of

25 % in the capital of the first company, or

(iii) a third company has a direct minimum holding of
25 % both in the capital of the first company and in
the capital of the second company.

Holdings must involve only companies resident in Commu-
nity territory.

However, Member States shall have the option of replacing
the criterion of a minimum holding in the capital with that
of a minimum holding of voting rights;

(a) the term ‘company of a Member State’ means any

company:

(i) taking one of the forms listed in the Annex hereto; and

(c) the term ‘permanent establishment’ means a fixed place of
business situated in a Member State through which the
business of a company of another Member State is wholly
or partly carried on.

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Official Journal of the European Union

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Article 4

Exclusion of payments as interest or royalties

The source State shall not be obliged to ensure the bene-

1.
fits of this Directive in the following cases:

(a) payments which are treated as a distribution of profits or
as a repayment of capital under the law of the source State;

(b) payments from debt-claims which carry a right to partici-

pate in the debtor's profits;

(c) payments from debt-claims which entitle the creditor to
exchange his right to interest for a right to participate in
the debtor's profits;

(d) payments from debt-claims which contain no provision for
repayment of the principal amount or where the repayment
is due more than 50 years after the date of issue.

2. Where, by reason of a special relationship between the
payer and the beneficial owner of
interest or royalties, or
between one of them and some other person, the amount of
the interest or royalties exceeds the amount which would have
been agreed by the payer and the beneficial owner in the
absence of such a relationship, the provisions of this Directive
shall apply only to the latter amount, if any.

Article 5

Fraud and abuse

This Directive shall not preclude the application of
the

1.
domestic or agreement-based provisions
prevention of fraud or abuse.

required for

2. Member States may, in the case of transactions for which
the principal motive or one of the principal motives is tax
evasion, tax avoidance or abuse, withdraw the benefits of this
Directive or refuse to apply this Directive.

During a transitional period of six years starting on the afore-
mentioned date, the rate of tax on payments of royalties made
to an associated company of another Member State or to a
permanent establishment situated in another Member State of
an associated company of a Member State must not exceed
10 %.

These transitional rules shall, however, remain subject to the
continued application of any rate of tax lower than those
referred to in the first and second subparagraphs provided by
bilateral agreements concluded between Greece, Spain or
Portugal and other Member States. Before the end of any of the
transitional periods mentioned in this paragraph the Council
may decide unanimously, on a proposal from the Commission,
on a possible extension of the said transitional periods.

2. Where a company of a Member State, or a permanent
establishment situated in that Member State of a company of a
Member State:

— receives interest or royalties from an associated company of

Greece or Portugal,

— receives royalties from an associated company of Spain,

— receives interest or royalties from a permanent establish-
ment situated in Greece or Portugal of an associated
company of a Member State, or

— receives royalties from a permanent establishment situated
in Spain of an associated company of a Member State,

the first Member State shall allow an amount equal to the tax
paid in Greece, Spain or Portugal in accordance with paragraph
1 on that income as a deduction from the tax on the income of
the company or permanent establishment which received that
income.

The deduction provided for in paragraph 2 need not

3.
exceed the lower of:

Article 6

(a) the tax payable in Greece, Spain or Portugal on such

income on the basis of paragraph 1, or

Transitional rules for Greece, Spain and Portugal

1.
Greece and Portugal shall be authorised not to apply the
provisions of Article 1 until the date of application referred to
in Article 17(2) and (3) of Council Directive 2003/48/EC of 3
June 2003 on taxation of savings income in the form of
interest payments (1). During a transitional period of eight years
starting on the aforementioned date,
tax on
royalties made to an associated
interest or
payments of
company of another Member State or to a permanent establish-
ment situated in another Member State of an associated
company of a Member State must not exceed 10 % during the
first four years and 5 % during the final four years.

the rate of

Spain shall be authorised, for royalty payments only, not to
apply the provisions of Article 1 until the date of application
referred to in Article 17(2) and (3) of Directive 2003/48/EC.

(1) See page 38 of this Official Journal.

(b) that part of the tax on the income of the company or
permanent establishment which received the interest or
royalties, as computed before the deduction is given, which
is attributable to those payments under the domestic law of
the Member State of which it is a company or in which the
permanent establishment is situated.

Article 7

Implementation

1. Member States shall bring into force the laws, regulations
and administrative provisions necessary to comply with this
Directive not later than 1 January 2004. They shall forthwith
inform the Commission thereof.

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When Member States adopt these measures, they shall contain
a reference to this Directive or shall be accompanied by such
reference on the occasion of their official publication. The
methods of making such a reference shall be laid down by the
Member States.

2. Member States shall communicate to the Commission the
text of the main provisions of national law which they adopt in
the field covered by this Directive,
together with a table
showing how the provisions of this Directive correspond to the
national provisions adopted.

Article 8

Review

By 31 December 2006, the Commission shall report to the
Council on the operation of this Directive, in particular with a
view to extending its coverage to companies or undertakings
other than those referred to in Article 3 and the Annex.

Article 10

Entry into force

This Directive shall enter into force on the day of its publica-
tion in the Official Journal of the European Union.

Article 11

Addressees

This Directive is addressed to the Member States.

Article 9

Delimitation clause

Done at Luxembourg, 3 June 2003.

This Directive shall not affect the application of domestic or
agreement-based provisions which go beyond the provisions of
this Directive and are designed to eliminate or mitigate the
double taxation of interest and royalties.

For the Council

The President

N. CHRISTODOULAKIS

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ANNEX

List of companies covered by Article 3(a) of the Directive

(a) Companies under Belgian law known as: ‘naamloze vennootschap/société anonyme, commanditaire vennootschap
op aandelen/société en commandite par actions, besloten vennootschap met beperkte aansprakelijkheid/société
privée à responsabilité limitée’ and those public law bodies that operate under private law;

(b) companies under Danish law known as: ‘aktieselskab’ and ‘anpartsselskab’;

(c) companies under German law known as:

‘Aktiengesellschaft, Kommanditgesellschaft auf Aktien, Gesellschaft mit

beschränkter Haftung’ and ‘bergrechtliche Gewerkschaft’;
(d) companies under Greek law known as: ‘ανώνυµη εταιρíα’;
(e) companies under Spanish law known as:

‘sociedad anónima, sociedad comanditaria por acciones, sociedad de

responsabilidad limitada’ and those public law bodies which operate under private law;

(f) companies under French law known as: ‘société anonyme, société en commandite par actions, société à respons-

abilité limitée’ and industrial and commercial public establishments and undertakings;

(g) companies in Irish law known as public companies limited by shares or by guarantee, private companies limited by
shares or by guarantee, bodies registered under the Industrial and Provident Societies Acts or building societies
registered under the Building Societies Acts;

(h) companies under Italian law known as: ‘società per azioni, società in accomandita per azioni, società a respons-

abilità limitata’ and public and private entities carrying on industrial and commercial activities;

(i) companies under Luxembourg law known as: ‘société anonyme, société en commandite par actions and société à

responsabilité limitée’;

(j) companies under Dutch law known as: ‘naamloze vennootschap’ and ‘besloten vennootschap met beperkte aanspra-

kelijkheid’;

(k) companies under Austrian law known as: ‘Aktiengesellschaft’ and ‘Gesellschaft mit beschränkter Haftung’;

(l) commercial companies or civil law companies having a commercial form, cooperatives and public undertakings

incorporated in accordance with Portuguese law;

(m) companies under Finnish law known as: ‘osakeyhtiö/aktiebolag, osuuskunta/andelslag, säästöpankki/sparbank’ and

‘vakuutusyhtiö/försäkringsbolag’;

(n) companies under Swedish law known as: ‘aktiebolag’ and ‘försäkringsaktiebolag’;

(o) companies incorporated under the law of the United Kingdom.