Opinion of the European Economic and Social Committee on the "Proposal for a Council Directive amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States" (COM(2003) 462 final — 2003/0179 (CNS))
Date: 2003-10-29
Institutions: European Economic and Social Committee
Subjects: ESC opinion, EU Member State, corporation tax, parent company, subsidiary, tax on profits of self-employment, tax system

C 32/118

EN

Official Journal of the European Union

5.2.2004

Opinion of the European Economic and Social Committee on the ‘Proposal for a Council
Directive amending Directive 90/435/EEC on the common system of taxation applicable in the
case of parent companies and subsidiaries of different Member States’

(COM(2003) 462 final — 2003/0179 (CNS))

(2004/C 32/25)

On 5 September 2003 the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

In view of the urgent nature of the work, the European Economic and Social Committee decided at its
403rd plenary session of 29 and 30 October 2003 (meeting of 29 October) to appoint Ms Polverini as
rapporteur-general and adopted the following opinion unanimously.

1. Background

1.1.
Directive 90/435/EEC introduced a body of rules
concerning dividend payments and profit distributions, aimed
at eliminating, or at least reducing, the legal and economic
double or multiple taxation of profits distributed by subsidiari-
es in the country in which the parent company is established.

1.2.
The experience gained in implementing the directive
has revealed the need to make some corrections to the original
text adopted in 1990.

1.3.
Following a study on company taxation in EU Member
States, the Commission drew up the present proposal for an
amendment, mainly in order to broaden the range of compani-
es which can benefit from the directive.

2. General comments

consolidate corporate groups located in several Member States.
The same aim could be pursued by eliminating or at least
reducing the legal and economic double or multiple taxation
of profits distributed by subsidiaries in the country in which
the parent company is established.

2.4.
The EESC welcomes the proposed broadening of the
range of companies covered by the directive to include types
legal person so far excluded from its scope, such as
of
cooperatives, mutual companies, certain non-capital based
companies and savings banks.

In particular,

2.5.
the extension to savings banks and
mutual companies of the benefits provided by the parent-
subsidiary directive facilitates consolidation of groups within
the EU single market, including in the banking and insurance
fields.

However, in some cases to be determined in advance,
2.6.
the possibility should be considered of extending the benefits
of the parent-subsidiary directive (restricted to exemption from
withholding tax on distributed profits only) regardless of the
existence or otherwise of a parent-subsidiary relation.

2.1.
In view of the forthcoming enlargement of the Union,
the EESC believes that effective removal of tax obstacles
requires progressive harmonisation of Member State rules.

3. Specific comments

2.2.
Against a backdrop of market globalisation and spread
of new technologies and electronic commerce, it is essential to
remove any efficiencies which might prevent EU companies
from taking full advantage of the benefits of the internal
markets and which would be harmful to competitiveness and
well-being, in contrast to the Lisbon objectives.

2.3.
The EESC supports the underlying purpose of the
proposal to amend the parent-subsidiary directive, which is to

3.1. Article 1 paragraph 1: Permanent establishment

3.1.1.
The proposed amendment to Article 1 of the directive
is helps to make it clear that the Member State where a
permanent establishment is situated must grant the benefits of
the directive in the event that the permanent establishment
receives distributed profits, provided that all the qualifying
requirements of the parent-subsidiary directive are met.

5.2.2004

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Official Journal of the European Union

C 32/119

The amendment to Article 4(1) of the directive
3.1.2.
obliges the Member State of a permanent establishment and
the State of the parent company receiving distributed profits:

— to refrain from taxing such profits,

or

— in the event that such profits are taxed, to authorise the
permanent establishment and the parent company to
deduct from the amount of tax due that fraction of the
corporation tax paid by the subsidiary and any lower-tier
subsidiary which relates to those profits, up to the limit
of the amount of the corresponding tax.

3.1.3.
The extension of the parent-subsidiary directive to
cover situations where a permanent establishment of a parent
company receives distributed profits from a subsidiary requires
consideration of the various cases of triangulation which the
financial planning of corporate groups may generate.

3.1.4.
In this respect, the wording of the proposal allows
the benefits of the directive to apply where the parent company
and subsidiary are based in different Member States for
tax purposes, and the dividends are paid to a permanent
establishment situated in another Member State.

At the same time, the directive can be applied in
3.1.4.1.
the event that the parent company and subsidiary are located
in different Member States and the permanent establishment
receiving the dividends is located in the same Member State as
the subsidiary.

subsidiary to exempt outgoing dividends from the withholding
tax (cf. Article 5 of the directive), while the jurisdiction in
which the permanent establishment is located should not
apply the arrangements set out in the directive. Lastly, the
State of the parent company, under the new wording of
Article 4(1) of the directive, could opt either to exempt such
profits from taxation or to deduct from the tax that fraction of
the tax due on the profits up to the limit of the amount of the
corresponding tax.

3.1.6. Moreover, close attention must be paid to the
potential risk of abuse of the directive in cases where a parent
company and subsidiary are located in the same Member State
while a permanent establishment is located in another Member
State; under such circumstances the directive should not apply,
since by virtue of Article 3(1) the subsidiary must be resident
for tax purposes in different Member State to the parent
company.

However, detailed examination of

3.1.6.1.
this specific
situation is necessary regarding the potential infringement of
the principle of non-discrimination; the same points apply as
in the general comments on these aspects.

3.2. Article 1 paragraph 2: Broadening of the range of companies

benefiting from the directive

It

is proposed that

the minimum shareholding
3.2.1.
requirement (needed in order to qualify for the status of parent
company and subsidiary company)be reduced from 25 % to
10 %, in order to widen the range of cases covered by the
directive.

3.1.5.
However, the parent-subsidiary directive applies par-
tially in cases where the parent company and subsidiary
are located in different Member Stats and the permanent
establishment is located in a non-Community country. The
effect of the proposed changes would be for the State of the

3.2.2.
The EESC notes with approval that the reduction of
the minimum shareholding requirement increases the number
of companies which can benefit from the tax advantages under
Directive 90/435/EEC, and which were previously unable to
meet the minimum 25 % shareholding requirement.

Brussels, 29 October 2003.

The President

of the European Economic and Social Committee

Roger BRIESCH