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 Member States
Date: 2003-12-22
Institutions: Council of the European Union
Subjects: corporation tax, parent company, subsidiary, tax on profits of self-employment, tax system

13.1.2004

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Official Journal of the European Union

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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 Member States

THE COUNCIL OF THE EUROPEAN UNION,

(5)

Having regard to the Treaty establishing the European Com-
munity, and in particular Article 94 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Parliament (1),

Having regard to the opinion of the European Economic and
Social Committee (2),

Whereas:

(1)

(2)

(3)

(4)

Directive 90/435/EEC (3)
introduced common rules in
relation to dividend payments and other profit distribu-
tions, which are intended to be neutral from the point of
view of competition.

The objective of Directive 90/435/EEC is to exempt divi-
dends and other profit distributions paid by subsidiary
companies to their parent companies from withholding
taxes and to eliminate double taxation of such income at
the level of the parent company.

Experience gained in the implementation of Directive
90/435/EEC has revealed different ways in which that
Directive might be improved and the beneficial effects of
the common rules as adopted in 1990 extended.

Article 2 of Directive 90/435/EEC defines the companies
falling within its scope. The Annex contains a list of
companies to which the Directive applies. Certain forms
of companies are not included in the list in the Annex,
even though they are resident for tax purposes in a
Member State and are subject to corporation tax there.
The scope of Directive 90/435/EEC should therefore be
extended to other entities which can carry out cross-
border activities in the Community and which meet all
the conditions laid down in that Directive.

(1) Opinion delivered on 16 December 2003 (not yet published in the

Official Journal).

(2) Opinion delivered on 29 October 2003 (not yet published in the

Official Journal).

(3) OJ L 225, 20.8.1990, p. 6. Directive as last amended by the 1994

Act of Accession.

On 8 October 2001 the Council adopted Regulation
(EC) No 2157/2001 on the Statute for a European
Company (SE) (4) and Directive 2001/86/EC supple-
menting the Statute for a European company with
regard to the involvement of employees (5). Similarly, on
22 July 2003 the Council adopted Regulation (EC) No
1435/2003 on the Statute for a European Cooperative
Society (SCE) (6) and Directive 2003/72/EC supple-
menting the Statute for a European Cooperative Society
with regard to the involvement of employees (7). Since
the SE is a public limited-liability company and since the
SCE is a cooperative society, both similar in nature to
other forms of company already covered by Directive
90/435/EEC, the SE and the SCE should be added to the
list set out in the Annex to Directive 90/435/EEC.

The new entities to be included in the list are corporate
taxpayers in their Member State of residence but some
are considered on the basis of their legal characteristics
to be transparent for tax purposes by other Member
States. Member States treating non-resident corporate
taxpayers as fiscally transparent on this basis should
grant the appropriate tax relief in respect of revenue
which forms part of the tax base of the parent company.

In order to extend the benefits of Directive 90/435/EEC,
the threshold of the shareholding for one company to be
considered a parent and the other as its subsidiary
should be gradually lowered from 25 % to 10 %.

The payment of profit distributions to, and their receipt
by, a permanent establishment of a parent company
should give rise to the same treatment as that applying
between a subsidiary and its parent. This should include
the situation where a parent company and its subsidiary
are in the same Member State and the permanent estab-
lishment is in another Member State. On the other hand,
it appears that situations where the permanent establish-
ment and the subsidiary are situated in the same
Member State, can, without prejudice to the application
of the Treaty principles, be dealt with on the basis of
national legislation by the Member State concerned.

In relation to the treatment of permanent establishments
Member States may need to determine the conditions
and legal instruments in order to protect the national tax
revenue and fend off circumvention of national laws, in
accordance with the Treaty principles and taking into
account internationally accepted tax rules.

(6)

(7)

(8)

(9)

(4) OJ L 294, 10.11.2001, p. 1.
(5) OJ L 294, 10.11.2001, p. 22.
(6) OJ L 207, 18.8.2003, p. 1.
(7) OJ L 207, 18.8.2003, p. 25.

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(10) When corporate groups are organised in chains of
companies and profits are distributed through the chain
of subsidiaries to the parent company, double taxation
should be eliminated either by exemption or tax credit.
In the case of tax credit the parent company should be
able to deduct any tax paid by any of the subsidiaries in
the chain provided that
in
Directive 90/435/EEC are met.

the requirements set out

of the same Member State, held in whole or in part by a
permanent establishment of the former company situ-
ated in another Member State;

from 1 January 2007 the minimum holding percentage
shall be 15 %;

(11)

The transitional provisions are no longer applicable and
should therefore be deleted.

from 1 January 2009 the minimum holding percentage
shall be 10 %;

(12) Directive 90/435/EEC should therefore be amended

accordingly,

(b) “subsidiary” shall mean that company the capital of

which includes the holding referred to in (a).’;

HAS ADOPTED THIS DIRECTIVE:

(a) Paragraph 1 shall be replaced by the following:

4. Article 4 shall be amended as follows:

Article 1

Directive 90/435/EEC is hereby amended as follows:

‘1. Where a parent company or its permanent estab-
lishment, by virtue of
the parent
company with its subsidiary, receives distributed profits,
the State of the parent company and the State of its
permanent
except when the
subsidiary is liquidated, either:

the association of

establishment

shall,

1.

in Article 1(1) the following two indents shall be added:

— refrain from taxing such profits, or

‘— to distributions of profits received by permanent estab-
lishments situated in that State of companies of other
Member States which come from their subsidiaries of a
Member State other than that where the permanent
establishment is situated,

— to distributions of profits by companies of that State to
permanent establishments situated in another Member
State of companies of the same Member State of which
they are subsidiaries.’

2.

in Article 2, the current paragraph shall be numbered ‘1.’
and a new paragraph shall be added as follows:

‘2.
For the purposes of this Directive the term “perma-
nent 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 in so far as the profits of that place of business
are subject to tax in the Member State in which it is situated
in the
the relevant bilateral
by virtue of
absence of such a treaty, by virtue of national law.’

tax treaty or,

3.

in Article 3, paragraph 1 shall be replaced by the following:

‘For the purposes of applying this Directive:

(a) the status of parent company shall be attributed at least
to any company of a Member State which fulfils the
conditions set out in Article 2 and has a minimum
holding of 20 % in the capital of a company of another
Member State fulfilling the same conditions;

such status shall also be attributed, under the same
conditions, to a company of a Member State which has
a minimum holding of 20 % in the capital of a company

— tax such profits while

establishment

authorising the parent
company and the permanent
to
deduct from the amount of tax due that fraction of
the corporation tax related to those profits and paid
by the subsidiary and any lower-tier subsidiary,
subject to the condition that at each tier a company
and its lower-tier subsidiary meet the requirements
provided for in Articles 2 and 3, up to the limit of
the amount of the corresponding tax due.’

(b) The following paragraph 1a shall be inserted:

the legal characteristics of

‘1 a.
Nothing in this Directive shall prevent the State
of the parent company from considering a subsidiary to
be fiscally transparent on the basis of that State's assess-
ment of
that subsidiary
arising from the law under which it is constituted and
therefore from taxing the parent company on its share
of the profits of its subsidiary as and when those profits
arise. In this case the State of the parent company shall
refrain from taxing the distributed profits of
the
subsidiary.

the
When assessing the parent company's share of
profits of its subsidiary as they arise the State of the
parent company shall either exempt those profits or
authorise the parent company to deduct
from the
amount of tax due that fraction of the corporation tax
related to the parent company's share of profits and paid
by its subsidiary and any lower-tier subsidiary, subject
to the condition that at each tier a company and its
lower-tier subsidiary meet the requirements provided for
in Articles 2 and 3, up to the limit of the amount of the
corresponding tax due.’;

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(c) In paragraph 3, the first subparagraph shall be replaced

by the following:
‘Paragraphs 1 and 1a shall apply until the date of effec-
tive entry into force of a common system of company
taxation.’

2. Member States shall communicate to the Commission the
text of the 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.

5. Article 5 shall be amended as follows:

(a) Paragraph 1 shall be replaced by the following:

‘Profits which a subsidiary distributes to its parent
company shall be exempt from withholding tax.’

(b) Paragraphs 2, 3 and 4 shall be deleted.;

6. the Annex shall be replaced by the text in the Annex to this

Directive.

Article 3

This Directive shall enter into force on the 20th day following
the day of its publication in the Official Journal of the European
Union.

Article 4

Article 2

This Directive is addressed to the Member States.

1. Member States shall bring into force the laws, regulations
and administrative provisions necessary to comply with this
Directive by 1 January 2005 at the latest.

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

Done at Brussels, 22 December 2003.

For the Council

The President

A. MATTEOLI

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ANNEX

LIST OF COMPANIES REFERRED TO IN ARTICLE 2(1)(A)

(a) companies under Belgian law known as ‘société anonyme’/‘naamloze vennootschap’,‘société en commandite par
actions’/‘commanditaire vennootschap op aandelen’, ‘société privée à responsabilité limitée’/‘besloten vennootschap
‘société coopérative à responsabilité limitée’/‘coöperatieve vennootschap met
met beperkte aansprakelijkheid’,
‘société coopérative à responsabilité illimitée’/‘coöperatieve vennootschap met onbe-
beperkte aansprakelijkheid’,
perkte aansprakelijkheid’,
‘société en commandite simple’/
‘gewone commanditaire vennootschap’, public undertakings which have adopted one of the abovementioned legal
forms, and other companies constituted under Belgian law subject to Belgian corporate tax;

‘société en nom collectif’/‘vennootschap onder firma’,

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

(c) companies under German law known as ‘Aktiengesellschaft’, ‘Kommanditgesellschaft auf Aktien’, ‘Gesellschaft mit
beschränkter Haftung’, ‘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;

(d) companies under Greek law known as ‘αvώvυµη εταιρεία’, ‘εταιρεία περιωρισµέvης ευθύvης (Ε.Π.Ε.)’ and other compa-

nies constituted under Greek law subject to Greek corporate tax;

(e) companies under Spanish law known as:

‘sociedad de
responsabilidad limitada’, public law bodies which operate under private law. Other entities constituted under
Spanish law subject to Spanish corporate tax (‘Impuesto sobre Sociedades’);

‘sociedad comanditaria por acciones’,

‘sociedad anónima’,

(f) companies under French law known as ‘société anonyme’, ‘société en commandite par actions’, ‘société à respons-
abilité limitée’, ‘sociétés par actions simplifiées’, ‘sociétés d'assurances mutuelles’, ‘caisses d'épargne et de prévoyance’,
‘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;

(g) 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;

(h) companies under Italian law known as ‘società per azioni’, ‘società in accomandita per azioni’, ‘società a responsibi-
lità limitata’, ‘società cooperative’, ‘società di mutua assicurazione’, and private and public entities whose activity is
wholly or principally commercial;

(i) companies under Luxembourg law known as ‘société anonyme’,

‘société à
responsabilité limitée’, ‘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;

‘société en commandite par actions’,

(j) companies under Dutch law known as ‘naamloze vennnootschap’, ‘besloten vennootschap met beperkte aansprake-
lijkheid’, ‘Open commanditaire vennootschap’, ‘Coöperatie’, ‘onderlinge waarborgmaatschappij’, ‘Fonds voor gemene
rekening’,
‘vereniging welke op onderlinge grondslag als verzekeraar of
kredietinstelling optreedt’, and other companies constituted under Dutch law subject to Dutch corporate tax;

‘vereniging op coöperatieve grondslag’,

(k) companies under Austrian law known as ‘Aktiengesellschaft’,

‘Versicher-
ungsvereine auf Gegenseitigkeit’,
‘Betriebe gewerblicher Art von
‘Erwerbs- und Wirtschaftsgenossenschaften’,
Körperschaften des öffentlichen Rechts’, ‘Sparkassen’, and other companies constituted under Austrian law subject
to Austrian corporate tax;

‘Gesellschaft mit beschränkter Haftung’,

(l) commercial companies or civil law companies having a commercial form and 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’, ‘försäkringsaktiebolag’, ‘ekonomiska föreningar’, ‘sparbanker’,

‘ömsesidiga försäkringsbolag’;

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

(p) companies incorporated under Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a
European company (SE) and Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a
European company with regard to the involvement of employees and cooperative societies incorporated under
Council Regulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE)
and Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society
with regard to the involvement of employees.