Proposal for a Council Directive amending Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States
Date: 2003-12-30
Institutions: European Commission
Subjects: EU Member State, corporation tax, group of companies, tax harmonisation, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 30.12.2003
COM(2003) 841 final

2003/0331 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 2003/49/EC on a common system of taxation applicable to interest
and royalty payments made between associated companies of different Member States

(presented by the Commission)

EN

  EN

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EXPLANATORY MEMORANDUM

INTRODUCTION

At  its  meeting  on  3  June  2003,  the  “Economic  and  Financial  Affairs”  Council
adopted  the  so-called  “Tax  Package”  one  part  of  which  was  Council  Directive
2003/49/EEC1  on  a  common  system  of  taxation  applicable  to  interest  and  royalty
payments  made  between  associated  companies  of  different  Member  States
(hereinafter "the Directive").

Given the date of adoption, and the fact that the Directive is based on a Commission
proposal from 19982, the Directive has not been technically adapted to the accession
of new Member States. It is foreseen that the technical adaptations of the scope that
this will call for (the establishment of lists of taxes and companies covered for each
of the acceding States), will be made under the procedure laid down in Article 57 of
the Act of Accession. These technical adaptations are therefore not dealt with in this
proposal.

The  “Statements  for  entry  in  the  minutes  of  the  Council”,  when  the  Directive  was
adopted, contained the following passage: “The Council and the Commission agree
that the benefits of the Interest and Royalty Directive should not accrue to companies
that are exempt from  tax  on  income covered  by this Directive.  The Council invites
the Commission to propose any necessary amendments to this Directive in due time.”
The Commission already provides in the Directive that “it is necessary to ensure that
interest and royalty payments are subject to tax once in a Member State”3and “it is
moreover necessary not to preclude Member States from taking appropriate measures
to  combat  fraud  or  abuse”4.  The  Commission  shares  the  view  of  the  Council  that
there  should  be  no  loopholes  in  the  provisions  of  the  Directive  allowing  for
circumvention of taxation of interest and royalty payments. This new proposal is the
Commission's response to the invitation of the Council.

In addition, following its Communication on tax policy for the European Union5 and
its  Communication  on  the  restrictions  imposed  by  direct  taxation  to  cross-border
economic  activities  in  the  Internal  Market  and  remedies  thereto6,  the  Commission
has presented two proposals7 for the amendment of Council Directives in the area of
direct taxation, one in relation to Council Directive 90/435/EEC of 23 July 1990 on
the  common  system  of  taxation  applicable  in  the  case  of  parent  companies  and

OJ L 157, 26.6.2003, p. 49
COM(1998) 67 final – 98/0087(CNS), OJ C 123 p 9
Recital 3 of the Directive
Recital 6 of the Directive
Communication from the Commission to the Council, the European Parliament and the Economic and
Social Committee “Tax Policy in the European Union”, COM (2001) 260 final.
Communication from the Commission to the Council, the European Parliament and the Economic and
Social  Committee,  "Towards  an  Internal  Market  without  tax  obstacles.  A  strategy  for  providing
companies with a consolidated corporate tax base for their EU-wide activities", COM (2001) 582 final.
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  and  Proposal  for  a  Council  Directive  amending  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, COM (2003) 613 final

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subsidiaries  of  different  Member  States  (hereinafter  "the  Parent-Subsidiary
Directive")8  and  the  other  in  relation  to  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
(hereinafter "the Merger  Directive")9. Part  of the  amendments - aimed at  extending
the scope of the two Directives – consists of proposing to amend the list of entities
annexed to the Directives, to cover other legal forms of companies not so far covered
by  those  Directives.  The  Commission  considers  it  appropriate,  in  order  to  avoid
disparities or confusion, to  follow the same  approach in  relation to the  Interest and
Royalty  Directive.  Therefore,  it  proposes  that  the  list  of  companies  annexed  to  the
Interest  and  Royalty  Directive  be  aligned  on  the  list  proposed  for  the  Parent-
Subsidiary Directive.

Furthermore, the Statute of the European Company (Societas Europaea - SE)10 will
enter into force on 8 October 2004. The SE will  give companies operating in more
than  one  Member  State  the  option  of  being  established  as  a  single  company  under
Community law and so able to operate throughout the EU with one set of company
law  rules  and  a  unified  management  and  reporting  system.  While  there  are  no
provisions in the Statute of the European Company directed specifically at taxation,
nevertheless, the instrument does require the SE to be subject to “the  provisions of
Member  States’  law  which  would  apply  to  a  public-limited  company  formed  in
accordance  with  the  law  of  the  Member  State  in  which  the  SE  has  its  registered
office”11. Such public-limited companies in the 15 Member States, which  are listed
in the annex to the SE Statute, are also included in the list of companies annexed to
the Interest and Royalty Directive. So, in practice the SE already enjoys the benefits
of  the  Interest  and  Royalty  Directive  because  the  Member  State  where  it  has  its
registered  office  is  obliged  to  grant  the  same  benefits  as  apply  to  the  respective
national  type  of  public-limited  company.  However,  both  for  the  purposes  of
clarification and to underpin the importance that the Commission  attaches  to it,  the
Commission proposes that the SE be specifically mentioned in the list of companies
annexed to the Interest and Royalty Directive12.

Finally,  the  Statute  for  a  European  Cooperative  Society  (Societas  Cooperativa
Europaea – SCE)13 was adopted on 22 July 2003. From 2006 onwards, this new legal
form will be available to enable co-operative businesses better to exploit cross-border
opportunities and to help boost Europe's competitiveness. In the absence of specific

Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case
of parent companies and subsidiaries of different Member States, OJ L 225, 20.8.1990, p 6.
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.
Council Regulation (EC) n° 2157/2001 of 8 October 2001 on the Statute for a European Company (SE)
and  the  Council  Directive  2001/86/EC  of  8  October  2001  supplementing  the  Statute  for  a  European
company with regard to the involvement of employees, OJ L 294 of 10.11.2001.
Article 9 1. (c) II of the Council Regulation EC) n° 2157/2001 of 8 October 2001
The same approach is followed in the proposals to amend the Parent-Subsidiary Directive (90/434/EEC)
and the Merger Directive 90/435/EEC, where the European Company is explicitly included in the list of
companies covered by the Directives.
Council  Regulation  (EC)  n°  1435/2003  of  22  July  2003  on  the  Statute  for  a  European  Cooperative
Society (SCE) and the Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a
European  Cooperative  Society  with  regard  to  the  involvement  of  employees,  OJ  L  207  of  18.8.2003,
p. 1.

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provisions on taxation14 for the SCE, the normal tax laws of Member States and of
the  Community  apply.  The  Commission  considers  it  essential  to  support  this  new
type of company and to provide the framework to allow businesses to make the best
use  of  this  legal  form  in  practice.  The  SCE  will  receive  the  same  treatment  as
cooperatives in the Member State of their registered office and therefore, indirectly,
the benefits of the Interest and Royalty Directive provided for those national types of
cooperatives  already  covered  by  the  Directive.  While  some  national  types  of
cooperatives are already included in the list of companies annexed to the Interest and
Royalty Directive, it is proposed to include more such cooperatives in the new annex
to the Directive. In these circumstances the Commission proposes to include the SCE
Statute,  also,  in  the  list  of  companies.  Although  the  inclusion  is  seen  more  as  a
signal,  as  in  the  case  of  the  SE,  underlining  the  importance  that  the  Commission
assigns to the SCE, and to avoid any uncertainty or doubt, this measure ensures that
the SCE will enjoy the full benefits of the Interest and Royalty Directive from 2006
onwards.

2. 

COMMENTARY ON THE ARTICLES OF THE PROPOSAL FOR A DIRECTIVE

Article 1

This Article comprises two paragraphs amending the Interest and Royalty Directive.

Paragraph (1)

The aim of this paragraph is to amend the existing Article 1 Paragraph 1. It makes clear that
Member States have to grant the benefits of the Directive only where the interest or royalty
payment  concerned  is  not  exempt  from  corporate  taxation  in  the  hands  of  the  beneficial
owner.  In  particular  this  addresses  the  situation  of  a  company  paying  corporate  tax  but
benefiting from a special national tax scheme exempting foreign interest or royalty payments
received. The Source  State  would  not be  obliged to exempt  from withholding tax under  the
Directive in such cases.

Paragraph (2)

1.

2.

The list of companies, to which  the Directive  applies,  as contained  in the annex, is
replaced  by  a  new  one  incorporating  other  types  of  entities  and  in  particular,  the
European  Company  and  the  European  Cooperative  Society.  This  proposal  will
extend  the  benefits  of  the  Directive  to  new  legal  forms  of  entities,  including  co-
operatives,  mutual  companies,  certain  non-capital  based  companies,  saving  banks,
funds and associations with commercial activity, and in this respect will align the list
in  the  Interest  and  Royalty  Directive  with  that  in  the  proposed  amendment  to  the
Parent-Subsidiary Directive.

The European Company and the SCE are included under letter (z) of the annex. This
new entry  does  not  follow  the  natural  sequence  of  letters,  because  it  is  intended  to
make  additional  entries  in  the  annex  under  points  (p)  to  (y)  so  as  to  cater  for  the
inclusion  of  certain  types  of  company  that  exist  in  the  acceding  States  under  the
procedure  laid  down  in  Article  57  of  the  Act  of  Accession  (on  the  adoption  of

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Recital 16 of the SCE Statute

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measures  necessary  to  adapt  Community  measures  in  order  to  take  account  of
accession).

Article 2

This Article lays down the timetable and the requirements for transposing the Directive into
the national law of the Member States. Member States are required, forthwith, to inform the
Commission  of  the  transposition  of  the  Directive  into  their  national  laws  and  to  submit  a
correlation table between this Directive and the national provisions adopted.

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2003/0331 (CNS)

Proposal for a

COUNCIL DIRECTIVE

amending Directive 2003/49/EC on a common system of taxation applicable to interest
and royalty payments made between associated companies of different Member States

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 94 thereof,

Having regard to the proposal from the Commission15,

Having regard to the opinion of the European Parliament16,

Having regard to the opinion of the European Economic and Social Committee17,

Whereas:

(1) 

(2) 

(3) 

Directive  2003/49/EC  does  not  contain  any  explicit  requirement  that  the  beneficial
owner of an interest or royalty payment be effectively subject to tax in relation to that
payment.  To  ensure  that  the  objectives  of  that  Directive  are  met,  it  is  necessary  to
introduce  such  a  requirement  in  order  to  exclude  from  the  benefits  of  Directive
2003/49/EC any case where the interest or royalty payment received is not subject to
tax.

Certain  forms  of  companies  are  not  included  in  the  list  in  the  Annex  to  Directive
2003/49/EC, even though they are resident for tax purposes in a Member State and are
subject to corporation tax there.

The  European  company  or  Societas  Europaea  (SE),  as  established  in  Council
Regulation  (EC)  No  2157/2001  of  8  October  2001  on  the  Statute  for  a  European
company (SE)18 and Council Directive 2001/86/EC of 8 October 2001 supplementing
the Statute for a European company with regard to the involvement of employees,19 is
a public limited-liability company of similar nature to other legal types of companies
already covered by Directive 2003/49/EC. For clarification purposes, the SE should be
added to the list in the Annex to Directive 2003/49/EC.

15

16

17

18

19

OJ C , , p. .
OJ C , , p. .
OJ C , , p. .
OJ L 294 of 10.11.2001, p.1.
OJ L 294 of 10.11.2001, p. 22.

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(4) 

The European Cooperative Society (SCE), as established in Council Regulation (EC)
No  1435/2003  of  22  July  2003  on  the  European  Cooperative  Society  (SCE)20  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,21  is  a
cooperative society similar in nature to other legal types of  cooperatives proposed to
be  included  in  the  scope  of  Directive  2003/49/EC.  Accordingly,  the  SCE  should  be
added to the list in the Annex to Directive 2003/49/EC. In the interest of clarity that
Annex should be replaced.

(5) 

Directive 2003/49/EC should therefore be amended accordingly,

HAS ADOPTED THIS DIRECTIVE :

Article 1

Directive 2003/49/EC is amended as follows:

(1)

In Article 1 paragraph 1 is replaced by the following:

Interest or royalty payments arising in a Member State shall be exempt
“1.
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 establishment
situated  in  another  Member  State  of  a  company  of  a  Member  State  and  is
effectively  subject  to  tax  on  the  interest  or  royalty  payments  in  that  other
Member State.”

(2)

The Annex is replaced by the text in the Annex to this Directive.

Article 2

1.

2.

Member  States  shall  bring  into  force  the  laws,  regulations  and  administrative
provisions  necessary  to  comply  with  this  Directive  by  31  December  2004  at  the
latest.  They  shall  forthwith  communicate  to  the  Commission  the  text  of  those
provisions and a correlation table between those provisions and this Directive.

When  Member  States  adopt  such  provisions,  they  shall  contain  a  reference  to  this
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official
publication. Member States shall determine how such reference is to be made.

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.

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

Article 3

20

21

OJ L 207 of 18.8.2003, p. 1.
OJ L 207 of 18.8.2003, p. 25.

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Article 4

This Directive is addressed to the Member States.

Done at Brussels,

For the Council
The President

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a)

b)

c)

d)

e)

f)

g)

h)

ANNEX

“ANNEX

List of companies referred to in Article 3 (a)

companies  under  Belgian 
"société  anonyme"/"naamloze
law  known  as 
vennootschap",  "société  en  commandite  par  actions"/"commanditaire  vennootschap
op  aandelen",  "société  privée  à  responsabilité  limitée"/"besloten  vennootschap  met
beperkte 
responsabilité
limitée"/"coöperatieve  vennootschap  met  beperkte  aansprakelijkheid",  "société
coopérative  à  responsabilité  illimitée"/"coöperatieve  vennootschap  met  onbeperkte
aansprakelijkheid",  and  public  undertakings  which  have  adopted  one  of  the
abovementioned legal forms;

aansprakelijkheid" 

coopérative 

"société 

à 

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”;

under 

German 

companies 
"Aktiengesellschaft",
"Kommanditgesellschaft  auf  Aktien",  "Gesellschaft  mit  beschränkter  Haftung",
auf  Gegenseitigkeit",
"bergrechtliche  Gewerkschaft", 
"Erwerbs-  und  Wirtschaftsgenossenschaften",  "Betriebe  gewerblicher  Art  von
juristischen Personen des öffentlichen Rechts";

"Versicherungsvereine 

known 

law 

as 

companies under Greek law known as "αvώvυµη εταιρεία", "εταιρεία περιωρισµέvης
ευθύvης (Ε.Π.Ε.)";

law  known  as:  "sociedad  anónima",  "sociedad
companies  under  Spanish 
comanditaria por acciones", "sociedad de responsabilidad limitada", and those public
law bodies which operate under private law;

companies under French law known as "société anonyme", "société en commandite
par  actions",  "société  à  responsabilité  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
industrial  and  commercial  public  establishments  and
de  coopératives"  and 
undertakings;

companies  incorporated  or  existing  under  Irish  laws,  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;

companies under Italian law known as "società per azioni", "società in accomandita
per  azioni",  "società  a  responsibilità  limitata",  "società  cooperative",  "società  per
mutua  assicurazione",  and  private  and  public  entities  whose  activity  is  wholly  or
principally commercial;

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i)

j)

k)

l)

m)

n)

o)

z)

companies  under  Luxembourg  law  known  as  "société  anonyme",  "société  en
commandite  par  actions",  "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";

companies  under  Dutch  law  known  as  "naamloze  vennootschap",  "besloten
vennootschap met beperkte aansprakelijkheid", "open commanditaire vennootschap",
"coöperatie",  "onderlinge  waarborgmaatschappij",  "fonds  voor  gemene  rekening",
"vereniging  op  coöperatieve  grondslag"  and  "vereniging  welke  op  onderlinge
grondslag als verzekeraar of kredietinstelling optreedt";

companies  under  Austrian  law  known  as  "Aktiengesellschaft",  "Gesellschaft  mit
beschränkter  Haftung",  "Versicherungsvereine  auf  Gegenseitigkeit",  "Erwerbs-  und
Wirtschaftsgenossenschaften",  "Betriebe  gewerblicher  Art  von  Körperschaften  des
öffentlichen Rechts", "Sparkassen";

commercial  companies  or  civil  law  companies  having  a  commercial  form  and
cooperatives  and  public  undertakings  incorporated  in  accordance  with  Portuguese
law;

companies  under  Finnish  law  known  as  "osakeyhtiö/aktiebolag",  "osuuskunta
/andelslag","säästöpankki/sparbank"and "vakuutusyhtiö/försäkringsbolag";

companies  under  Swedish  law  known  as  "aktiebolag",  "ekonomiska  föreningar",
"sparbanker", "ömsesidiga försäkringsbolag";

companies incorporated under the law of the United Kingdom;

companies incorporated under Council Regulation (EC) n° 2157/2001 of 8  October
2001  on  the  Statute  for  a  European  company  (SE)  and  the  Council  Directive
2001/86/EC  of  8  October  2001 supplementing the  Statute for  a  European  company
with  regard  to  the  involvement  of  employees  or  cooperative  societies  set  up  under
Council Regulation (EC) n° 1435/2003 of 22 July 2003 on the Statute for a European
Cooperative  Society  (SCE)  and  the  Council  Directive  2003/72/EC  of  22  July  2003
supplementing  the  Statute  for  a  European  Cooperative  Society  with  regard  to  the
involvement of employees.”

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FINANCIAL STATEMENT

This  proposal  for  a  Council  Directive  has  no  financial  implications  for  the  Community
budget.

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IMPACT ASSESSMENT FORM

THE IMPACT OF THE PROPOSAL ON BUSINESS WITH SPECIAL REFERENCE
TO SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

TITLE OF PROPOSAL

Proposal  for  a  Council  Directive  amending  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

DOCUMENT REFERENCE NUMBER

THE PROPOSAL

1.

Taking  account  of  the  principle  of  subsidiarity,  why  is  Community  legislation
necessary in this area and what are its main aims?

This  proposal  updates  and  improves  an  already  existing  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). The three changes included in the proposal contribute to the objectives of the
above-mentioned Directive especially in reiterating the principle that the benefits of
the Directive shall only be granted when the interest and royalty payments are taxed
once  in  a  Member  States  and  by  expanding  the  scope  of  the  Directive  to  types  of
company not yet covered and by clarificating the application of the Directive to the
European Company and the European Cooperative Society.

THE IMPACT ON BUSINESS

2.

Who will be affected by the proposal?

–  which sectors of business

–  which  sizes  of  business  (what  is  the  concentration  of  small  and  medium-sized

firms)

–  are there particular geographical areas of the Community where these businesses

are found

Compared to the current situation determined by the 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,  the
proposal shall extend the benefits of the Directive to the types of companies added to
the annex of the Directive. The proposal does not affect particular sectors or sizes of
business nor does it affect particular geographical areas.

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3.

4.

What will business have to do to comply with the proposal?

No new obligations or tax compliance burdens are imposed on business.

What economic effects is the proposal likely to have?

–  on employment

–  on investment and the creation of new businesses

–  on the competitiveness of businesses

The  proposal  improves  the  functioning  of  the  Council  Directive  2003/49/EC  of  3
June  2003.  This  will  reinforce  positive  effects  on  cross-border  investment,  the
competitiveness of companies and employment from underlying Directive.

5.

Does the proposal contain measures to take account of the specific situation of small
and medium-sized firms (reduced or different requirements etc)?

As the first recital of the Directive, when adopted in June 2003, makes clear, it only
applies to payments of interest or royalties by a company to an associated company
established  in  another  Member  State,  where  the  latter  is  subject  to  corporation  tax.
While the majority of small and medium enterprises are not organised as companies
that are subjected to corporation tax in their Member State, those that are will be able
to benefit from the proposed extension of the scope of the Directive.

CONSULTATION

6.

List the organisations which have been consulted about the proposal and outline their
main views.

Due  to  the  technical  nature  of  the  proposal  for  an  amendment  of  a  recent  adopted
Directive  it  was  not  considered  useful  to  consult  again  the  organisations,  which
commented  on  the original  Directive.  These  organisations in their response to  their
consultation on the previous proposal already advocated the broadest possible scope.
However there were discussions between technical representatives of Member States'
tax administrations and the Commission services.

The proposals in respect of the SE and the SCE respond partly to the views expressed
by the representatives of business and industry during the consultations on those two
types of company.

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