On 3 June 2003 the Council adopted 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 "I+R" Directive) based on a proposal from the Commission (COM(1998) 67 final of 04/03/1998). See press release IP/03/787.
The I+R Directive is designed to eliminate withholding tax obstacles in the area of cross-border interest and royalty payments within a group of companies by:
These interest and royalty payments shall be exempt from any taxes in that
State provided that the beneficial owner of the payment is a company or permanent
establishment in another Member State .
As under the Merger and the Parent-Subsidiary Directives, the benefits of the I+R Directive are only granted to companies which are
As the annex to the Directive only includes the types of companies existing in the 15 Member States that were already members of the EU before 1 May 2004, the types of companies in the new Member States have now been added by Council Directive 2004/66/EC of 26 April 2004 (Official Journal L 168, p.35, 67). In addition, the Council, on 29 April, adopted Directive 2004/76/EC (Official Journal L 157, p. 106) on the basis of the Commission's proposal of 1 April 2004 (see COM(2004) 243 final), granting some of the new Member States transitional periods resulting in their not applying the provisions of the Directive immediately from the date of their accession.
Furthermore, the Commission proposed an amendment to Directive 2003/49/EC on 30 December 2003 (COM(2003) 841 final - see also press release at IP/04/105 ) to provide for an update of the list of companies in the annex to the Directive.
The proposed new list would also include:
Council Directive 2004/76/EC of 29 April 2004 allows certain new Member States (see following table) the possibility of transitional periods as regards the application of the provisions of the I+R Directive. The Directive is based on the proposal of the Commission of 1 April 2004 (COM(2004) 243 final).
Interest Payments Royalty payments
Czech Republic -- 6 years
Latvia 8 years 8 years
Lithuania 6 years 6 years
Poland 8 years 8 years
Slovakia -- 2 years
These transitional periods take effect from the date of application of the
"Savings Tax Directive" (1 July 2005 ¿ to be confirmed). Hence,
the I+R Directive also is not applicable in these Member States from the period
between the date of Accession of 1 May 2004 and the aforementioned date. The
new Member States were thus granted equivalent rules for their transitional
periods as were granted to Greece, Spain and Portugal.
Proposed amendment to the Interest and Royalty Directive
In the above-mentioned Commission proposal of 30 December 2003 a change to the scope of the Directive has been envisaged. This change will make it clear that Member States have to grant the benefits of the Directive to relevant companies of a Member State only when the interest or royalty payment concerned is not exempt from corporate taxation. In particular this addresses the situation of a company which, while subjected to corporate tax, also benefits 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.