Considerations on COM(2003)462 - Amendment of Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

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dossier COM(2003)462 - Amendment of Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and ...
document COM(2003)462 EN
date December 22, 2003
 
(1) Directive 90/435/EEC(3) introduced common rules in relation to dividend payments and other profit distributions, which are intended to be neutral from the point of view of competition.

(2) The objective of Directive 90/435/EEC is to exempt dividends 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.

(3) 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.

(4) 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.

(5) 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 supplementing 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 supplementing 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.

(6) 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.

(7) 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 %.

(8) 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 establishment is in another Member State. On the other hand, it appears that situations where the permanent establishment 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.

(9) 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.

(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 the requirements set out in Directive 90/435/EEC are met.

(11) The transitional provisions are no longer applicable and should therefore be deleted.

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