The "Directive on a Common System of Taxation Applicable to Interest and Royalty Payments made between Associated Companies of Different Member States" was first adopted by the European Union on 3 June 2003 (2003/49/EC) and was later amended on 26 April 2004 (2004/66/EC), 29 April 2004 (2004/76/EC) and on 20 November 2006 (2006/98/EC).
It is widely known as the "EU Interest & Royalties Directive".
In accordance with the EU Interest & Royalties Directive, interest and royalty payments arising in a Member State shall be exempt from any taxes imposed on those payments in that State, 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.
A company of a Member State shall be treated as the beneficial owner of interest or royalties only if it receives those payments for its own benefit and not as an intermediary, such as an agent, trustee or authorized signatory, for some other person.
Two companies are regarded as Associated companies:
The above relationship should be maintained for an uninterrupted period of at least 2 years.
Member States shall have the option of replacing the criterion of a minimum holding in the capital with that of a minimum holding of voting rights.
The EU Interest & Royalties Directive provides for a transitional regime applicable in Bulgaria until 31 December 2014 where the withholding tax is set at 5% (instead of 0%).
A transitional regime (5%) was also applicable in Greece, Latvia, Poland and Portugal until 30 June 2013.
The following types of entities are covered by the EU Interest & Royalties Directive:
The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Citius Trust Limited
Citius Trust is an independent boutique services firm, which provides bespoke solutions to clients. Our aim is to deliver top quality end-to-end solutions for our clients, optimize costs, streamline operations and processes and drive value. Our directors take the lead role in managing our relationships with our clients, they are always available and provide ad hoc advice. We offer world-class intellectual capital through a transparent, tailored and client friendly approach.
The Impact of the Advance Transfer Pricing Agreements on Voluntary Compliance Tax administrations are required to help minimize the tax risks that affect the reduction on tax revenues. On the other hand, any tax administration should seek to encourage taxpayers voluntary compliance.Read more