According to the EU-Parent-Subsidiary- Directive dividends can be
collected exempt from taxes between European Capital Companies. The
participation threshold is:
20% from January 1, 2005 up to December 31, 2006;
15% from January 1, 2007 up to December 31, 2008;
10% from January 1, 2009.
Spanish S.L. holds 50% interest in a Cypriote Limited. The legal
consequence of the EU-Parent-Subsidiary- Directive provides, that
the Spanish S.L. can collect 50% of the Cypriote dividends in Spain
exempt from taxes. Taxation first occurs, when profits are
distributed to a shareholder of the Spanish S.L., namely to a
The EU-Parent-Subsidiary Directive is applicable, if:
-The participation is threshold is attained, i.e. 10% starting 2009
-The participation is obviously covers at least one year
-Both companies are active, i.e. are actively transacting
On 22 December 2003, the Council adopted Directive
2003/123/EC to broaden the scope and improve the operation of the
90/435/EEC on the common system of taxation applicable in the case
of parent companies and subsidiaries of different Member States.
The 1990 Directive was designed to eliminate tax
obstacles in the area of profit distributions between groups of
companies in the EU by:
- abolishing withholding taxes on payments of
dividends between associated companies of different Member States
- preventing double taxation of parent companies on
the profits of their subsidiaries.
The new Directive, based on a Commission proposal of
8th September 2003 (see press release
IP/03/1214), contains three main elements:
- updating the list of
companies that the Directive covers;
the conditions for exempting dividends from withholding tax (reduction
of the participation threshold); and
double taxation for subsidiaries of subsidiary companies.
An updated list of companies that are covered by
the parent subsidiary Directive
The new Directive updates the list of companies
covered by the parent-subsidiary Directive to include:
- certain co-operatives,
- mutual companies,
- certain non-capital based companies,
- savings banks,
- funds, and
- associations with commercial activity.
The new list also includes:
This means that companies and co-operatives
operating in more than one Member State will have the option of
establishing themselves as single entities under Community law.
Relaxing the conditions for exempting dividends
from withholding tax
Currently, certain dividends paid by a subsidiary
company to its parent company are exempted from withholding tax. This
is also the case where the two companies are located in different
Member States. The new Directive relaxes the conditions of this
Currently, the parent company must hold at least 25%
of the shares in the subsidiary company for the exemption to apply.
The minimum shareholding will be reduced gradually to 10%.
The minimum shareholding will be:
- 20% from 1 January 2005 to 31 December 2006 ;
- 15% from 1 January 2007 to 31 December 2008 ; and
- 10% from 1 January 2009.
Eliminating double taxation for subsidiaries of
The new Directive renders more complete the
mechanism for the elimination of double taxation of dividends received
by a parent company located in one Member State from its subsidiary
located in another.
At present, since a subsidiary company is taxed on
the profits out of which it pays dividends, the Member State of the
parent company must either:
- exempt profits distributed by the subsidiary from
any taxation or
- impute the tax already paid in the Member State
of the subsidiary against its own tax.
The new Directive deals with imputing tax paid by
subsidiaries of these direct subsidiary companies. Member States must
impute against the tax payable by the parent company any tax on
profits paid by successive subsidiaries downstream of the direct
subsidiary. This ensures that the objective of eliminating double
taxation is better achieved.
Member States must ensure that the necessary
national implementing legislation is in force by 31 December 2004 at
Council Directive 90/435/EEC
also applies to new Member States joining the European Union from 1
May 2004. As transition provisions were not provided as part of
Directive 2003/123/EC will apply to the accession countries with
effect from 1 January 2005.
The list of companies and taxes in the countries
that became part of the EU on 1 May 2004 and that are to be included
within the scope of the Directive are contained in the
Act of Accession and became part of the Directive on 1 May 2004 .
Further information including an analysis of recent withholding tax
developments together with a list of withholding tax rates may also be
found in a working paper of the European Parliament: "Taxation
in Europe: Recent Developments
Council Directive 90/435/EEC has already been the subject of
interpretation by the
European Court of Justice in the following caselaw:
- Commission v France – avoir fiscal (Case 270/83)
- Denkavit International BV , VITIC Amsterdam BV
and Voormeer BV v Bundesamt für Finanzen. (Joined cases C-283/94,
C-291/94 and C-292/94)
- Leur-Bloem v Inspecteur der Belastingdienst/Ondernemingen
Amsterdam 2 (Case C-28/95)
- Futura Participations SA and Singer v
Administration des contributions (Case C-250/95)
- Imperial Chemical Industries plc (ICI) v Colmer (Case
- Epson Europe BV (Case C-375/98)
- Metallgesellschaft Ltd, Hoechst v Commissioners
of Inland Revenue (Joined cases C-397/98 and C-410/98)
- Athinaïki Zythopoiïa (Case C-294/99)
- Lankhorst-Hohorst GmbH v Finanzamt Steinfurt (Case
- Bosal Holding (Case C-168/01)
- Océ van der Grinten (Case C-58/01)