"The Directive on a common system of taxation applicable to interest and royalty payments between associated companies of different Member States aims at solving double taxation problems linked to cross-border payments. In these cases, the State from which a payment is made (source State) charges a tax on its recipient company. Additionally, the recipient company is subject to tax on the income derived from this same payment in the Member State of its tax residence. The Directive provides for tax exemption in the source State. The exemption also applies when the payment is made from a permanent establishment (i.e. a branch) of the company place in a third Member State or received by such business centre.If you want to have your say, you've got until 31 October to tell the Commission what you think.
The objective of this initiative is to clarify existing legislation while extending its benefits to a wider range of companies by: including other legal forms of companies enjoying the Directive; reducing the threshold to be considered associated company; taking account of indirect shareholdings to compute the total holding; alternatively, extending the exemption to payments between unrelated parties. It will also be proposed to solve a potential technical problem derived from the requirement that the payment be a tax deductible cost for the permanent establishment making it by stating that the directive covers payments linked to the activity performed by such an establishment".
By the way, Article 2(b) of the Directive defines "royalties" as
"payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films and software, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; payments for the use of, or the right to use, industrial, commercial or scientific equipment shall be regarded as royalties".The explicit omission of any reference to rights in sound recordings, broadcasts and transmissions and plant varieties rights may itself raise a comment or two.
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