Brussels, 08/09/2003 (Agence Europe) - The European Commission has just proposed modifications to the directive governing the common taxation regime applicable to parent and subsidiary companies of the Member States of the EU. It intends to adapt the text to "changes such as globalisation, the economic integration of the interior market and the Economic and Monetary Union". The Commission proposes, in particular, to extend the scope of the directive to a greater number of categories of companies, a reduction from 25% to 10% of the minimum inter-company holding threshold, opening up tax benefits and an improvement in the mechanisms for the prevention of double taxation.
According to the Commission, the 1990 directive currently in force- which aims to get rid of tax obstacles for groups of companies in the EU by abolishing withholding taxes on payments of dividends between associated companies of different Member States and preventing double taxation of parent companies on the profits of their subsidiaries- "is limited in its effectiveness because of its narrow application". To improve the situation, it is proposing a new angle based around three elements. First of all, it updates the list of companies within the scope of the directive in order to cover new specified legal entities, including certain co-operatives, mutual companies, certain non capital-based companies, savings banks, funds and associations with commercial activity. The new list includes the European Company, which can be created as of 2004, allowing companies carrying out their business in more than one Member State to establish itself as a single entity governed by Community law. Secondly, the proposal relaxes the condition for the application of the provision of the directive which exempts from withholding tax dividends paid by a subsidiary located in one Member State to its parent company located in another Member State. The minimum shareholding that a parent must have in its subsidiary company in order for the exemption to apply would be reduced from 25% to 10%. Lastly, it improves the mechanism provided for by the directive to eliminate the 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 directive obliges the Member State of the parent company either to exempt profits distributed by the subsidiary from any taxation, or to impute the tax already paid in the Member State of the subsidiary against its own tax. The proposal includes in the tax to be imputed against the profits of the parent company any tax on profits paid by successive subsidiaries downstream of the direct subsidiary, in order to achieve fully the objective of eliminating double taxation. The entire text can be seen at: http: //europa.eu.int.taxation_customs/english/whatsnew_en.htm.