EC Takes Action Against 4 Member States Over Taxation Of Interest And Royalty Payments

by Ulrika Lomas, for LawAndTax-News.com, Brussels

18 January 2005

The European Commission announced on Friday that it has decided to send formal requests to Greece, France, Italy and Portugal to ask them to notify it of measures taken to implement the 2003 Council Directive dealing with a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.

The aim of the Directive in question is to abolish deduction at source on interest and royalty payments made between associated companies of different Member States in the Member State where these payments arise, and thereby to ensure the equality of tax treatment between national and cross-border transactions.

The legislation stipulated that Member States must bring compliance measures into force by January 1, 2004 at the latest.

The EC explained that as Greece, France, Italy and Portugal had not notified it of the measures taken to comply with the Directive, early last year, the Commission asked them to submit their observations on the issue within a period of two months.

Greece, France and Portugal responded to these letters and advised the Commission that draft legislation aimed at implementing the Directive was at that time awaiting adoption. Italy, however, failed to respond.

The EC announced on Friday that:

"Since the Commission has not received any new national legislation, it must therefore consider that the national measures implementing the Directive have still not been adopted in these countries."

The requests are in the form of reasoned opinions, the second stage of infringement proceedings provided for in the Treaty. If the Member States fail to notify the requested measures within two months of receiving the reasoned opinion, the Commission may refer the matter to the European Court of Justice.

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