EC Takes Action Against Italy, Luxembourg And Spain Over Parent Subsidiary Directive

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

07 July 2006

The European Commission on Wednesday announced that it has decided to refer Italy and Luxembourg to the European Court of Justice for failure to adopt and notify the measures required for the implementation of Directive 2003/123/EC, amending the Parent Subsidiary Directive.

These countries have not fulfilled their obligations despite the Commission's formal requests of 5 July 2005.

The Directive is designed to broaden the scope and improve the operation of the Parent Subsidiary Directive that exempts from withholding tax dividends paid by a subsidiary located in one Member State to its parent company located in another Member State.

It updates the list of companies covered by the 1990 Directive; it relaxes the condition for exempting dividends from withholding tax by reducing the participation threshold that establishes a parent/subsidiary relationship; and it eliminates double taxation for subsidiaries of subsidiary companies.

Member States should have adopted their implementing measures by 1 January 2005 and notified these to the Commission.

The EC also revealed that it has decided to send Spain a formal request to amend a rule which automatically assumes the existence of an abuse in cases where a Spanish company pays a dividend to a company established in another Member State which is owned by a company resident in a third country.

The Commission considers these rules to be contrary to the Parent-Subsidiary Directive.

The request is in the form of a reasoned opinion, the second stage of the infringement procedure under Article 226 of the Treaty. If Spain does not amend its legislation within two months, the Commission may refer the case to the Court of Justice.

Recommended