3. Annex II contains the triangular case for which the inclusion in the scope of Directive is still under discussion.

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1 Conseil UE COUNCIL OF THE EUROPEAN UNION Brussels, 30 September 2003 PUBLIC 13072/03 Interinstitutional File: 2003/0179 (CNS) LIMITE FISC 134 NOTE From : to : Subject : Presidency Working Party on Tax Questions: Direct Taxation Proposal for a Council Directive amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States 1. At its meeting on 24 September 2003 the Group on Tax Questions Direct Taxation has discussed the Commission proposal for a Directive amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. 2. On the basis of the discussions in the Group the Presidency suggests, in Annex I to this document, a text with some amendments to the Commission proposal. 3. Annex II contains the triangular case for which the inclusion in the scope of Directive is still under discussion. 4. Bilateral contacts between the EL delegation and the Commission on the proposed addition of a new sentence in article 7, paragraph 1 of Directive 90/435/EEC are continuing /03 PSJ/ovl 1

2 ANNEX I Proposal for a COUNCIL DIRECTIVE amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States THE COUNCIL OF THE EUROPEAN UNION, [...] (whereas have not yet been examined) HAS ADOPTED THIS DIRECTIVE: Article 1 Directive 90/435/EEC is amended as follows: 1. In Article 1(1) the following [two indents] are added: [- to distributions of profits received by permanent establishments situated in that State of companies of other Member States which come from their subsidiaries of a Member State. - to distributions of profits by companies of that State to permanent establishments of companies of a Member State of which they are subsidiaries.] The D and B delegations have entered scrutiny reservations on the extension of the Directive to permanent establishments /03 PSJ/ovl 2

3 The wording of the first indent includes in the scope of the Directive Case II as described in Annex II. The D, E, P, B, FIN and F delegations have still reserved their position on this case that, in their, view is to be left for internal legislation. On the basis of the observation made by the IRL delegation a second indent has been added. The wording of this indent is suggested to grant the proper application of the Directive to Case III. 1a In Article 2 a new paragraph 2 is added as follows: For the purposes of this Directive the term "permanent establishment" means a fixed place of business situated in a Member State through which the business of a company of another Member State is wholly or partly carried on. All delegations but the D delegation have agreed to the addition of this new paragraph to Article 2 of the existing Directive. 2. In Article 3, paragraph 1, is replaced by the following: (a) the status of parent company shall be attributed at least to any company of a Member State which fulfils the conditions set out in Article 2 and has a minimum holding of [10%] in the capital of a company of another Member State fulfilling the same conditions. Such status shall also be attributed, under the same conditions, to a company of a Member State which has a minimum holding of [10%] in the capital of a company of the same Member State, held in whole or in part by a permanent establishment of the former company situated in another Member State; 13072/03 PSJ/ovl 3

4 (b) subsidiary shall mean that company the capital of which includes the holding referred to in (a). The new wording for the second part of Art.3, paragraph 1(a) of the existing Directive has been suggested by the Commission during the last meeting in order to include in the scope of the Directive Case III. All delegations but the D delegation have agreed to it. At this stage the P, EL, B, E and DK delegations cannot agree on the proposed level of the shareholding requirement needed to qualify for the status of parent company and subsidiary company. The D delegation has entered a scrutiny reservation. The PL and CZ delegation have expressed concerns on the same point. 3. Article 4 is amended as follows: (a) Paragraph 1 is replaced by the following: 1. Where a parent company or its permanent establishment, by virtue of the association of the parent company with its subsidiary, receives distributed profits, the State of the parent company and the State of its permanent establishment shall, except when the subsidiary is liquidated, either: refrain from taxing such profits, or tax such profits while authorising the parent company and the permanent establishment to deduct from the amount of tax due that fraction of the corporation tax [related to those profits and paid by the subsidiary and any lower-tier subsidiary, subject to the condition that at each tier a company and its lower-tier subsidiary meet the requirements provided for in Articles 2 and 3], up to the limit of the amount of the corresponding tax due /03 PSJ/ovl 4

5 At this stage the D delegation acknowledges that the present wording is an improvement on the original wording but still cannot accept Article 1, paragraph 3 (a) of the Commission proposal. To meet the concerns expressed by the E delegation the Presidency suggests a redrafting of the second indent. (b) The following paragraph 1a is inserted: 1a. Nothing in this Directive shall prevent the State of the parent company from considering a subsidiary to be fiscally transparent [under its tax law where this is based on the legal nature of the subsidiary] and therefore from taxing the parent company on its share of the profits of its subsidiary as and when those profits arise. In this case the State of the parent company shall refrain from taxing the distributed profits of the subsidiary. When taxing the parent company s share of the profits of its subsidiary as they arise the State of the parent company shall authorise the parent company to deduct from the amount of tax due that fraction of the corporation tax [related to the parent company s share of profits and paid by its subsidiary and any lower-tier subsidiary, subject to the condition that at each tier a company and its lower-tier subsidiary meet the requirements provided for in Articles 2 and 3] up to the limit of the amount of the corresponding tax due. The D and EL delegations have entered scrutiny reservations on this new paragraph 1a /03 PSJ/ovl 5

6 The text of the first part of the new paragraph 1a has been redrafted during the last meeting by the Commission in order to meet the concerns of some delegations as to the applicability of this provision. The E, FIN, DK and S delegations have agreed to the substance of the new text, but have entered scrutiny reservations. The text in brackets is a cleaner legal redrafting of the text discussed during the meeting suggested by the Legal Services of the Council. To meet the concerns expressed by the E delegation the Presidency suggests a redrafting of the second part of this new paragraph. The IRL delegation has asked for noting in the minutes of the Council that the objective of this provision is to apply the Directive to entities that are considered as fiscally transparent on the basis of provisions other than CFC legislation. (c) In paragraph 2 the following sentence is added: The parent company shall be allowed to provide evidence of the real management costs incurred that are to be considered non-deductible. The F, D and B delegations cannot agree on the proposed text that allows parent companies to prove that the actual management costs incurred are lower than 5% in the case where nondeductible costs are fixed as a flat rate. (d) In paragraph 3 the first subparagraph is replaced by the following: Paragraphs 1 and 1a shall apply until the date of effective entry into force of a common system of company taxation /03 PSJ/ovl 6

7 4. Article 5 is amended as follows: (a) Paragraph 1 is replaced by the following: Profits which a subsidiary distributes to its parent company shall be exempt from withholding tax. (b) Paragraphs 2, 3 and 4 are deleted. The P delegation has entered a reservation on Article 1, paragraph 4 (a). The D delegation has entered a scrutiny reservation on Article 1, paragraph 4 (b). 5. The Annex is replaced by the text in the Annex to this Directive. See observations to Annex. Article 2 1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 1 January 2005 at the latest. They shall forthwith communicate to the Commission the text of those provisions and a correlation table between those provisions and this Directive. When Member States adopt such provisions, they shall contain a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. Member States shall determine how such reference is to be made /03 PSJ/ovl 7

8 2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field covered by this Directive. Article 3 This Directive shall enter into force on the twentieth day following the day of its publication in the Official Journal of the European Union. This Directive is addressed to the Member States. Done at Brussels, For the Council The President 13072/03 PSJ/ovl 8

9 ANNEX TO ANNEX I List of companies referred to in Article 2 (a) a) companies under Belgian law known as "société anonyme"/"naamloze vennootschap","société en commandite par actions"/"commanditaire vennootschap op aandelen", "société privée à responsabilité limitée"/"besloten vennootschap met beperkte aansprakelijkheid" "société coopérative à responsabilité limitée"/"coöperatieve vennootschap met beperkte aansprakelijkheid", "société coopérative à responsabilité illimitée"/"coöperatieve vennootschap met onbeperkte aansprakelijkheid", "société en nom collectif" / "vennootschap onder firma", "société en commandite simple" / "gewone commanditaire vennootschap" and public undertakings which have adopted one of the abovementioned legal forms; b) companies under Danish law known as aktieselskab and anpartsselskab. Other companies subject to tax under the Corporation Tax Act, insofar as their taxable income is calculated and taxed in accordance with the general tax legislation rules applicable to aktieselskaber ; c) companies under German law known as "Aktiengesellschaft", "Kommanditgesellschaft auf Aktien", "Gesellschaft mit beschränkter Haftung", "bergrechtliche Gewerkschaft", "Versicherungsvereine auf Gegenseitigkeit", "Erwerbs- und Wirtschaftsgenossenschaften", "Betriebe gewerblicher Art von juristischen Personen des öffentlichen Rechts", insofar as these bodies may, under German Law, assume the functions of parent company or subsidiary; d) companies under Greek law known as "αvώvυµη εταιρεία", "εταιρεία περιωρισµέvης ευθύvης (Ε.Π.Ε.)"; e) companies under Spanish law known as: "sociedad anónima", "sociedad comanditaria por acciones", "sociedad de responsabilidad limitada", and those public law bodies which operate under private law; 13072/03 PSJ/cm 9 ANNEX TO ANNEX I

10 f) companies under French law known as "société anonyme", "société en commandite par actions", "société à responsabilité limitée", "sociétés par actions simplifiées", "sociétés d'assurances mutuelles", "caisses d'épargne et de prévoyance", "sociétés civiles" which are automatically subject to corporation tax, "coopératives", "unions de coopératives" and industrial and commercial public establishments and undertakings; g) companies incorporated or existing under Irish laws, bodies registered under the Industrial and Provident Societies Act, building societies incorporated under the Building Societies Acts and trustee savings banks within the meaning of the Trustee Savings Banks Act, 1989; h) companies under Italian law known as "società per azioni", "società in accomandita per azioni", "società a responsibilità limitata", "società cooperative", "società di mutua assicurazione", and private and public entities whose activity is wholly or principally commercial; i) companies under Luxembourg law known as "société anonyme", "société en commandite par actions", "société à responsabilité limitée", "société coopérative", "société coopérative organisée comme une société anonyme", "association d'assurances mutuelles", "association d'épargne-pension", "entreprise de nature commerciale, industrielle ou minière de l'etat, des communes, des syndicats de communes, des établissements publics et des autres personnes morales de droit public"; j) companies under Dutch law known as "naamloze vennnootschap", "besloten vennootschap met beperkte aansprakelijkheid", "Open commanditaire vennootschap", "Coöperatie", "onderlinge waarborgmaatschappij", "Fonds voor gemene rekening", "vereniging op coöperatieve grondslag" and "vereniging welke op onderlinge grondslag als verzekeraar of kredietinstelling optreedt"; k) companies under Austrian law known as "Aktiengesellschaft", "Gesellschaft mit beschränkter Haftung", "Versicherungsvereine auf Gegenseitigkeit", "Erwerbs- und Wirtschaftsgenossenschaften", "Betriebe gewerblicher Art von Körperschaften des öffentlichen Rechts", "Sparkassen"; 13072/03 PSJ/cm 10 ANNEX TO ANNEX I

11 l) commercial companies or civil law companies having a commercial form and cooperatives and public undertakings incorporated in accordance with Portuguese law; m) companies under Finnish law known as "osakeyhtiö/aktiebolag", "osuuskunta /andelslag","säästöpankki/sparbank"and "vakuutusyhtiö/försäkringsbolag"; n) companies under Swedish law known as "aktiebolag", försäkringsaktiebolag, "ekonomiska föreningar", "sparbanker", "ömsesidiga försäkringsbolag"; o) companies incorporated under the law of the United Kingdom; z) companies incorporated under Council Regulation (EC) n 2157/2001 of 8 October 2001 on the Statute for a European company (SE) and the Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees [and cooperative societies incorporated under Council Regulation (EC) n 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE) and the Council Directive 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society with regard to the involvement of employees.] The D, P and FIN delegations have entered general scrutiny reservations on the Annex. The E delegation has entered a scrutiny reservation on letter e). Following the request made by the Commission the European Cooperative Society has been added in letter z). The E delegation has asked for noting in the minutes of the Council that the approval of this Annex shall have no bearing whatsoever on future discussions on the Commission proposal for a Directive amending Directive 90/434/EEC /03 PSJ/cm 11 ANNEX TO ANNEX I

12 ANNEX II TRIANGULAR CASES = a company = a permanent establishment of a company A, B, C = Member States US = non-member State = within the Directive is the shareholding requirement of mim. 10% met and Χ = not within the Directive is the company residence requirement met? = shareholding = dividend payment 13072/03 PSJ/cm 12 ANNEX II

13 2 ND Case A 1% B 9% B Both companies are resident in the EU in different Member States The permanent establishment is in the same Member State of the subsidiary Member State B, State of the subsidiary - Article 5 no withholding tax Member State B, as State of the permanent establishment Article 4 new draft of paragraph 1 exemption or tax credit Member State A, the State of the parent company Article 4 new draft of paragraph 1 exemption or tax credit 13072/03 PSJ/cm 13 ANNEX II

3. Annex II contains the triangular case for which the inclusion in the scope of Directive is still under discussion.

3. Annex II contains the triangular case for which the inclusion in the scope of Directive is still under discussion. Conseil UE COUNCIL OF THE EUROPEAN UNION Brussels, 2 October 2003 PUBLIC 13187/03 Interinstitutional File: 2003/0179(CNS) LIMITE FISC 137 NOTE From : to : Subject : Presidency Working Party on Tax Questions