Corporate: Taxation changes for interest and royalty payments

United Kingdom

The Commission has proposed a Directive for a common system of taxation for interest and royalty payments between associated companies. The aim is to remove distortions resulting from double taxation. The draft directive would eliminate taxes at source on payments of interest and royalties between associated companies in different Member States. The associated companies would pay the relevant tax only once, in the country where the companies receiving the payments are located. A condition of the proposed Directive is that associated companies must have cross-shareholdings of at least 25%. The proposal also includes provisions to ensure that Member States can take steps to combat fraud or abuse. Once adopted by the Council, the Directive should remove a significant tax handicap to companies' cross border operations in the single market. The Commission also plans shortly to present a draft Directive on savings taxation.