The European Commission published in early July a survey on the Implementation of the EC Interest and Royalty Directive.

The survey concludes that the Directive has been generally implemented, with domestic legislation to transpose the Directive in place before 1 January 2004 in most Member States. Denmark, Estonia, Germany, Italy, Luxembourg, the Slovak Republic and Sweden adopted legislation at a later date with retrospective effect. In the Slovak Republic, the implementation legislation only became effective on 1 January 2005.

With the exception of Ireland and Italy, none of the Member States have exercised the option under Art. 3 (b) to replace the holding in the capital criterion with that of the voting rights.

Relating to the implementation of Directives, though on a separate matter, the Commission 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. Member States should have adopted their implementing measures by 1 January 2005 and notified these to the Commission.

Spain has also fallen foul of the Commission in regard to the Parent Subsidiary Directive, though for a different reason. Apparently, under Spanish legislation, a withholding tax is levied on dividend distributions by a Spanish subsidiary to a parent company of another Member State, if that parent company is owned by a company of a third country (non-EU State), even if that parent company meets the conditions of the Parent-Subsidiary Directive.

Commenting on the matter, EU Tax Commissioner László Kovács said:

“It is settled case law that anti-abuse measures which restrict Treaty freedoms should be targeted. The Court of Justice consistently refused to accept tax measures which automatically presume abuse, without any case-by-case examination of the actual existence of an abusive situation”.