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Direct Taxes in the EU


Direct taxation essentially falls within the competence of EU countries, which are largely free to design their direct tax systems so as to meet their domestic policy objectives and requirements – provided they respect the free movement of goods, persons, services and capital and the principle of non-discrimination.

Only a few legislative acts regarding direct taxation have been adopted at EU level, which is mainly due to the unanimity requirement for the adoption of such legislation.

Company taxation
In the area of company taxation, there are three directives:

  • the EU Parent-Subsidiary Directive ensures that cross-border payments of dividends within the same group of companies established in different EU countries do not suffer economic double taxation;
  • the EU Merger Directive aims at mitigating the negative tax consequences arising from cross-border business restructuring within the EU;
  • the EU Interest-Royalties Directive provides for the elimination of double taxation of interest and royalties between associated companies which are resident in different EU countries, by exempting them from taxation in the Member State of source.

In addition to these directives, the Arbitration Convention addresses the problems of transfer pricing of goods, services and intangibles.