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Taxation and Customs Union

Interest & Royalty Directive

An EU Directive to prevent double taxation in cross-border interest and royalty payments 

Interest & Royalty

Directive

The Interest & Royalty Directive is an EU directive that ensures that cross-border intra-group interest and royalty payments are treated as purely domestic payments when the conditions of the Directive are met. Its main objectives are the avoidance of double taxation and the reduction of compliance costs. 

The Directive abolishes withholding taxes on royalty and interest payments levied at the EU country of source when received by a group company in another EU Member State. Its aims to ensure that the payments are not taxed in more than one country (double taxation). 

Interest and royalty payments arising in an EU country are exempt from any taxes imposed on those payments in that country provided that the company that receives those payments is: 

  • a group company of another EU country 
  • or a permanent establishment situated in another EU country. 

The Directive has applied since 26 June 2003 and had to become law in the EU countries by 1 January 2004. 

Companies covered by the I&R Directive

Similarly to the Merger Directive and Parent-Subsidiary Directive, the benefits of the I&R Directive are only granted to companies which are: 

  • subject to corporate tax in the EU, 
  • tax resident in an EU Member State and 
  • of a type listed in the annex to the Directive. 

Legal texts

Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States 

Related links 

Report COM (2009) 179 in accordance with Article 8 of Council Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.