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IP/09/1769

Brussels, 20 November 2009

Taxation of interest and royalties: Commission takes steps against Lithuania

The European Commission has sent an additional reasoned opinion (the second step of the infringement procedure of Article 226 of the EC Treaty) to Lithuania about its rules under which interest paid to foreign variable capital investment companies and closed-end investment companies (including investment funds and pension funds) is taxed more heavily than interest paid to comparable domestic recipients. The additional reasoned opinion also addresses the taxation of royalty payments to non-resident companies. Lithuania is requested to reply within two months, or the case might be brought before the European Court of Justice.

The additional reasoned opinion extends the scope of a reasoned opinion that was already sent to the Member State concerned to cover royalty payments to non-resident companies on the same basis as interest (see further the press release IP/08/334 ). The present document deals in greater detail with the higher taxation of interest income paid by Lithuanian companies to non-resident variable capital investment companies and closed-end investment companies.

If a Member State levies a higher tax on interest paid to foreign investors this may dissuade these investors from investing in its companies. Equally, companies established in that Member State might face increased difficulties in attracting capital from non-residents. The higher taxation of non-resident companies may thus result in a restriction of the free movement of capital.

In the case of interest and royalty payments, where resident companies can deduct expenses related to such income from their taxable income while non-resident companies are denied such deduction, this may also result in a restriction of the freedom to provide services. The Commission is not aware of any justification for such restrictions.

The Commission's case reference number is 2006/4095.

For the press releases issued on infringement procedures in the taxation or customs area see:

http://ec.europa.eu/taxation_customs/common/infringements/infringement_cases/index_en.htm

For the latest general information on infringement measures against Member States see:

http://ec.europa.eu/community_law/infringements/infringements_en.htm


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