On 9 January 2007, the European Commission announced that it had sent Italy a formal request to implement the Interest and Royalties Directive (Council Directive 2003/49/EC of June 2003) (the Directive) correctly (case reference number 2006/4136).
The Directive aims to abolish the taxation of interest and royalty payments made between associated companies of different Member States in the Member State of source and thereby to ensure the equal tax treatment of domestic and cross-border transactions.
Italy implemented the Directive by legislative Decree No. 143/2005 and restricted its scope of application to interest and royalty payments accrued (having become payable) on or after 1 January 2004. This restriction intended to prevent fraud and tax evasion that takes the form of intentionally delaying payments, which had become payable before the entry into force of the Directive, in order to benefit from the exemption under the Directive.
The Commission considers that the Italian provisions, which exclude from the benefit of the Directive any interest and royalty payment which became payable before 1 January 2004, are disproportionate and go beyond what is necessary to achieve their legitimate purpose. The Commission rejected the Italian government's justification that referred to the limited impact of the provisions.
The request is in the form of a reasoned opinion, which is the second stage of the infringement procedure under Art. 226 of the EC Treaty. If Italy does not reply satisfactorily to the reasoned opinion within 2 months, the Commission may refer the matter to the European Court of Justice (ECJ).