Switzerland - Parent Subsidiary Directive and
Interest and Royalties Directive

With effect from 1 July 2005, Article 15 of the European Union/Switzerland Savings Tax Agreement (2004 O.J (L 385) 30 - 29 December 2004) provides for the extension to Swiss companies of provisions equivalent to the EU Parent/Subsidiary Directive and the Interest and Royalties Directive.

Dividends
The Agreement applies to certain Swiss companies owning 25% of the capital (directly) in an Irish company, and vice versa, (subject to conditions). Under the Ireland/Switzerland double taxation agreement a 10% rate of withholding applies to dividends paid to Irish companies owning 25% or more of the voting power in Swiss companies. With effect from 1 July 2005 this withholding will be abolished if the conditions of Article 15 are met. One condition is that the Irish shareholder must be a limited liability company. The extension has little practical impact for Irish dividend payments because, under domestic legislation and/or the Ireland/Switzerland tax treaty, no withholding tax is levied.
It is also interesting to note, that, under Irish legislation implementing the Parent/Subsidiary Directive only a 5% ownership of share capital test must be met. Indeed, the Parent/Subsidiary Directive envisages a gradual reduction in the shareholding requirement from 25% to 10%, a reduction that is not reflected in the Agreement.

Interest and Royalties
The Agreement will also apply to payments of interest and royalties between associated companies, i.e., companies affiliated by a direct minimum holding of 25% for at least two years (subject to conditions). This extension will have little practical impact on interest and royalty payments to/from Ireland as the Ireland/Switzerland double taxation agreement provides for zero rates of withholding on these payments. However, for royalties paid from Ireland the administrative procedures should be eased somewhat in that it should no longer be necessary to obtain treaty clearance before paying royalties gross.