Anti-Abuse Clause Mooted For Parent-Subsidiary Directive

The European Union’s 28 member states are seeking agreement on the proposed introduction of a common anti-abuse clause in the Parent-Subsidy Directive (2011/96/EU).

The plans were discussed at a meeting of the EU’s Economic and Financial Affairs Council (ECOFIN) on November 7, 2014. The proposed anti-abuse clause would allow member states to apply stricter national rules to prevent aggressive tax planning, provided that the rules meet the minimum EU requirements, set out in a common EU de minimis rule.

The Parent-Subsidiary Directive, adopted in 2011, aims to ensure that profits made by cross-border corporations are not taxed twice. To achieve this, the member states must exempt from taxation any profits which parent companies receive from their subsidiaries established in other member states. Recent amendments have tightened rules preventing the double non-taxation of cross-border corporate groups that use hybrid loan arrangements. The Council hopes to have the introduction of a common anti-abuse clause in place by December 2014.

In particular, under this clause, member states will be required to ensure that the benefits of the Directive are not granted where there is an arrangement, or a series of arrangements, between a parent and a subsidiary that are not genuine and are deemed to have been put in place by companies for the purpose of obtaining tax advantages.

All 28 member states agree in principle on the introduction of the clause, and have signaled their intention to work toward an agreement in time for ECOFIN’s next scheduled meeting, on December 9, 2014. The Netherlands and the UK must still require their national parliaments to approve the draft text, and the Netherlands and Belgium have sought further technical clarification of its provisions.

If the text is agreed, member states would have until December 31, 2015, to transpose the provisions into national law.