EU Signs Off On Enhanced Parent-Subsidiary Directive
On January 27, 2015, the Council of the European Union formally adopted a decision to add a binding anti-abuse clause to the EU Parent-Subsidiary Directive.
The anti-abuse clause, which was agreed by the Economic and Financial Affairs Council on December 9, 2014, aims to prevent misuse of the Directive and ensure greater consistency in its application among member states. It requires governments to refrain from granting the benefits of the Directive to an arrangement, or a series of arrangements, that are not “genuine” and have been put in place to obtain a tax advantage and which do not reflect economic reality.
The clause is formulated as a minimum rule, meaning that member states can apply stricter national rules, as long as they meet minimum EU requirements.
Welcoming the amendment, Pierre Moscovici, the European Commissioner responsible for Economic and Financial Affairs, Taxation, and Customs, said: “With the Council’s adoption of the anti-abuse clause of the Parent Subsidiary Directive today, the European Union is living up to its pledge of tackling tax evasion and aggressive tax planning. Today, we are building on the existing EU legislative framework to ensure a level-playing field for honest businesses in the EU’s Single Market, and we are closing down loopholes that could be exploited for aggressive tax planning.”
The Directive, adopted in November 2011, is intended to ensure that group profits are not taxed twice in the European Union, to ensure multinationals are not placed at a disadvantage compared with businesses with operations in a single state. It requires member states to exempt from taxation profits received by parent companies from their subsidiaries in other member states.
In an earlier amendment in July 2014, a change was made to tackle hybrid loan mismatch arrangements. This involved the adoption of provisions to prevent corporate groups from using hybrid loan arrangements to achieve double non-taxation under the Directive.
Member states have until December 31, 2015, to transpose both changes into national law.
