taxation.PNGCommission tightens rules on EU corporate tax

Corporate tax avoidance is very high in the political agenda of the EU, the G20 and the G8. In December 2012 the Commission presented an Action Plan for a more effective EU response to tax evasion and avoidance. This action set out a comprehensive set of measures, to help Member States protect their tax bases and recapture billions of Euros legitimately due. The revision of the Parent Subsidiary Directive, which was announced on the November 25, is one of these measures.

The Parent-Subsidiary Directive was originally conceived to avoid double taxation for same-group companies based in different Member States. However, certain companies have exploited provisions in the Directive and mismatches between national tax rules to avoid being taxed in any Member State at all (double non-taxation). The Commission’s proposal aims to close these loopholes.

Companies will no longer be able to exploit differences in the way intra-group payments are taxed across the EU to avoid paying any tax at all. The result will be that the Parent-Subsidiary Directive can continue to ensure a level-playing field for honest businesses in the Single Market without opening opportunities for aggressive tax planning.

Member States are now obliged to adopt a common anti-abuse rule, allowing them to ignore artificial arrangements used for tax avoidance purposes and ensuring that taxation takes place on the basis of real economic substance. Also, specific tax planning arrangements (hybrid loan arrangements) will not be able to benefit from tax exemptions. If a hybrid loan payment is tax deductible in the subsidiary's Member State, then it must be taxed by the Member State where the parent company is established. This will stop cross-border companies from planning their intra-group payments to enjoy double non-taxation.

Member States are expected to implement the amended Directive by December 31, 2014.


Council Directive document

Official Press release

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