As expected, at its meeting on 27 January 2015 the Council of the European Union adopted a directive amending the EU parent-subsidiary directive (2011/96/EU) by adding an anti-abuse clause aimed at preventing the parent-subsidiary directive from being misused for the purposes of tax avoidance, and achieving consistency in its application in different member states.
The parent-subsidiary directive is intended to ensure that profits made by cross-border groups are not taxed twice. It requires member states to exempt from taxation profits received by parent companies from their subsidiaries in other member states.
The anti-abuse clause will allow member states to deny the benefits of the directive to so-called "artificial" arrangements – that is, arrangements that have been put into place in order to obtain a tax advantage without reflecting economic reality. It takes the form of a "de minimis" rule, allowing member states to apply stricter national rules as long as they meet minimum EU requirements.
Based on the draft published by the European Council in December 2014 the amendments made to the parent-subsidiary Directive are expected to read as follows:
In Directive 2011/96/EU, Article 1(2) is replaced by the
following paragraphs:
"2. Member States shall not grant the benefits of this
Directive to an arrangement or a series of arrangements which,
having been put into place for the main purpose or one of the main
purposes of obtaining a tax advantage that defeats the object or
purpose of this Directive, are not genuine having regard to all
relevant facts and circumstances.
An arrangement may comprise more than one step or part.
3. For the purposes of paragraph 2, an arrangement or a series of
arrangements shall be regarded as not genuine to the extent that
they are not put into place for valid commercial reasons which
reflect economic reality.
4. This Directive shall not preclude the application of domestic or
agreement-based provisions required for the prevention of tax
evasion, tax fraud or abuse."
Member states will have until 31 December 2015 to introduce an anti-abuse rule into national law. The same deadline applies for transposition of the July 2014 amendments to tackle hybrid loan mismatches.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.