EU adds antiabuse rule to parent-subsidiary directive

The EU Council, on January 27, amended the EU parent-subsidiary directive, adding a new antiavoidance rule.

The action follows up on a political agreement reached on December 9 to amend the directive. The directive exempts from taxation dividends and other profit distributions received by parent companies from subsidiaries located in different member states.

The amended directive provides that tax exemptions for profit distributions will not be granted if an arrangement is not “genuine,” namely, if it has been put in place “for the main purpose or one of the main purposes” of obtaining a tax advantage which defeats the object or purpose of the parent-subsidiary directive.

The EU Council’s decision to adopt the new antiabuse clause shows that the EU is “living up to its pledge of tackling tax evasion and aggressive tax planning,” Pierre Moscovici, European Commissioner for Economic and Financial Affairs, Taxation, and Customs said in a statement.

Moscovici said the agreement “paves the way” for more EU initiatives to shut down multinational tax avoidance, such as automatic exchange of information on tax rulings, which he pledged to introduce by Spring 2015.

Member states now have until December 31 to add an antiabuse clause consistent with the amendment to their national laws. Countries are free to adopt stricter antiabuse rules, if they choose.

Nations also need to conform their national laws to reflect an amendment to the parent-subsidiary directive passed by the EU Council July 2014 which is designed to prevent multinational groups from achieving double non-taxation from hybrid loan arrangements.

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