Brussels, 22/11/2013 (Agence Europe) - On Monday 25 November, the European Commission will unveil draft legislation to amend EU directive 2011/96/EU on parent companies and their subsidiaries to remove loopholes that allowed companies to legally avoid tax.
Directive 2011/96/EU was designed to prevent companies being taxed on the same income in two different member states but it being used by companies to avoid tax by shifting profits to subsidiaries in countries with lower tax rates.
To plug these gaps, the Commission will add an anti-abuse rule to the directive to allow member states to cut through the tax avoidance machinations used by companies and tax real profits. Secondly, it will adjust the measures that require member states to not tax dividends paid to parent companies by subsidiaries in other member states, to prevent this being used to avoid tax. Some member states allow subsidiaries to send money to the parent company under the heading of tax-deductible “debt repayment”, which means the cash is not taxed in either country. Using a hybrid loan mechanism, some parent companies avoid tax on cash sent to them in the form of dividends by their subsidiaries. The revised directive will make it possible to levy tax in the parent company's country, thus preventing this type of tax avoidance. (FG/transl.fl)