Brussels, 25/11/2013 (Agence Europe) - On 25 November, the European Commission unveiled draft changes to the parent-subsidiary directive (2011/96/EU) in order to remove loopholes that companies have been using to shop around for advantageous tax rules for inter-group transfers. The directive was designed to prevent double taxation.
The changes to the directive are part of the action plan against tax avoidance unveiled by the Commission at the end of 2012 and focus on tackling “hybrid” loans, whereby companies operating in more than one country take advantage of the double non-taxation system under the directive to avoid paying company tax or at least reduce the amount they pay. Under the exemptions and deductions allowed in the directive, parent companies can avoid tax on profits by transferring them as a tax-deductive “loan” to a subsidiary and then sending the cash back in the form of a loan repayment that is tax deductive in the subsidiary's country of registration (see EUROPE 10969). The revised directive aims to stop this by introducing an anti-abuse rule whereby member states can cut through the creative accounting used for tax avoidance and levy tax on real profits. EU Taxation Commissioner Algirdas Semeta said the new clause would be particularly effective vis-à-vis non-EU countries when double taxation agreements with said countries are not sufficiently robust, by levying tax in the parent company's member state on payments made by a subsidiary under a hybrid loan for which they have not been taxed in the subsidiary's country of origin.
The commissioner said that the Commission was meeting the promises it had made in its action plan and the ball was now in the member states' court. He said the member states should rapidly endorse the various proposals made by the Commission under the action plan if they really want to make progress in clamping down on tax fraud in the EU itself and also in the wider G20 and OECD. (FG/transl.fl)