Luxembourg, 20/06/2014 (Agence Europe) - On Friday 20 June, the Council of EU finance ministers endorsed the first section of the revised parent-subsidiary directive (2011/96/EU) on hybrid loans, which has been hived off from the rest of the directive. The aim is to prevent companies from wriggling out of tax by shopping around and transferring profits to subsidiaries in the lowest-tax countries. On behalf of the Greek Presidency of the Council of the EU, Greek Finance Minister Gikas Hardouvelis said the agreement on Friday was a “tangible step” in the battle against tax evasion.
Malta was the final country to lift its reservations. It had argued that the Greek Presidency compromise did not respect member states' powers over tax issues and feared that it would set a precedent. There were two meetings on Thursday between Malta and the European Commission. Maltese Finance Minister Edward Schliuna announced on Friday morning that the meetings had enabled him to lift his reservations. In the public debate, EU Taxation Commissioner Algirdas Semeta said that adoption of the directive would not create any political precedent or force member states to endorse other large-scale tax obligations in the future. His promise has been put in writing in the meeting minutes in the form of a statement from the Commission that was initially aimed solely at allaying Sweden's fears. The statement says that the directive “does not create a policy precedent and certainly does not oblige Member States to agree on more far-reaching tax obligations in the future”.
In order to reassure Sweden, the Commission's statement “confirms that the proposed amendment to Article 4 of the parent-subsidiary directive are not intended to be applicable if there is no double non-taxation or if their application would lead to double taxation of the profit distributions between parents and subsidiary companies. The original parent-subsidiary directive, currently in force, was intended to ensure that profits made by cross-border groups are not taxed twice, and that such groups are thereby not put at a disadvantage compared to domestic groups. It requires member states to exempt from taxation profits received by parent companies from their subsidiaries in other member states. However, this currently applies even if profit distribution is treated as a tax-deductible payment in the country where the paying subsidiary is based. Some member states classify payments from hybrid loan arrangements as tax deductible 'debt'. The amendment approved today will prevent cross-border companies from planning their intra-group payments in such a manner as to benefit from this provision in order to enjoy double non-taxation. The member state of the parent company will henceforth refrain from taxing profits from the subsidiary only to the extent that such profits are not tax deductible for the subsidiary”.
Member states will have until 31 December 2015 to transpose the directive into their own legislations. Semeta said: “Following my meeting this morning with Italian Finance Minister Pier Carlo Padoan, I have every confidence that the upcoming Italian Presidency will be able to secure agreement on a general anti-abuse rule, which is the other amendment we have proposed to this Directive”, which the Greek Presidency is leaving to the side at the moment. (EL)