Brussels, 08/07/2014 (Agence Europe) - On Tuesday 8 July, EU28 finance ministers adopted the hybrid loan section of changes to EU tax rules for parent companies and subsidiaries, Directive 2011/96/EU, following broad agreement reached at a meeting in Luxembourg on 20 June (see EUROPE 11105). The changes will prevent the double non-taxation of dividends distributed within corporate groups deriving from hybrid loan arrangements.
The original directive was designed to ensure that subsidiaries of the same company based in a number of member states are not taxed more than once on the same revenue. Countries were required to make tax-exempt any payments from a parent company to a subsidiary in another member state. Some member states classify hybrid loan payments as tax-deductible debt. However, hybrid loan arrangements enabled cross-border companies to avoid paying taxes altogether by exploiting mismatches between national tax rules. In such cases, the received distributed profits were not taxable in the member state of the parent company, whilst they were treated as a tax-deductible expense in the member state of the subsidiary.
Under the new rules, the member state of the parent company will refrain from taxing profits from the subsidiary only to the extent that such profits are not tax deductible for the subsidiary.
“The adoption of this amendment to the parent-subsidiary directive is an important step change in the fight against aggressive tax planning”, said Pier Carlo Padoan, Italian economy and finance minister, on behalf of the Italian Presidency of the EU Council of Ministers. Taxation Commissioner Algirdas Semeta said: “I know I can count on the Presidency to continue this progress through the discussions on the general anti-abuse clause and on the pending Interest and Royalty proposal” that the Greek Presidency had put on one side. (EL)