Brussels, 07/08/2003 (Agence Europe) - The European Commission has adopted its new draft direction of taxing parent companies and subsidiaries and allowed for tax exemptions at the profits sources distributed between subsidiaries. This directive will replace the legislation in force over the last fifteen years and the previous proposal of 1993 blocked at the Council
This new draft will bring the minimum threshold for participation between companies down from 15-10% a level at which companies will benefit from an exemption to an at source- taxation. The directive also expands the list of companies covered in the field of application and notably includes the "European company".
The draft also reworks the calculating methods for corporation taxes in order to prevent a company being taxed twice when a subsidiary's revenue is taxed and the parent company is taxed from the perceived profits for the subsidiary in question. The directive compels the Member State where the parent company is based to either exempt the profits earned by the subsidiary or deduct the amount in tax paid by the subsidiary on the profits. This second possibility does not apply when dividends come from a subcontractor of the subsidiary.
The draft directive will allow Member States to avoid including expenses incurred and the charges paid by parent companies in relation to their participation in subsidiaries. Member States can also envisage deducting the amount of management expenses up to 5% of the profits distributed by the subsidiary.
The is draft directive is expected to be followed after the summer by a new proposal on merger taxation, integrating new kinds of companies, such as the "European company".