In a Press Release of the 27 January 2015, the European Council disclosed its amendments to the EU Parent-Subsidiary Directive (Directive 2011/96/EU) hereinafter ‘the Directive’. The Council amended the Directive by adding a binding general anti-abuse clause to prevent tax avoidance and aggressive tax planning by corporate groups.
The Parent-Subsidiary Directive
The Directive was originally conceived to prevent same-group companies, based in different Member
States, from being taxed twice on the same income, however, certain companies have exploited provisions in the Directive and mismatches between national tax rules to avoid being taxed at all in any Member State (double non-taxation). The Commission therefore proposed to close these loopholes. The new ‘de minimis’ (minimum standards) anti-abuse clause will allow Member States to put in place stricter or more specific domestic provisions or double tax treaty anti-abuse provisions. A common anti-abuse rule will allow Member-States to ignore artificial arrangements used for tax avoidance purposes and allow taxation takes place on the basis of real economic substance.
Implications of the the Parent-Subsidiary Directive
The aim is to stop the Directive from being misused for tax avoidance and to achieve greater consistency in its application in different Member States. The anti-abuse clause will prevent Member States from granting the benefits of the Directive to arrangements that are not ‘genuine’, i.e. that have been put into place to obtain a tax advantage without reflecting economic reality.
The clause is formulated as a ‘de minimis’ rule, meaning that Member States can apply stricter national rules, as long as they meet minimum EU requirements. Member States will have until 31st December 2015 to introduce an anti-abuse rule into national law. The same deadline applies for transposition of the July 2014 amendments to tackle hybrid loan mismatches.
The above amendments would possibly create changes to existing structures involving Russian and/or Ukrainian or other beneficiaries who may own an operating company in their jurisdiction through structures involving two-tier EU holding and offshore companies. These kind of structures will most likely be simplified to include as the main jurisdictions countries in which there is no withholding tax on payments to non-residents such as Malta.
For further information please contact: