12 December 2014
The EU Council is clamping down on corporate tax avoidance by including an anti-abuse clause in the parent-subsidiary directive.
The Council has approved an amendment to the EU parent-subsidiary directive with the aim of preventing tax avoidance and aggressive tax planning by corporate groups.
The anti-abuse clause requires governments to refrain from granting the benefits of the parent-subsidiary directive to an arrangement, or a series of arrangements, that are not ‘genuine’ and have been put in place to obtain a tax advantage, while not reflecting economic reality.
The amending directive will be adopted at a forthcoming Council session without further discussion.
Pier Carlo Padoan, minister of economy and finance of Italy and president of the Council said: ‘The agreement on a binding anti-abuse clause in the parent-subsidiary directive will enable member states to better fight aggressive tax planning by groups of companies, thereby ensuring fairer corporate taxation in the European Union. This amendment will oblige member states to provide for, at least, a minimum level of protection of the directive against abuse.’
The parent-subsidiary directive (2011/96/EU), adopted in November 2011, is 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.
The Commission in November 2013 proposed to amend the directive with the twofold objective of tackling hybrid loan mismatches and introducing a general anti-abuse rule.