Companies will no longer be able to exploit differences in the way intra-group payments are taxed across the EU to avoid paying any tax at all.
Amendments to the Council Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (Parent-Subsidiary Directive) have been recently proposed by the European Commission which aim to close loopholes which some companies have been using to escape taxation.
The Parent-Subsidiary Directive was originally conceived to prevent same-group companies, based in different Member States, from being taxed twice on the same income (double taxation). However, certain companies have exploited provisions in the Directive and mismatches between national tax rules to avoid being taxed in any Member State at all (double non-taxation).
The result of the proposed amendments will be that the Parent-Subsidiary Directive can continue to ensure a level-playing field for honest businesses in the Single Market without opening opportunities for aggressive tax planning. This proposal was foreseen in the Commission’s 2012 Action Plan against tax evasion.
Particularly, the proposal updates the anti-abuse provision in the Parent Subsidiary Directive i.e. the safeguard against abusive tax practices and will ensure that the Directive is tightened up so that specific tax planning arrangements (hybrid loan arrangements) cannot benefit from tax exemptions.