EU - Amended Parent/Subsidiary Directive Promulgated

The amended Parent/Subsidiary Directive enters into force on February 2, 2004. Member states have until December 31, 2004 to transpose the changes into national law.

The amendment of December 22, 2003 to the EU Parent/Subsidiary Directive was officially published in the Official Journal on January 13, 2004. It enters into force 20 days later, that is on February 2, 2004. Member states have until December 31, 2004 to change their statutes, regulations and other provisions to comply.

There are six changes of substance:

• The subsidiary of a parent in the same or another EU country may now be held through the parent's permanent establishment in a different member state
• The term "permanent establishment" is to be defined as in the relevant tax treaty
• The minimum investment of the parent in the subsidiary falls from 25% to 20% in 2005-6, to 15% in 2007-8 and to 10% in 2009 and later years
• The credit for the foreign subsidiary's underlying tax includes taxes levied on sub-subsidiaries (multi-tier rule, does not apply to Germany under present law)
• Credits granted in the state of the parent on the profits of a subsidiary seen as transparent include the tax levied on (or credited to) the subsidiary in its own state of residence where it is not a transparent vehicle
• The range of companies falling under the Directive has been broadened from the present, narrowly defined capital corporation to include cooperatives (especially the European Cooperative Society - SCE), mutual insurance associations, commercial undertakings of public bodies, savings banks and building societies in certain countries, companies limited by guarantee and, last, not least, the Societas Europaea (SE) or European company coming into effect for 2005. For Germany this now means all companies and other undertakings subject to corporation tax as opposed to the present list of AG, GmbH, KGaA (partnership limited by shares) and mines.