The EU has announced that it would change the parent-subsidiary directive, to prevent groups benefiting from double non-taxation in the case of intragroup cross-border hybrid arrangements, where the receipt is by the parent company of the group.
The EU's proposal is that the member state of the parent company will be allowed to not tax profit distributions from the subsidiary only to the extent that such distributions are not tax deductible for the subsidiary.
Member states have until 31 December 2015 to enact this into national law.
The parent-subsidiary directive is intended to ensure that profits made by cross-border groups are not taxed twice. So 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.
However, this currently applies, even if profit distribution is treated as a tax-deductible payment in the country where the paying subsidiary is based. For example, some member states classify payments from hybrid loan arrangements as tax deductible 'debt'. Some countries have domestic legislation which already counters such advantages, including the UK, but not all.
The amendment will prevent cross-border companies from planning their intra-group payments in such a manner as to benefit from this provision in order to enjoy double non-taxation. The member state of the parent company will henceforth refrain from taxing profit distributions from the subsidiary, only to the extent that such profit distributions are not tax deductible for the subsidiary.
The EU agreed to separate this issue from a broader proposal, in order to allow early adoption of the new rule on hybrid loans, whilst allowing work to continue on another aspect, namely the introduction of an EU wide anti-abuse provision.
This part of the legislation will be adopted at a forthcoming Council session, after finalisation of the text. Member states will have until 31 December 2015 to transpose it into national law.
See EU press release at: www.consilium.europa. eu/uedocs/cms_data/docs/pressdata/en/ ecofin/143274.pdf
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