The European Commission has proposed restricting loopholes in the Parent-Subsidiary Directive in order to clamp down on tax avoidance. Companies will be unable to use differences in the way intra-group payments are taxed across the EU in order to avoid paying tax.
The Commission asserts that the Parent-Subsidary Directive will ensure a level-playing field among businesses within the single market.
Commissioner for Taxation, Algirdas Semets, said:
EU tax policy is heavily focussed on creating a better environment for businesses in the EU. This means breaking down tax barriers and tackling cross-border problems such as double taxation. But when our rules are abused to avoid paying any tax at all, then we need to adjust them.
The Parent-Subsidiary directive was intended to protect same-group companies based in different member states from double taxation. However the Commission believes that companies have used mismatches between national tax rules to avoid any taxation at all. The proposals also oblige member states to adopt a common anti-abuse rule.
Hybrid loan arrangements will also no longer be able to benefit from tax exemptions. The amended directive is expected to be implemented by 31 December.