EU - Parent-Subsidiary Directive changes to address corporate tax avoidance 

November 25: The European Commission today proposed changes to EU corporate tax law that would be intended to address tax avoidance in Europe.

According to the EC release, the proposal would close “loopholes” in the EU Parent-Subsidiary Directive used by some companies to escape taxation (i.e., by exploiting differences in the way intra-group payments are taxed across the EU to avoid paying tax).

Summary of changes

The EC proposal would:

  • Update anti-abuse provision in the Parent-Subsidiary Directive (i.e., the safeguard against abusive tax practices) and would require EU Member States to adopt a common anti-abuse rule that would allow them to ignore artificial arrangements used for tax avoidance purposes and to determine that taxation is based on economic substance
  • Tighten the Parent-Subsidiary Directive provisions so that specific tax planning arrangements (e.g., hybrid loan arrangements) could not benefit from tax exemptions—under the proposal, for example, if a hybrid loan payment is tax deductible in the subsidiary's Member State, then it must be taxed by the Member State where the parent company is established, thereby preventing cross-border companies from planning their intra-group payments to enjoy “double non-taxation”

EU Member States are expected to implement the amendments by 31 December 2014.


The EU Parent-Subsidiary Directive was originally conceived to prevent same-group companies, based in different EU Member States, from being taxed twice on the same income (double taxation).

Some companies have exploited provisions in the Parent-Subsidiary Directive and mismatches between national tax rules to avoid being taxed in any EU Member State at all.

The issue of corporate tax avoidance is very high in the political agenda of many EU and non-EU countries, and the need for action to combat was highlighted at recent G20 and G8 meetings.

On 6 December 2012, the EC presented an Action Plan for a more effective EU response to tax evasion and avoidance. This action set out a comprehensive set of measures, to help EU Member States protect their tax bases and recapture billions of euros legitimately due. The revision of the Parent-Subsidiary Directive is one of the measures announced in the action plan.

Read TaxNewsFlash-Europe: EU - Plan to address tax evasion, aggressive tax planning

Read a November 2013 report [PDF 67 KB] prepared by KPMG’s EU Tax Centre.

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