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.

Background

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.




©2013 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.


The KPMG logo and name are trademarks of KPMG International.


KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever.


The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.


Direct comments, including requests for subscriptions, to us-kpmgwnt@kpmg.com.
For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at:

+ 1 202 533 4366

1801 K Street NW
Washington, DC 20006.

Subscribe

Current and future KPMG clients may subscribe to TaxNewsFlash email alerts.


Email your contact information.

TaxNewsFlash-United States by year