EU: Update on PPLs/hybrid loans in the European Union

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

EU: Update on PPLs/hybrid loans in the European Union

van-der-made.jpg

Bob van der Made

During the May 6 2014 ECOFIN Council meeting, the EU-28 Finance Ministers could not reach political agreement on Part 1 (PPLs/hybrid loans) of the revised EU Parent-Subsidiary Directive (PSD) due to concerns by Sweden and Malta about a Greek presidency compromise text. Swedish concerns relate to a possible risk of double taxation of Swedish investment funds, for example when a foreign parent in an EU member state holds a stake in a Swedish investment company which holds shares in a big Swedish company (for example, Volvo Trucks, as mentioned by the Swedish Finance Minister in the May 6 ECOFIN meeting). In that case a dividend might be taxable for the investment company (and deductible upon redistribution to the foreign owner). Under the proposed revised PSD the redistribution dividend would be taxable at the level of the foreign owner of the investment company. If the foreign owner would hold the Volvo Trucks shares directly, then the dividend would be exempted instead under the PSD (since Volvo Trucks is not allowed to deduct dividends).

Malta has a point of principle and has a problem with the Greek presidency's last-minute compromise proposal to add to the Commission's originally proposed wording of Article 4(1)(a) which reads: "(a) refrain from taxing such profits to the extent that such profits are not deductible by the subsidiary". The Greek presidency proposes to add: ", and tax such profits to the extent that such profits are deductible by the subsidiary". However, according to Malta, EU Directives are not taxing instruments and the EC's original text was more appropriate in reflecting the taxing competences of the member states. Malta believes the same objective could be attained using different wording than the Presidency is proposing.

All member states showed a strong commitment in ECOFIN on May 6 to reaching agreement as soon as possible on the hybrid loan mismatches. Ministers decided that further technical discussions including bilateral discussions by Sweden and Malta with the Commission led by the Greek presidency should be conducted to try to reach political agreement at the ECOFIN Council of June 20 2014. If the proposed deadline of December 31 2015 for implementation of the amended PSD is to be kept within reach, however, a vote in ECOFIN on June 20, or ultimately in July under the incoming Italian EU Presidency, will be required. By May 20 this seemed a quite ambitious approach, given that the Greek presidency had still not held any of the agreed necessary talks with Sweden, Malta and the Commission, whereas the Coreper meeting (EU ambassadors' level) to prepare for the ECOFIN Council of June 20 was scheduled to meet on May 27/28. It therefore remains to be seen if common ground on PPLs can be found before the summer break.

Part 2 of the PSD proposal on anti-abuse/GAAR will in any case be dealt with under the Italian EU Presidency.

Bob van der Made (bob.van.der.made@nl.pwc.com)

PwC

Tel: +31 88 792 3696

Website: www.pwc.com

more across site & shared bottom lb ros

More from across our site

Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
The deal to acquire ITR's parent company is expected to complete by the end of May 2025
JBS, the biggest meat company in the world, allegedly used Luxembourgian ‘mailbox companies’ to avoid taxes between 2019 and 2022
Despite the conviction of Jessa Dabalos, the Tax Practitioners’ Board’s investigative work continues with five outstanding PwC scandal probes
Heads of tax need to push their teams forward as strategic business advisers to add value across their organisations, says Sandy Markwick
Scott Bessent reportedly felt undermined by Musk naming Gary Shapley as acting IRS commissioner; in other news, Baker Tilly will combine with a top 15 US firm
The promise of nine years’ tax certainty and a ‘rational and pragmatic’ government process makes APAs a no-brainer, Indian tax advisers tell ITR
Despite garnering significant revenues from multinationals, Italy’s digital services tax presents pressing double taxation issues, say Stefano Simontacchi and Francesco Saverio Scandone of BonelliErede
ITR’s research shows that in-house tax counsel in Asia also feel underserved by their advisers’ international networks
World Tax global head of research Jon Moore tells ITR how his team spots standout submissions, and gives early statistical insights into this year’s entries
Gift this article