International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

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

European Union: EU Commission proposes amendments to Parent-Subsidiary Directive to tackle PPLs and introduce common GAAR



Bob van der Made

Sjoerd Douma

On November 25 2013, the European Commission (EC) proposed amendments to the Parent-Subsidiary Directive (PSD) in the context of the fight against tax fraud and evasion and aggressive tax planning/BEPS in the EU. The proposal seeks to tackle hybrid financial mismatches within the scope of application of the PSD and to introduce a general anti-abuse rule (GAAR) to protect the functioning of the directive. The proposal follows the political guidance agreed in 2009 within the EU's Code of Conduct Group on business taxation to avoid the distorting effects of mismatches resulting from differences in the tax treatment of hybrid loans (PPLs) between EU member states. The proposal allows this political guidance to be implemented in domestic tax law. If the EC's proposal is adopted by the EU member states, Article 4(1)(a) of the PSD would provide that where a parent company, by virtue of its association with its subsidiary, receives distributed profits, the member state of the parent company shall refrain from taxing such profits to the extent that such profits are not deductible by the subsidiary of the parent company.

The EC also proposes to replace the current anti-abuse provision in the PSD by inserting a common GAAR, based on the similar clause included in its December 6 2012 ATP Recommendation.

The main amendments in short:

  • PSD shall not preclude the application of domestic or agreement-based provisions regarding tax evasion;

  • EU member states shall withdraw the benefit of PSD in the case of an artificial arrangement or an artificial series of arrangements put into place for the essential purpose of obtaining an improper tax advantage under the PSD and which defeats the object, spirit and purpose of the tax provisions invoked;

  • A transaction, scheme, action, operation, agreement, understanding, promise, or undertaking is an artificial arrangement or a part of an artificial series of arrangements where it does not reflect economic reality;

  • In determining the artificiality, EU member states shall ascertain whether one or more of the following situations are involved:

    1. the legal characterisation of the individual steps which an arrangement consists of is inconsistent with the legal substance of the arrangement as a whole;

    2. the arrangement is carried out in a manner not ordinarily used in a reasonable business conduct;

    3. the arrangement includes elements having the effect of offsetting or cancelling each other;

    4. the transactions concluded are circular in nature; and

    5. the arrangement results in a significant tax benefit which is not reflected in the business risks undertaken by the taxpayer.

  • Member states shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 2014.

Bob van der Made ( and Sjoerd Douma (, Brussels and Amsterdam

PwC EU Direct Tax Group

Tel: +31 88 792 3696


more across site & bottom lb ros

More from across our site

The forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.
The working paper suggested a new framework for boosting effective carbon rates and reducing the inconsistency of climate policy.
UAE firm Virtuzone launches ‘TaxGPT’, claiming it is the first AI-powered tax tool, while the Australian police faces claims of a conflict of interest over its PwC audit contract.
The US technology company is defending its past Irish tax arrangements at the CJEU in a final showdown that could have major political repercussions.
ITR’s Indirect Tax Forum heard that Italy’s VAT investigation into Meta has the potential to set new and expensive tax principles that would likely be adopted around the world
Police are now investigating the leak of confidential tax information by a former PwC partner at the request of the Australian government.
A VAT policy officer at the European Commission told the forum that the initial deadline set for EU convergence of domestic digital VAT reporting is likely to be extended.
The UK government shows little sign of cutting corporate tax, while a growing number of businesses report a decline in investment as a result of the higher tax burden.
Mariana Morais Teixeira of Morais Leitão overviews Portugal’s new tax incentive regime designed to boost the country’s capital-depleted private sector.
Septian Fachrizal, TP analyst at the Directorate General of Taxes, outlines how Indonesia is relying heavily on the successful implementation of pillar one.