EU: Hybrid loan arrangements: EU agrees to amend the Parent-Subsidiary Directive

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2026

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


EU: Hybrid loan arrangements: EU agrees to amend the Parent-Subsidiary Directive

van-der-made.jpg

Bob van der Made

On June 20 2014, in the context of the EU's fight against tax fraud and evasion and "aggressive tax planning" or base erosion and profit shifting (BEPS), the EU-28 Finance Ministers reached final agreement on amending and updating the EU's Parent-Subsidiary Directive (2011/96/EU; hereafter: PSD) on the basis of a Commission proposal issued in November 2013. The main amendment counters the distorting effects of mismatches resulting from differences in the tax treatment of hybrid loans within the scope of application of the PSD between EU member states.

The main aim of the PSD is to exempt dividends and other profit distributions paid by subsidiary companies to their parent companies from withholding taxes and eliminates double taxation of such income at the level of the parent company.

Member states have now agreed that the benefits of the PSD should not lead to situations of double non-taxation and, therefore, generate unintended tax benefits for groups of parent companies and subsidiaries of different member states in comparison with groups of companies of the same member state.

Under the amended PSD Article 4.1 (a), therefore, the member state of the receiving company (parent company or its permanent establishment) will be obliged to "(…) refrain from taxing such profits to the extent that such profits are not deductible by the subsidiary, and tax such profits to the extent that such profits are deductible by the subsidiary (…)".

Following June's political agreement in ECOFIN, the hybrid loans part of the PSD will be adopted at a forthcoming Council session, after linguistic and legal finalisation of the text. EU member states will have until December 31 2015 to transpose it into national law.

In an accompanying statement (added to the ECOFIN Conclusions), the Commission:

  • stresses that the proposed amendments to Article 4.1 (a) of the PSD are applicable in situations of double non-taxation deriving from mismatches in the tax treatment of profit distributions between member states which generate unintended tax benefits;

  • confirms that the proposed amendments to Article 4.1 (a) of the PSD are not intended to be applicable if there is no double non-taxation or if their application would lead to double taxation of the profit distributions between parent and subsidiary companies;

  • and, in the light of the above, confirms that the adoption of this proposal does not oblige member states to subscribe to any future legislative proposals in the field of direct taxation.

The Commission had also proposed to replace the existing anti-abuse provision in the PSD with a common general anti-abuse rule (GAAR), based on the clause in its December 6 2012 Aggressive Tax Planning Recommendation to EU member states, but this will be discussed further under the incoming Italian six-monthly rotating EU Council 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

The firm demonstrated its sweet spot of litigation with an international twist with the recent win for the Danish tax authority…but it’s not a tax case
The recently formed firm has taken a break from hiring EY talent to expand its transactional tax and tax technology capabilities
The AI platform, founded last year by two school friends, is partnering with challenger firms like Unity Advisory and A&M Tax to launch its own assault on the AI tax market
Not only has Aurtus received recognition from ITR in the past, but its founder was both a partner at KPMG and co-founder of Dhruva Advisors
Clients care more about considered counsel than rapid media-friendly soundbites, says Matthew Gilleard, associate director at Infinite
It was also a memorable night for Galicia, KPMG, Skadden and Pinheiro Neto, all of which scooped major awards at a gala ceremony in New York
The former Deloitte UK CEO earned a 45% raise in a year when 1,000 staff reportedly lost their jobs – and the pay gap is only getting bigger
In a seminal development for big law, the 95-year-old firm is set to cease operations after a series of high-profile partner departures
UK Chancellor John Healey extended a VAT cut, suspended tariffs, increased a bank surcharge and vowed to increase funding for HMRC
Kristine Riisberg warned that TP decisions can determine top-up tax exposure under pillar two, while global consensus over the rules remains unsettled
Gift this article