EU: Political agreement on new EU rules on PPLs/hybrid loans

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EU: Political agreement on new EU rules on PPLs/hybrid loans

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Bob van der Made

On April 14 2014, the Council's High Level Working Party (HLWP) meeting discussed a Greek Council Presidency proposal for a split approach to the revision of the parent-subsidiary directive (2011/96/EU), which was proposed by the European Commission at the end of 2013. Under the proposed split, the PPLs/hybrid loans part of the proposed revised parent-subsidiary directive (PSD) would still be adopted in Council under the six-monthly rotating Greek EU Presidency, that is before June 30 2014. The relevant new Article 4(1)(a) of the PSD provides 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 PPLs/hybrids proposal follows the political guidance agreed in 2009 within the EU's Code of Conduct Group on business taxation and allows this political guidance to be implemented in domestic tax law. The agreed deadline for transposing changes to the PSD into the domestic legislation of all 28 member states is most probably December 31 2015.

The Commission's other main proposal for amending the PSD, a proposed new anti-abuse provision (or GAAR) which obliges EU member states to withdraw the benefits of the PSD for arrangements put in place for the purpose of obtaining a tax advantage under the PSD, would need to be discussed further under the split, however, also at technical level, under the incoming Italian EU Presidency.

This split would not have suspensive effect for the PPLs/hybrids proposal. There is EU legal precedent for such a pragmatic split proposal: last year's EU's VAT anti-fraud package.

It seems that the Commission is now no longer opposing the split, and EU member states' views seem to have converged further during the HLWP meeting held on April 14 2014. Political agreement is expected to be reached soon therefore, that is provided some smaller remaining problems for some member states and all internal processes can be solved.

The EU's 28 member states, the Commission and the EU Parliament are apparently quite keen to show the G20/OECD+ that the EU can actually reach concrete political progress and pass binding legislation on a very difficult BEPS-related issue such as hybrids.

Next steps

  • The EU-28 ambassadors of the permanent representations to the EU in Brussels will discuss the PSD PPLs/hybrids proposal on April 30 2014 in COREPER II (which prepares the ECOFIN Council meetings) and they are expected to reach political agreement.

  • EU finance ministers are subsequently set to have a political debate on the PSD on May 6 2014 in the ECOFIN Council on PPLs/hybrids, and it seems increasingly likely that the finance ministers will also cast a vote (unanimity required). Should May 6 2014 not be feasible, then June 20 2014 will be the next earliest indicative date for vote in ECOFIN.

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

PwC

Tel: +31 88 792 3696

Website: www.pwc.com

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