EU Council amends Parent-Subsidiary Directive to prevent hybrid loan abuse

Wednesday 29 October 2014

On 8 July 2014 the Council of the European Union adopted amendments to Directive 2011/96/EU (the Parent-Subsidiary Directive). The amendments aim to prevent “hybrid” loan arrangements being used by cross-border corporate groups to secure double non-taxation. The amendment to the parent-subsidiary directive will prevent cross-border companies from planning their intra-group payments so as to result in double non-taxation where hybrid loan arrangements are involved. The member state of the parent company will henceforth refrain from taxing profits from the subsidiary only to the extent that such profits are not tax deductible for the subsidiary.


As a result of the amendment, parent company jurisdictions will be required to tax any payments from a subsidiary that are tax deductible in the subsidiary company’s jurisdiction. The amendments took effect from 14 August 2014, and require Member States to amend their national laws, if necessary in order to comply with the amended Directive, by 31 December 2015. The amendment is part of a broader proposal that the Council agreed to split in order to allow early adoption of the new rule on hybrid loans, whilst enabling work to continue on another aspect, namely the introduction of a common anti-abuse provision. 
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