Mother-Daughter Directive
Following the political agreement reached on December 9, 2014, and an earlier amendment made last July 2014 (for the Hybrid Mismatch Arrangements part) following the November 2013 revision proposal by the European Commission, the introduction of a binding anti-abuse clause as a de minimis rule in Directive No. 90/435/EEC, known as the parent-subsidiary directive, later merged into Directive No. 2011/96/EU, was formally approved by the Ecofin Council.
The directive regulates the taxation of distributed profits in cases where, within a corporate group, parent and subsidiary companies, i.e., companies bound by participatory ties, belong to different member states of the European Union.
The “noble” purpose of the framework is to foster, in accordance with EU principles, and to ensure the free movement of capital within the common market and to avoid the creation of “barriers” to the formation of cross-border corporate groups by introducing tax provisions marked by maximum tax neutrality.
In particular, it is intended to eliminate the possibility of double taxation of profits distributed in the form of dividends by subsidiaries, established in one member state, to corresponding parent companies, established in another member state, due to the simultaneous intervention of tax regimes of two different states.
Under the agreement reached on Dec. 9, 2014, and now translated into regulatory text, member states will not have to grant the benefits of the directive to agreements, or a series of arrangements, put in place with the main purpose of obtaining tax advantages that are contrary to the purpose of the directive and that are not genuine in that they do not reflect a valid economic reality, i.e., are not genuine.
The purpose is to counter evasion and avoidance as well as aggressive tax planning by corporations, phenomena that “cost” the European Union an estimated as much as 1 trillion euros in potential tax revenue, or an annual burden of about 2,000 euros for each citizen of the Old Continent.
Member states now have until Dec. 31, 2015, to introduce the approved provision into domestic laws with the option of further tightening from the scheme outlined in the EU.
