(January 27, 2015)

As expected during its meeting of January 27, 2015 the Council of the European Union adopted a Directive amending the EU parent-subsidiary Directive (Council Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States) by adding an anti-abuse clause to prevent corporate tax avoidance. The aim of adding an anti-abuse clause is to stop the parent-subsidiary directive from being misused for the purposes of tax avoidance, and to achieve greater consistency in its application in different member states. The anti-abuse clause will prevent member states from granting the benefits of the directive to arrangements that are not "genuine", i.e. that have been put into place to obtain a tax advantage without reflecting economic reality.

The clause is formulated as a "de minimis" rule, meaning that member states can apply stricter national rules, as long as they meet minimum EU requirements.

Based on the Draft text of the Directive that the Council has adopted on January 27, 2015 (this Draft was already published by the European Council in December 2014) the amendments made to the parent-subsidiary Directive are expected to read as follows:

In Directive 2011/96/EU, Article 1(2) is replaced by the following paragraphs:

"2.   Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances.

An arrangement may comprise more than one step or part.

3.    For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.

4.    This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse."

Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by December 31, 2015 at the latest.

The amendment that the Council now has adopted is a second amendment inserting an anti-abuse clause in the parent-subsidiary Directive, which comes next to the amendment the Council adopted in July 2014 on when an anti-abuse clause preventing double non-taxation derived from hybrid loan arrangements inserted in the parent-subsidiary Directive.

Click here to be forwarded to the text of the draft amending directive on the anti-abuse clause as published by the Council in December 2014.

For further information, click here to be forwarded to the press release as issued by the Council of the European Union with respect to the amendment to the EU parent-subsidiary Directive it adopted on January 27, 2015.

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