The European Commission has proposed amendments to key EU corporate tax legislation, with the aim of significantly reducing tax avoidance in Europe. In particular, companies will no longer be able to exploit differences in the way intra-group payments are taxed across the EU to avoid paying any tax at all. Among the proposed changes, it seeks to ensure Member States adopt a common standard to prevent avoidance of the Directive so that its benefits are only granted on the basis of real economic substance. Specifically, the benefits under the Directive will not apply in the case of “artificial arrangements” put in place with the “essential purpose of obtaining an improper tax advantage.
The Parent-Subsidiary Directive was originally conceived to prevent same-group companies, based in different Member States, from being taxed twice on the same income (double taxation). However, certain companies have exploited provisions in the Directive and mismatches between national tax rules to avoid being taxed in any Member State at all (double non-taxation).
EU Member States are expected to implement the amendments by 31 December 2014.
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