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2015.02.10 - EU Parent Subsidiary Directive: Implementing amendments governing the application of benefits in EU cross-border payments


Directive 2011/96/EU on the system of taxation applicable in the case of parent companies and subsidiaries located in different European Union member states is one of the most significant legislation rules to be considered when organising holding activities in the European Union.

The aim of this directive is to provide that the conditions for the companies being the members of a group but located in different European Union countries are not less favourable as if these companies were in one and the same country. This is to avoid double taxation of the same income within the group in different European Union countries.

Dividends paid from one European Union country to another are not subject to withholding tax in the first country if the recipient of the dividends is a tax resident in another European Union country.

Meanwhile, the Directive 2011/96/EU previously left the theoretical possibility by using the specific benefits of legislation of particular European Union countries to make cross-border payments on the terms of absence of taxation in both countries. The result was “double non-taxation” instead of the elimination of double taxation.

Some countries such as Denmark have even earlier limited the use of companies registered in the country and working as ‘conduit structures’ being companies whose existence is aimed only to obtaining tax advantages. Please see more at:

Whilst previously such restrictions were adopted by each country individually and at the level of national legislation, now the regulations limiting the use of the Directive for aggressive tax planning are implemented at the level of the Directive itself.

On 27th January 2015, the EU Economic and Financial Affairs Council (ECOFIN) accepted the proposal to amend the Directive, so that the existing Article 1(2) was replaced by the following conditions:

  1. 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 of obtaining tax advantages that defeat the object of this Directive, are not genuine having regard to the relevant circumstances.
  2. For the purposes of definition of the above, an arrangement is not genuine to the extent that it is not put into place for valid commercial reasons which reflect economic reality; i.e. it exists only with aim to obtain tax advantages.

Member States shall adopt the relevant amendments to their national legislation by 31st December 2015. It is important to note that the above provisions of the Directive are a “de minimis” rule and does not preclude them from the adoption of more stringent regulations in the national legislation at the discretion of each country.

International Overseas Services comments:

Corporate instruments registered in the European Union countries are highly appreciated among entrepreneurs and are often used as holding companies as well as in other commercial projects.

European Union countries are interested in attracting clients and to provide business opportunities. However, the situation when companies registered in the European Union, in the absence of their own business operations, are used only as vehicles to obtain tax benefits will not be accepted by the European Union countries in the future. Such arrangements will be monitored increasingly closely and appropriate restrictions will be imposed on using the European Union countries as a base for aggressive tax planning.

Many businesses that currently use a two-tier or more holding chain in the European Union countries are likely to be considerably simplified by their owners in the future.

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