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Out-Law News 1 min. read

New anti-abuse rules will prevent EU companies benefiting from tax arrangements that are not 'genuine'


Corporate groups that set up complex cross-border structural arrangements solely for the purposes of avoiding tax will be caught by new anti-abuse provisions, due to come into force across the EU at the end of this year.

The new rules will stop companies from taking advantage of provisions in the EU's Parent-Subsidiary Directive, designed to ensure that profits made by cross-border groups are not taxed twice. They will mean that parent companies will no longer be exempt from tax on payments received from subsidiaries in other member states if the relationship has been put in place to create a tax advantage that does not reflect economic reality.

Tax commissioner Pierre Moscovici said that the EU was "living up to its pledge" of tackling tax evasion and aggressive tax planning.

"We are building on the existing EU legislative framework to ensure a level playing field for honest businesses in the EU's single market and we are closing down loopholes that could be exploited for aggressive tax planning," he said.

"This achievement paves the way for other measures in this area. In particular, we are committed to extending the automatic exchange of information on tax rulings and we will present a legal proposal by spring 2015," he said.

Commission president Jean-Claude Junker announced plans for a new directive on the automatic exchange of information on tax rulings, or 'letters of comfort' granted by national tax authorities to confirm corporate transfer pricing arrangements, in November. The Commission has also asked member states to provide information about their tax ruling practices following its investigations into rulings provided to Amazon and Fiat Finance and Trade in Luxembourg, Apple in Ireland and Starbucks in the Netherlands.

The Parent-Subsidiary Directive was designed to prevent companies within the same corporate group, but based in different member states, from being taxed twice on the same income. It obliges member states to give parent companies a tax exemption on dividends and other payments that they receive from subsidiaries in other member states.

The new anti-abuse clause is the second change to be made to the Parent-Subsidiary Directive following the Commission's 2012 'action plan' on tax evasion and avoidance. An earlier amendment, in July 2014, addressed loopholes potentially enabling corporate groups to use hybrid loan arrangements to benefit from double-non taxation under the directive. Member states are required to incorporate both amendments into their national laws by 31 December 2015.

The new anti-abuse rule will apply to arrangements that are not "genuine", allowing member states to ignore them for the purposes of the directive and instead tax the arrangements on the basis of real economic substance. Member states will be allowed to apply stricter national rules as long as they meet minimum EU requirements.

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