News and Insights

European Council Formally Adopts Binding General Anti-abuse Rule in Parent-Subsidiary Directive

Tax Development Jan 30, 2015

On January 27, 2015, the European Council formally adopted a binding general anti-abuse rule in the Parent-Subsidiary Directive. The aim of this general anti-abuse clause is to counter abuse of the Parent-Subsidiary Directive and to achieve greater consistency in its application in different Member States.

In our Tax Development News release of of March 3, 2014, we mentioned that the European Commission had proposed modifications to the European Union (EU) Parent-Subsidiary Directive, namely (i) the introduction of a general anti-abuse rule against artificial structures, and (ii) actions against hybrid loan arrangements.

General Anti-abuse Clause

The general anti-abuse clause is formulated as a de minimis rule (meaning that Member States can apply stricter national rules) and is formulated in Article 1(2) of the Directive. The wording of Article 1(2) of Directive 2011/96/EU 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 will have time to implement the general anti-avoidance rule into national law until December 31, 2015. The Member States may apply stricter national rules, however, as long as they meet or surpass the minimum EU requirements.

Hybrid Loan Arrangements

The European Council has already agreed on implementing a new anti-abuse measure from using hybrid loan arrangements to benefit from double non-taxation under the Parent-Subsidiary Directive in July 2014. For further information about this anti-abuse measure, we refer to our Tax Development News release of June 25, 2014.