The European Commission has published proposals to amend the parent-subsidiary directive (Council Directive 2011/96/EU). The main changes are to permit member states to tax distributions which are paid under hybrid instruments (i.e. where the payer received a deduction) and to strengthen the anti-avoidance provisions in the directive.
The directive was introduced to eliminate double taxation of companies operating in different EU countries. This is achieved by preventing member states from withholding tax on certain distributions of profits and by restricting the ability of member states to tax the recipient of a distribution.
It is proposed that the recipient of a distribution under a hybrid instrument may be taxed without any need to give credit for tax paid by the company paying the distribution. Hybrid instruments typically have characteristics of both debt and equity for example fixed rate preference shares and loans which are...
