On 25 November the European Commission proposed amendments to the Parent-Subsidiary Directive 2011/96/EU (‘the PSD’) in the context of the fight against tax fraud and evasion and aggressive tax planning/BEPS in the EU. The proposal seeks to tackle hybrid financial mismatches within the scope of application of the PSD and to introduce a general anti-abuse rule (GAAR) to protect the functioning of the directive.
The proposal follows the political guidance agreed in 2009 within the EU’s code of conduct group on business taxation to avoid the distorting effects of mismatches resulting from differences in the tax treatment of hybrid loans between EU member states. The proposal allows this political guidance to be implemented in domestic tax law. If the EC’s proposal would be adopted by the EU member states article 4(1)(a) of the PSD would provide that where a parent company by virtue of its association...