Introduction of changes to EU Directive on Parent and Subsidiary Companies

Introduction of changes to EU Directive on Parent and Subsidiary Companies

Such changes are designed to curb a well-known practice of using the corporate entities to minimize the taxation in cases where subsidiaries making payments to a parent company were effectively exempt from withholding tax on dividends and distributable profit tax.  

Following the introduced changes, the above stated tax benefits within the framework of the Directive could no longer be taken advantage of unless a corporate entity exhibits itself as a substantial (genuine) one, in other words, it is established only for the purposes of tax optimization and has no substantial economic viability except for gaining tax benefits.

When evaluating the substance of an entity, the aggregate factors and circumstances of establishing and functioning of the companies are to be analyzed, whereby there is a possibility of treating only part of the entity as unsubstantial by imposing negative implications specifically upon it.

It is also worthwhile noting that pursuant to the Directive the Member States within their national laws & regulations are entitled to adopt tougher, as compared to the Directive, tax exemption conditions.   

The above listed changes are to be implemented by the Member States by the end of the year 2015.

Should the above changes somehow affect your entities, we strongly recommend you to refer to our experts for the analysis of the situation and elaboration of a legally correct and cost-effective solution.               

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