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The European Council discussed the introduction of a draft common anti-abuse clause in the EU’s 2011 parent-subsidiary directive. The amendment aims to prevent tax avoidance and aggressive tax planning in the EU in specific situations.

The anti-abuse clause is formulated as a common EU ‘de minimis’ rule. This means that once adopted, it would allow the member states to apply stricter national rules, if they wished to, as long as they met the minimum EU requirements.

EU legal acts on taxation matters require a unanimous agreement by the member states in the Council, after consulting the European Parliament, before they can be adopted. 

All the member states agree in principle on the introduction of the clause and agree to work constructively towards reaching an agreement by the Ecofin meeting scheduled on 9 December. 

While the majority of the member states support the presidency compromise text, the Netherlands and the UK still require an approval from their national parliaments. The Netherlands and Belgium would also like to use the remaining time for further technical clarification of the text. 

“By adopting this directive we would make a real step forward in the fight against tax fraud, tax evasion and aggressive tax planning”, said Pier Carlo Padoan, Minister for Economic Affairs and Finance of Italy. 

Anti-abuse clause of the parent-subsidiary directive at a glance

Once introduced, the anti-abuse clause would require EU member states to make sure that the benefits of the 2011 parent-subsidiary directive are not granted where there is an arrangement, or series of arrangements, which are not genuine and are put in place by companies for the purpose of obtaining tax advantages, rather than for a valid commercial reasons reflecting economic reality. 

Once agreed, the member states would have until 31 December 2015 to transpose the anti-abuse provisions into national law.

Council discussion on the parent-subsidiary directive (video)

Amendments to the parent-subsidiary directive

The parent-subsidiary directive, adopted in 2011, aims to ensure that profits made by cross-border corporations are not taxed twice: the member states have to exempt from taxation any profits which parent companies receive from their subsidiaries established in other member states. 

In November 2013 the European Commission tabled a proposal with two sets of amendments to the directive, aimed at contributing to fighting tax evasion and aggressive tax planning:

• rules preventing double non-taxation of cross-border corporate groups which use hybrid loan arrangements
• introduction of a common anti-abuse clause 

The Council adopted the first set of amendments in July 2014 and is currently working on the second one, with the aim of adopting it in December 2014.