Common system of taxation applicable in the case of parent companies and subsidiaries of different European Union Member States
Directive 2011/96/EU on taxation applicable in the case of parent companies and subsidiaries of different Member States
WHAT IS THE AIM OF THE DIRECTIVE?
Commonly referred to as the parent-subsidiary directive, it aims to exempt dividends and other profit distributions paid by subsidiary companies to their parent company from withholding taxes, and to eliminate the double taxation of such income at the level of the parent company.
This common system is designed to facilitate the grouping together of companies across the European Union (EU), with a view to ensuring that its internal market functions effectively.
Types of companies affected
The types of companies affected are public limited companies, private limited companies, certain cooperatives, mutual companies, savings banks, funds, European companies and European cooperative societies.
These companies must not have their tax domicile outside the EU and must be subject to corporation tax without the possibility of an option and without being exempt.
The status of parent company is attributed to a company from an EU Member State that has a minimum holding of 10% in the capital of a company from another Member State.
A parent company or a permanent establishment has the possibility of receiving profits, even outside of the liquidation period. In this case, the Member State of the parent company or of the permanent establishment must refrain from taxing these profits or must tax them while authorising the parent company and the permanent establishment to deduct from the amount of tax due that fraction of the corporation tax related to those profits and paid by the subsidiary and any lower-tier subsidiary.
In an effort to prevent cross-border companies from scheduling their payments within the group in order to benefit from double non-taxation, the Member State of the parent company or of the permanent establishment must tax the profits received, insofar as these profits are deductible by the subsidiary.
Member States retain the option of providing that any charges, relating to the holding, and any losses in capital, resulting from the distribution of the profits of the subsidiary, may not be deducted from the taxable profits of the parent company.
The profits distributed by a subsidiary to its parent company are exempt from withholding tax. Similarly, the Member State of the parent company may not charge withholding tax on the profits that this company receives from its subsidiary. However, this rule does not concern the advance payment or the prepayment of corporation tax to the Member State in which the subsidiary is located, made in connection with a distribution of profits to the parent company.
Amending Directive (EU) 2015/121 incorporates anti-abuse rules within Directive 2011/95/EU to prevent the latter’s misuse in terms of tax evasion, tax fraud or abusive practices. These are designed to serve the specific purpose of tackling an arrangement or a series of arrangements which are not genuine, that is, which do not reflect economic reality.
FROM WHEN DOES THE DIRECTIVE APPLY?
Directive 2011/96/EU has applied since 18 January 2012 and had to become law in the Member States by that date.
Amending Directive (EU) 2015/121 has applied since 17 February 2015 and had to become law in the Member States by 31 December 2015.
For further information, see:
Directive 2011/96/EU of the Council of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (recast) (OJ L 345, 29.12.2011, pp. 8–16).
Successive amendments to Directive 2011/96/EU have been incorporated in the original text. This consolidated version is of documentary value only.
last update 23.02.2022