On 9 December 2014, the Council of the EU (ECOFIN) reached agreement on the introduction of a general anti-avoidance rule (GAAR) into the Parent-Subsidiary Directive (PSD).
GAAR provision in the Parent-Subsidiary Directive
Agreement has now been reached by Member States on the wording of a binding anti-abuse clause introduced into the PSD to prevent the misuse of the Directive for tax avoidance and aggressive tax planning purposes.
The GAAR requires Member States to introduce rules that refrain from granting the benefits of the Directive to any arrangement or series of arrangements that are not genuine, i.e. arrangements that have not been put into place for valid commercial reasons which reflect economic reality.
Member States will be free to apply stricter domestic rules as long as they meet this minimum EU requirement, but will have until 31 December 2015 to introduce the GAAR into national law. The approved proposal now calls for Member States to keep each other informed when applying the revised Directive, and for a similar provision to be considered for inclusion in the Interest Royalty Directive.
This development forms a decisive step forward in EU efforts to combat aggressive tax planning and supplements the recent approval of an anti-hybrid rule specifically aimed at preventing the Directive from facilitating double non-taxation arising from certain hybrid loan structures (see our newsletter 2014-12). The Luxembourg Finance Minister recently reaffirmed that Luxembourg supported the proposal to introduce such a GAAR and that it will be among the first countries to transpose the amended Directive into national law.
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