Changes in taxation of parent companies and subsidiaries

The European Commission has approved the proposed amendments to the EU Directive on the taxation applicable to parent companies and subsidiaries of different Member States of the EU (the Parent - Subsidiary Directive). Member States will have to harmonize their national laws, regulations and administrative provisions with the directive no later than by December 31st 2014.

The new law updates the anti-avoidance rule and thus introduces a safety guard against unfair tax practices. Changes in Member States should enable the Member States to identify transactions with sole purpose of tax evasion, and ensure taxation on the basis of the actual activities of these companies.

Another important novelty refers to the double non-taxation of hybrid loans. According to the new rules, the hybrid loan, which is not taxed in the Member State of the subsidiary, will need to be taxed in the Member State of the parent company.