The Commission has proposed amendments to the Parent-Subsidiary Directive for the purposes of reducing tax avoidance in Europe. The proposals are aimed at closing, what the Commission view as, loopholes in the Directive. In particular, companies will no longer be able to exploit differences in the way intra-group payments are taxed across the EU to avoid paying any tax at all.

The first proposal is to update the anti-abuse provision in the Parent Subsidiary Directive i.e. the safeguard against abusive tax practices. In line with the Commission’s Recommendation on Aggressive Tax Planning (IP/12/1325), the proposal obliges Member States to adopt a common anti-abuse rule. This will allow them to ignore artificial arrangements used for tax avoidance purposes and ensure taxation takes place on the basis of real economic substance.

The second proposal is to ensure that the Directive is tightened up so that specific tax planning arrangements (hybrid loan arrangements) cannot benefit from tax exemptions.

Member States are expected to implement the amended Directive by 31 December 2014.

For full details see the Commission’s website.