ARTICLE · 22 JULY 2014

Hybrid Loophole Closing In Europe

MNP LLP

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On June 20, 2014 the European Union's Council of Economic and Finance Ministers agreed to amend the EU Parent-Subsidiary Directive (PSD).

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On June 20, 2014 the European Union's Council of Economic and Finance Ministers agreed to amend the EU Parent-Subsidiary Directive (PSD) to prevent double non-taxation resulting from hybrid loan arrangements. It is expected the amendment will be adopted during the upcoming Council of the European Union and would then be enacted in the domestic tax laws of the EU member states.

The PSD was originally intended to prevent tax obstacles within the EU. Prior to the proposed amendment, the PSD forbade the taxation of corporate dividends received by a parent company from its corporate subsidiary within the EU. As a result, the PSD promoted the free repatriation of profits between EU member countries and prevented double taxation of corporate income.

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