Common System Group Tax

Common system of taxation applicable in the case of parent companies and subsidiaries of different European Union countries

This directive provides competition-neutral taxation rules concerning dividends and profits distributed by subsidiaries to their parent company. It is a common system designed to facilitate the grouping together of companies across the European Union (EU), with a view to ensuring that the internal market functions effectively.

ACTS

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.

Directive 2014/86/EU of the Council of 8 July 2014 amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

SUMMARY

The objective of this directive, commonly referred to as the parent-subsidiary directive, is to exempt dividends and other profit distributions paid by subsidiary companies to their parent company from withholding taxes, and to eliminate double taxation of such income at the level of the parent company.

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 country that has a minimum holding of 10 % in the capital of a company from another EU country.

Receiving profits

A parent company or a permanent establishment has the possibility of receiving profits, even outside of the liquidation period. In this case, the EU country of the parent company or of the permanent establishment shall refrain from taxing these profits or shall 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 EU country of the parent company or of the permanent establishment must tax the profits received, insofar as these profits are deductible by the subsidiary.

EU countries 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 EU country of the parent company may not charge withholding tax on the profits that this company receives from its subsidiary. However, this provision does not concern the advance payment or the prepayment of corporation tax to the EU country in which the subsidiary is located, made in connection with a distribution of profits to the parent company.

Common system of taxation parent companies and subsidiaries of different European Union countries

This directive provides competition-neutral taxation rules concerning dividends and profits distributed by subsidiaries to their parent company. It is a common system designed to facilitate the grouping together of companies across the European Union (EU), with a view to ensuring that the internal market functions effectively.

ACTS

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.

Directive 2014/86/EU of the Council of 8 July 2014 amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

SUMMARY

The objective of this directive, commonly referred to as the parent-subsidiary directive, is to exempt dividends and other profit distributions paid by subsidiary companies to their parent company from withholding taxes, and to eliminate double taxation of such income at the level of the parent company.

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 country that has a minimum holding of 10 % in the capital of a company from another EU country.

Receiving profits

A parent company or a permanent establishment has the possibility of receiving profits, even outside of the liquidation period. In this case, the EU country of the parent company or of the permanent establishment shall refrain from taxing these profits or shall 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 EU country of the parent company or of the permanent establishment must tax the profits received, insofar as these profits are deductible by the subsidiary.

EU countries 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 EU country of the parent company may not charge withholding tax on the profits that this company receives from its subsidiary. However, this provision does not concern the advance payment or the prepayment of corporation tax to the EU country in which the subsidiary is located, made in connection with a distribution of profits to the parent company.

REFERENCES

Directive 2011/96/EU

Directive 2014/86/EU

Council Directive 2013/13/EU of 13 May 2013 adapting certain directives in the field of taxation, by reason of the accession of the Republic of Croatia (Official Journal L 141 of 28.05.2013).