Parent-Subsidiary Directive

The Parent-Subsidiary Directive is an EU Directive designed to facilitate smooth functioning in the taxation of groups of companies across the EU. Its aims are to:

exempt dividends and other profit distributions paid by subsidiary companies to their parent company from withholding taxes
eliminate the double taxation of such income at the level of the parent company

A parent company is a company from an EU Member State that has a minimum holding of 10% in the capital of a company from another Member State.

The Directive is in force as of 17 February 2015.

Measures under the Directive

Preventing double taxation

Profits received by a parent company from a subsidiary must not be taxed. If they are taxed, the parent company may deduct the tax paid by the subsidiary and any lower-tier subsidiary.

Preventing double non-taxation

Profits received by a parent company from a subsidiary must be taxed if these profits are deductible by the subsidiary. This is to prevent companies from scheduling payments within the group to benefit from double non-taxation.

Deduction of charges from profits

Charges related to the holding, and any losses in capital resulting from distributing the profits of the subsidiary, may be deducted from the taxable profits of the parent company, depending on national rules. Consult the Taxes in Europe Database (TEDB) to learn more.

Exemption from Withholding Tax

Profits distributed by a subsidiary to its parent company are exempt from withholding tax, except for advance or prepayment of corporation tax made in connection with a distribution of profits to the parent company.

Anti-abuse rule

The 2015 amendment to the Directive adds anti-abuse rules to prevent misuse in terms of tax evasion, tax fraud or abusive practices. These rules are designed to tackle an arrangement or a series of arrangements which are not genuine, that is, which do not reflect economic reality.

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.

Documents and legal texts

Council Directive (EU) 2015/121 of 27 January 2015 amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States
Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States