ECOFIN fails to reach agreement on anti-hybrid measure to be implemented into the Parent-Subsidiary Directive – FTT first on shares and some derivatives


1. Background

On 25 November 2013, the European Commission has proposed to amend the EU Parent-Subsidiary Directive (‘PSD’) in order to tackle tax fraud/evasion and aggressive tax planning/base erosion and profit shifting (‘BEPS’) within the European Union. The proposal sought to insert (i) a specific anti-abuse rule for hybrid loan arrangements resulting in a double non-taxation and (ii) a general anti-abuse rule (“GAAR”) into the Directive. This view was also supported by the European Economic and Social Committee on 25 March 2014 and by the European Parliament during a vote on the amendments to the directive on 2 April 2014. See [link] for previous coverage.

2. Proposal of the EU Council (31 April 2014)

The Presidency of the Council agreed with the implementation of an anti-hybrid measure to be introduced in article 4, paragraph 1, point (a) of the PSD.

However, with regard to the insertion of a general anti-abuse rule, the President noted that different views have been expressed by Member States, by which several Member States have raised concerns about the proposed GAAR. Therefore, whereas all Member States could agree that the tax loophole generated by hybrid loan arrangements resulting in a
double non-taxation should be addressed, no such agreement could currently be reached regarding the proposed amendments to the GAAR of the PSD. The EU Council therefore decided to split both proposals before presenting them to the ECOFIN council.


The proposal to implement a specific anti-hybrid measure into the PSD was submitted to the Economic and Financial Affairs Council (ECOFIN council) on 6 May 2014. After consideration of the proposal, the ECOFIN council failed to reach an agreement and was not withheld at this stage.

4. Observations

Both measures (anti-hybrid and GAAR) were included in the European Commission’s original proposal to amend the PSD. The Council suggested they would be split in order to gain more support from the Member States and achieve progress on the measures faster. Currently, however, neither an anti-hybrid rule nor a GAAR has been supported by ECOFIN at this stage.

The Council’s proposal mentions that the Member States will be required to adopt the laws, regulations and administrative provisions necessary to comply with the amending PSD by 31 December 2015 at the latest.

The EU Council’s intention is now to seek adoption of the amending directive introducing an anti-hybrid rule into the PSD at the Council’s meeting on 20 June 2014. Meanwhile, the proposal on the GAAR will be taken forward by the following Italian Presidency.

5. Financial Transaction Tax

The ECOFIN also reviewed the situation concerning the introduction of a Financial Transaction Tax (FTT) in 11 EU Member States through the “enhanced cooperation” procedure. The Presidency reported on work carried out so far and took note of a joint statement issued by ten ministers of the participating countries. According to the joint statement:

  • further technical work needs to be doen on the FTT;
  • solutions shall be finalised by the end of 2014;
  • concerns voiced by the non-participating Member States shall be taken into account;
  • progressive implementation of the FTT is necessary with the first steps focusing on shares and some derivatives; and
  • the first steps would be implemented at the latest on 1 January 2016.