The European Union’s (EU) 28 Finance Ministers agreed, on June 20, 2014, to amend the EU’s Parent –Subsidiary Directive (Directive), addressing the effects of tax arbitrage resulting from EU Member States’ varying tax treatments of hybrid loans.
The Member States have agreed that the Directive’s benefits should not result in ‘double non-taxation,’ that is, income going untaxed by any jurisdiction and thus generating unintended tax benefits. The EU’s concern is that such tax arbitrage could result in groups of companies that operate in multiple Member States enjoying more favorable overall income tax treatment than groups of companies that operate only in a single Member State, where such distributions may be subject to tax.
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