Economic and Financial Affairs Council, 06/05/2014, 6 May 2014

Council discusses closing up a tax loophole

At the Ecofin meeting on 6 May ministers discussed amendments aimed at closing a loophole that has allowed cross-border corporations to avoid paying taxes on certain types of profits.

The amendments to the parent-subsidiary directive (2011/96/EU) aim to put an end to the situation whereby corporate groups could exploit differences between national tax laws and profit from double non-taxation by means of hybrid loan arrangements.

The original directive intended to ensure that cross-border companies' profits were not taxed twice - in the country of their parent company and in those of their subsidiaries. It therefore required member states to exempt from taxation the profits that parent companies received from their subsidiaries operating in other member states.

The amendment specifically tackles hybrid loan arrangements, which are financial instruments that have characteristics of both debt and equity. For this reason, in some member states they are considered to be a simple loan, while in others they are regarded as equity, and are therefore treated as tax-deductible or tax-exempt depending on the country's tax law.

Such differences allow the cross-border companies to distribute their profits accordingly and thereby avoid taxation in any of the member states.

According to the amended rules, the member state of the parent company will only refrain from taxing profits from the subsidiary to the extent that such profits are not deductible by the latter.

Next steps

Following the discussion, the Presidency will ensure that experts examine the proposal further as necessary.

The Presidency intends to seek adoption of the amended directive at the Council's meeting on 20 June.

Other main items on the agenda

Financial transaction tax

The Council discussed the introduction of a financial transaction tax (FTT) in 11 member states which opted to introduce the tax through the 'enhanced cooperation' procedure. These countries are Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.

The proposed rules would introduce across the participating countries a harmonised minimum 0.1% tax rate for transactions in all types of financial instruments except derivatives, for which a 0.01% rate would apply.

The Presidency noted that the participating countries envisaged working on a possible progressive implementation of the FTT, focusing initially on the taxation of shares and derivatives, in order to observe its economic impact before broadening its scope.

Macroeconomic imbalance procedure: in-depth reviews

The Council discussed the results of the in-depth reviews of the macroeconomic situation in 17 member states that have been carried out by the Commission according to the macroeconomic imbalance procedure.

Bank recovery and resolution directive - adoption

The Council adopted the directive establishing a framework for bank recovery and resolution. The European Parliament approved the directive in April this year.