The EC says the current systems have ‘failed to keep up with developments such as globalisation, economic integration in the internal market and economic and monetary union’.
Existing legislation bars withholding taxes on payments of dividends between associated companies in different member states and prevents the double taxation of parent companies regarding their subsidiaries’ profits.
Brussels is now proposing an extension of this Parent-Subsidiary Directive to cover ‘certain co-operatives, mutual companies, certain non-capital based companies, savings banks, funds and associations with commercial activity’ as well as so-called European Companies, which can be created from October next year.
A second change would reduce from 25% to 10% the minimum shareholding that a parent company must have in its subsidiary to qualify.
Finally, said the commission, the mechanism for eliminating double taxation of dividends would be ‘rendered more complete’. Specifically the proposal provides that any tax on profits paid by successive subsidiaries downstream of the direct subsidiary would be included in the tax to be levied against the profits of the parent company.
Brussels said that in the longer term companies should be allowed a consolidated corporate tax base for their EU wide activities, instead of dealing with multiple national sets of tax rules.
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