On June 20, 2014, the European Council of Ministers (Ecofin) reached a political agreement on an amendment to the EU Parent-Subsidiary Directive (“the Directive”). The amendment means that payments received on cross-border hybrid loans will be excluded from tax exemption as from January 1, 2016.


In November 2013 the European Commission issued a proposal containing two changes in order to address perceived loopholes in the Directive. The first change was an amendment of the anti-abuse provision in the Directive aimed at combating artificial arrangements. The second change as envisaged in the Commission’s proposal would exclude payments on cross border hybrid loans from a tax exemption in the Member State of the parent company. The agreement reached on June 20, 2014 deals with this second change.

Scope of proposed amendments

The primary aim of the Directive is to prevent double taxation of the same income as between members of a corporate group that are based in different Member States. This is achieved by providing for a withholding tax exemption on distributed profits and an exemption or credit for the recipient of the dividend.

The adopted amendment is specifically aimed at preventing the Directive from facilitating double non-taxation arising from the exploitation of hybrid loan structures, for example, where a loan is treated as debt in the Member State of the debtor/subsidiary and as equity in the Member State of the lender/parent, whereby payments on the loan are deductible in the former and exempt in the latter Member State. The amendment is intended to ensure that the payments would no longer be exempt in the latter Member State, which would then be required to tax the portion of the payments which is deductible in the Member State of the paying subsidiary.

Next steps

The amendment has still to be formally adopted by the Council of Ministers. Subsequently, Member States are expected to implement the amended Directive in their national laws by December 31, 2015 at the latest. Discussions on the proposed general anti-abuse rule are expected to continue.

Comment KPMG Meijburg & Co

The amendments should be seen as part of the increased efforts at international level to combat aggressive tax planning. As such the adopted amendment aimed at hybrid loan arrangements could have an impact on certain group financing arrangements where such arrangements are not already limited under domestic rules.

Click here to download the memorandum in pdf format