The Parent–Subsidiary Directive
The European internal market is built on the free movement of capital and businesses. To prevent double taxation on profit distributions between related companies, the EU introduced the Parent–Subsidiary Directive (2011/96/EU).
This directive harmonizes tax rules for parent and subsidiary companies within EU member states and forms the foundation of the participation exemption.
Purpose of the Directive
- Prevent double taxation on dividends paid by subsidiaries.
- Eliminate withholding tax on cross-border EU dividends.
These measures create a fair and neutral tax environment for companies operating across multiple EU jurisdictions.
Scope of Application
- Minimum shareholding of 10% by the parent company.
- Both entities subject to corporate income tax in the EU.
- Permanent establishments in other EU states included.
Key Provisions
- Participation exemption at the parent level.
- No withholding tax on qualifying EU dividend flows.
- Anti-abuse rules to prevent artificial structures.
Implementation and Importance
Implemented into Dutch law in 2012, the directive underpins the participation exemption in the Corporate Income Tax Act.
It ensures profits from participations are not taxed again, enabling tax-neutral international business operations.
Need guidance on EU participation exemptions?
Voorwaarts Tax Advisors assists companies with EU directives, participation exemptions, and international tax structuring.
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