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Parent-Subsidiary Directive



of 30 November 2011

on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States



  • Having regard to the Treaty on the Functioning of the European Union, and in particular Article 115 thereof,
  • Having regard to the proposal from the European Commission,
  • After transmission of the draft legislative act to the national parliaments,
  • Having regard to the opinion of the European Parliament(1),
  • Having regard to the opinion of the European Economic and Social Committee(2),
  • Acting in accordance with a special legislative procedure,


  1. Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States(3) has been substantially amended several times(4). Since further amendments are to be made, it should be recast in the interests of clarity.
  2. In the light of the judgment of the Court of Justice of 6 May 2008 in Case C-133/06(5), it is considered necessary to redraft the wording of the second subparagraph of Article 4(3) of Directive 90/435/EEC, for the purpose of clarifying that the rules referred to therein are adopted by the Council acting in accordance with the procedure provided for in the Treaty. It is furthermore appropriate to update the Annexes to that Directive.
  3. The objective of this Directive is to exempt dividends and other profit distributions paid by subsidiary companies to their parent companies from withholding taxes and to eliminate double taxation of such income at the level of the parent company.
  4. The grouping together of companies of different Member States may be necessary in order to create within the Union conditions analogous to those of an internal market and in order thus to ensure the effective functioning of such an internal market. Such operations should not to be hampered by restrictions, disadvantages or distortions arising in particular from the tax provisions of the Member States. It is therefore necessary, with respect to such grouping together of companies of different Member States, to provide for tax rules which are neutral from the point of view of competition, in order to allow enterprises to adapt to the requirements of the internal market, to increase their productivity and to improve their competitive strength at the international level.
  5. Such grouping together may result in the formation of groups of parent companies and subsidiaries.
  6. Before the entry into force of Directive 90/435/EEC, the tax provisions governing the relations between parent companies and subsidiaries of different Member States varied appreciably from one Member State to another and were generally less advantageous than those applicable to parent companies and subsidiaries of the same Member State. Cooperation between companies of different Member States was thereby disadvantaged in comparison with cooperation between companies of the same Member State. It was necessary to eliminate that disadvantage by the introduction of a common system in order to facilitate the grouping together of companies at Union level.
  7. Where a parent company by virtue of its association with its subsidiary receives distributed profits, the Member State of the parent company must either refrain from taxing such profits, or tax such profits while authorising the parent company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those profits.
  8. It is furthermore necessary, in order to ensure fiscal neutrality, that the profits which a subsidiary distributes to its parent company be exempt from withholding tax.
  9. The payment of profit distributions to, and their receipt by, a permanent establishment of a parent company should give rise to the same treatment as that applying between a subsidiary and its parent. This should include the situation where a parent company and its subsidiary are in the same Member State and the permanent establishment is in another Member State. On the other hand, it appears that situations where the permanent establishment and the subsidiary are situated in the same Member State can, without prejudice to the application of the Treaty principles, be dealt with on the basis of national legislation by the Member State concerned.
  10. In relation to the treatment of permanent establishments Member States may need to determine the conditions and legal instruments in order to protect the national tax revenue and fend off circumvention of national laws, in accordance with the Treaty principles and taking into account internationally accepted tax rules.
  11. When corporate groups are organised in chains of companies and profits are distributed through the chain of subsidiaries to the parent company, double taxation should be eliminated either by exemption or tax credit. In the case of tax credit the parent company should be able to deduct any tax paid by any of the subsidiaries in the chain provided that the requirements set out in this Directive are met.
  12. This Directive should be without prejudice to the obligations of the Member States relating to the time limits for transposition into national law of the Directives set out in Part B of Annex II,