In recent years a trend towards registration of companies in the European jurisdictions with middle-income tax, for example, the Netherlands, Ireland, has been noticed. This is due to the fact that often such states and Russia signed a treaty on the avoidance of double taxation, the advantages of which can be used in planning taxation of Russian companies. In turn, a company incorporated in the EU member state may require establishment of a subsidiary in another EU member state. The relevance of knowledge about taxation of dividends and other passive income payable from one EU member state to another EU member state is obvious.
In accordance with the idea of formation of a single European community the Council of the European Union adopted the Directive 2011/96/EU of 30.11.2011 establishing a limit on levying withholding tax on dividends payable by a subsidiary of parent company located in another EU member state1. To obtain such benefits both companies must meet the following criteria:
Under specified conditions the state of location of the parent company is obliged to provide one of the following benefits:
In most cases, the latter measure is implemented by providing a tax deduction or a tax credit in the state of location of the parent company4.
As a result of implementation of the Directive, just one of the three levels of taxation of dividends remains:
The Directive does not affect the application of national legislation and international treaties aimed at reducing or eliminating double taxation of dividends. When calculating the tax burden upon a specific payment of dividends the provisions of these sources of law, which can establish features of application of the EU law, shall also be taken into account.
In the summer 2014, the Council of the European Union approved the amendments to the Directive 2011/96/EU aimed at combating payment of tax using hybrid loans – a financial instrument specifically designed for the illegal use of the Directive5. The hybrid loan combines the features of the debt obligation and securities. Thus the legislation of some EU member states treats hybrid loan as a loan, while the legislation of other states – as a security. If the “right” pair of jurisdictions is selected, payments on hybrid loan reduce the tax base as expenses in the form of interests on loan (in the state of the subsidiary) and are exempt from taxation as dividends in the state of the parent company. Thus, full exemption from the profits tax is achieved.
To combat hybrid loans it is assumed to limit the norm of exemption of dividends received by the parent company, if the amount of such payment was deductible in the state of the subsidiary.
The EU member states are obliged to implement by 31 December 2015 into the national law norms that impede the use of hybrid loans for the purpose of tax evasion.
The interests and royalties paid between related companies located in different EU member states shall be exempt from withholding tax under the following conditions:
The latter criterion relating to the percentage of corporate participation can be changed by national law of the EU member states.
Exemption from withholding tax applies to interests payable by company 1 to the permanent representative office of company 2 located in an EU member state, other than the state of company 17.
Exemption does not apply to interest payments on the following obligations:
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