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Parent-Subsidiary-Directive

The Parent-Subsidiary-Directive was agreed upon in Council in 1990 and aims at eliminating juridical and economic double taxation of cross-border dividend flows between companies in the EU. The Directive, which had to be implemented by Member States in 1992, exempts from withholding tax inter-company dividends and profit shares paid by a qualifying EU subsidiary to its qualifying EU parent company. In addition to preventing the subsidiary’s state of residence from assessing withholding tax on the dividend, the Directive requires the parent company’s state of residence to avoid economic double taxation of the distributed profits, by either exempting the parent company from tax on the dividend or by providing the parent company an indirect tax credit for the corporate tax paid by its subsidiary to the subsidiary’s state of residence. This course deals with the general aspects of this Directive in light of the fundamental freedoms and domestic law and goes into great detail with regard to the interpretation of the specific clauses of the Directive. We will explore the objective, subjective and territorial scope of application, especially the qualification criteria for companies, situations involving permanent establishments and the notion of "profit distributions", the meaning of the term "withholding taxation", the obligation to grant relief through exemption or credit (specifically in multi-tier structures) and the anti-abuse reservation.