The Parent-Subsidiary Directive

The Direttiva Madre-Figlia (2011/96/UE) Parent-Subsidiary Directive (2011/96/EU) is a regulation of the European Union aimed at eliminating double taxation on dividends distributed between parent and subsidiary companies located in different Member States. This instrument is essential for enhancing the competitiveness of European businesses and ensuring fair tax treatment.

Main Objectives

The directive was introduced to:  

1. Avoid both legal and economic double taxation on dividends;
2. Promote the creation of cross-border corporate groups without tax obstacles;
3. Strengthen the European internal market by ensuring neutral competition conditions.

How It Works

The Directive provides for two key measures:

1. Withholding tax exemption:Profits distributed by a subsidiary to its parent company resident in another Member State are exempt from withholding tax in the source country.
2. Elimination of double taxation:Member States must ensure that dividends received by the parent company are either exempt from tax or that a tax credit is granted for the tax already paid by the subsidiary.

Eligibility Requirements To benefit from the Directive, companies must meet certain criteria. First, they must be subject to tax in an EU Member State. They must also take one of the legal forms listed in the Directive. Lastly, the parent company must hold at least 10% of the subsidiary’s capital for a minimum period of one year..

In conclusion, the Parent-Subsidiary Directive represents a significant step toward fairer and more harmonized taxation in Europe. Thanks to this regulation, businesses can operate in a more favorable environment, avoiding tax barriers and promoting cross-border investment.

DTA