The EC’s proposed changes to the Parent-Subsidiary Directive

The European Commission has recently proposed two changes to the Parent-Subsidiary Directive. The first proposed change aims to tackle avoidance using hybrid instruments. The second would introduce a common general anti-abuse rule into the Parent-Subsidiary Directive. Whilst the changes are unlikely to be implemented in the short term, they pave the way for OECD initiatives that are likely to have a more significant impact. The Commission’s proposal may also cast doubt on the legality of existing domestic rules that deny exemption for distributions which are deductible in the source state.