If your business is built on a structure with a parent company in one EU country and subsidiaries in another, you can avoid double taxation on cross=border profit distribution.

Cross-border profit distributions

If you have a parent company in one EU country and subsidiaries in another, you can eliminate possible tax issues (e.g. double taxation) on cross-border profit distributions between these companies.

This applies if:

• Your parent company and subsidiaries are based – for tax purposes – in different EU countries
• Your parent company and subsidiaries are subject to corporation tax (without the possibility to be exempted)
• Your parent company and subsidiaries are correctly registered as a company/corporation (legal form: Inc., S.A., GmbH., LLC, etc.)
• Your parent company has at least 10% holding in the capital (or of voting rights) in its subsidiary company based in another EU country

Exemptions from withholding tax

Withholding tax can be levied on company profits in advance of a full tax declaration (after which it may be refunded, or indeed extra tax may be levied). For parent companies and their subsidiaries, distribution of profits can be exempted from withholding taxes.

This works both ways:

• If you distribute the profits from your subsidiary company to its parent company
• If you distribute the profits from the parent to subsidiaries

This is the case both in the country of the subsidiary and in the country of the parent company, if both countries are in the EU.

Eliminating double taxation

Double taxation (simultaneous tax demands from more than one country) can occur if you don't follow the tax rules correctly. So to avoid double taxation on your profit distributions you should:

• Request the EU country of your parent company to grant a tax exemption or a tax credit on corporate taxes paid on profits by the subsidiary (and any lower-tier subsidiaries).

Hybrid loans – double non-taxation

Double non-taxation may occur if you treat payments on cross-border hybrid loans as:

• a tax exempt distribution of profits in the EU country of your parent company
• a tax deductible expense in the EU country of the subsidiary

​To avoid this:

• the EU country of your parent company has to tax the received profit distributions
• the EU country of the subsidiary should be informed that these profit distributions are tax deductible 
  
  

Which types of companies are covered by these rules?
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• private companies
• public limited companies
• European companies
• European Co-operative Societies.

In some cases it is up to the EU countries themselves to decide which companies are covered by these rules. To read more see the annex of the directive at the link in the references section below.