Under this tax scheme, interest deductibility is denied in relation to loan arrangements between affiliated companies established within the EU, irrespective of whether the terms and conditions of those arrangements remain at arm’s length or not.
The EU Commission has asked Sweden to amend its rules limiting tax deductibility of interest paid to affiliated companies established in other EU states.
In a complementary letter of formal notice to Sweden, the EU Commission drew Sweden’s attention to the incompatibility of its legislation limiting tax deductibility of cross-border intra-group interest payments with EU law.
Under this tax scheme, interest deductibility is denied in relation to loan arrangements between affiliated companies established within the EU, irrespective of whether the terms and conditions of those arrangements remain at arm’s length or not.
Meanwhile, the EU Commission sent a letter of formal notice to Bulgaria drawing its attention to the tax treatment of undertaxed subsidiaries.
The taxation of such companies is required under Council Directive (EU) 2016/1164. The anti-avoidance rules allow the member state where a parent company is based to tax not only the profits of that parent company, but also the profits of its subsidiaries that do not pay sufficient corporate tax (or no tax) in their jurisdiction of residence.
The current tax legislation transposing this Directive in Bulgaria includes an undue exemption for subsidiaries (also known as controlled foreign companies), which are subject to “alternative forms of taxation.”
The Commission considers that the undue exemption of subsidiaries that are subject to “alternative forms of taxation” constitutes an infringement to the Anti Tax Avoidance Directive.
Bulgaria has two months to address the tax issues identified by the Commission after which the Commission may decide to send a reasoned opinion.