Daily Tax Update - June 23, 2014: EU Council Sets New Rules Preventing Double Non-Taxation of Corporate Groups Deriving from Hybrid Loan Agreements

European Union Finance Ministers Agree to New Rules to Prevent Double Non-Taxation of Corporate Groups Deriving From Hybrid Loan Arrangements:  The European Union Economic and Financial Affairs Council (the Council) announced on June 20 that the Council has reached unanimous political agreement on an amendment to Directive 2011/96/EU, the EU parent-subsidiary directive.  The Council was concerned that the directive, intended to prevent double taxation, currently allows corporate groups to exploit mismatches between national tax rules so as to avoid paying any tax on some types of profits distributed within the group through hybrid loan arrangements.  Following the Council’s political agreement, the legislative text will be finalized and adopted at a forthcoming Council session.  This change had previously been suggested by the Organization for Economic Co-operation and Development’s Action Plan on Base Erosion and Profit Shifting.

At the meeting, the Council also approved a measure for the European Commission to begin an investigation into the use of so-called “patent box” tax legislation—adopted by some EU members, notably the UK, to attract high-tech companies—and announced that Switzerland, after more than two years of negotiation, has agreed to adopt the EU Code of Conduct for business taxation.

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The press statement can be accessed via: http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ecofin/143274.pdf

House Passes Defense Spending Bill Including Partial Ban for Contracts With Firms That Have Inverted:  On June 23, the House passed Department of Defense Appropriations Act, 2015 (H.R. 4870) to fund the Department of Defense for fiscal year 2015, by a vote of 340-73.  The bill included an amendment, agreed to by voice vote, that would prohibit contracts from the Defense Department in fiscal year 2015 to entities incorporated or chartered in Bermuda or the Cayman Islands and previously incorporated in the United States.

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