Anti-Avoidance provisions & EU PSD

Anti-Avoidance provisions related to the EU Parent – Subsidiary Directive

Amended Income Tax Law also gives the right to the tax authorities to deny the availability of underlying tax relief on dividends subject to tax if the artificial arrangements were in place in order to obtain tax benefit. An arrangement or a series of arrangements may be considered artificial to the extent that they have been put in place that has no valid commercial reasons and aims to obtain a tax benefit.

Example:

EU Company (A) pays dividends to its Parent Company outside EU (B). No DTT exists between A and B and withholding tax is imposed in A (based on the domestic tax rules). Other EU Company (C) is introduced between them and the domestic tax law in C provides for no withholding tax rate on dividends. This means that under the EU PSD no withholding tax will be imposed on A upon payment of dividends to C and C will impose no withholding tax upon payment of dividends to B (outside EU).

This will be considered as artificial arrangement with the purpose to obtain a tax benefit. This amendment comes into force as from 1 January 2016.

On 10th of December 2015, the House of Representatives voted a number of significant tax law amendments that were published in the Government Gazette on 17 December 2015.

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