Introduction to European Tax Law on Direct Taxation

S. 146I. Aims of the Directive

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Council Directive 2011/96/EU of 30 November 2011 (recast) on the common system of taxation applicable in the case of parent companies and subsidiaries of Member States (hereinafter “the Directive”) deals with the elimination of economic double taxation arising within a group of companies from cross-border distributions of profits, as well as the avoidance of double non-taxation resulting from the combined effect of the exemption of dividends in the Member State of the parent and the deductibility of the same dividends at the level of subsidiary in its Member State of residence.

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The fourth preamble to the Directive affirms the need to create within the EU “conditions analogous to those of an internal market” and to “ensure the effective functioning of the common market ….” The elimination of economic double taxation is a necessary precondition to achieving the aforementioned objectives. Accordingly, the Directive provides – under certain conditions – an exemption from withholding tax in the State of the subsidiary, as well as an obligation for the State of the parent company to either exempt or grant an underlying tax credit (offsetting the taxes paid at the l...