The European Commission (EC) has proposed amendments to key EU corporate tax legislation to close corporate tax avoidance loopholes and introduce a common anti-abuse rule.

The proposal will close loopholes in the Parent-Subsidiary Directive, originally conceived to prevent double taxation of same-group companies based in different countries, by updating the anti-abuse provision in the directive and ensuring that it is tightened up so that specific tax planning arrangements cannot benefit from tax exemptions.

Member states are expected to implement the amended directive by 31 December 2014.

Algirdas Šemeta, the European Commissioner for Taxation and Customs Union, Audit and Anti-Fraud, said that EU tax policy is focused on creating a better business environment in the EU. He further stated, “This means breaking down tax barriers and tackling cross-border problems such as double taxation. But when our rules are abused to avoid paying any tax at all, then we need to adjust them. The proposal will ensure greater revenues for national budgets and fairer competition for our businesses.”

Making changes on the EU’s Parent Subsidiary Directive will ensure it works in the way intended, namely to prevent companies from incurring extra costs from operating in more than one EU Member State by paying double-taxation, and will help clarify the rules for companies as well as help governments collect the taxes.