Business structuring in the European Union is based on directives that allow group companies to make cross-border payments to one another without withholding tax. Anti-abuse rules limit those benefits to companies with a valid commercial reason. Groups still choose the location of a holding company by the national tax rate.
Payments within an EU group
An EU subsidiary pays dividends, interest and royalties to an associated company in another member state free of withholding tax. The recipient must meet the directive’s ownership test. A member state may also refuse the exemption until the holding has lasted a minimum period.
| Directive | Payments | Minimum holding | Holding period a member state may require |
| Parent-Subsidiary Directive 2011/96/EU | Dividends from a subsidiary to its parent | 10% of the subsidiary’s capital | Two years without a break |
| Interest and Royalties Directive 2003/49/EC | Interest and royalties paid to an associated company that is the beneficial owner | 25% of the capital, held directly. Sister companies qualify through a common parent | Two years without a break |
Directive 2015/121 added an anti-abuse rule to the Parent-Subsidiary Directive. A parent loses the exemption if the arrangement isn’t genuine and its main purpose is a tax advantage that defeats the directive’s aim. An arrangement counts as genuine only when valid commercial reasons that reflect economic reality support it.
The Danish cases
On February 26, 2019, the Court of Justice ruled on dividend and interest structures in the Danish cases. A tax authority must refuse the directives’ exemptions where it finds abuse. Even if its national law has no anti-abuse provision, it must do so.
The Court saw abuse in a conduit company, one that only passes a payment on without economic justification of its own. A purely formal financing arrangement counted as abuse too. An authority that denies the exemption doesn’t have to name the beneficial owner.
In N Luxembourg 1, the Court defined the beneficial owner of interest as the entity that itself benefits from the payment. A company that must pass the interest straight on to its own creditors is unlikely to qualify, so the group loses the exemption.
Anti-avoidance rules in every member state
Since January 1, 2019, every member state has applied the Anti-Tax Avoidance Directive (ATAD). The directive sets a minimum level of protection, so a member state may write stricter rules into its own law. A group with a subsidiary in any member state deducts interest, moves assets and holds low-taxed subsidiaries within at least these limits.
| ATAD rule | Effect |
| Interest limitation | Net borrowing costs are deductible up to 30% of tax EBITDA. A member state may allow up to €3 million regardless |
| Exit taxation | Unrealized gains are taxed at market value when assets or a tax residence leave a member state |
| General anti-abuse rule | Arrangements that aren’t genuine and aim mainly at a tax advantage are ignored |
| Controlled foreign companies | A parent is taxed on certain income of a low-taxed entity in which it holds more than 50% |
Reporting duties
An adviser or other intermediary reports a cross-border arrangement with certain hallmarks within 30 days under the directive known as DAC6. Those 30 days begin on the day after the arrangement is made available for implementation. This duty has applied since July 1, 2020.
Since January 1, 2026, a crypto-asset service provider in the EU has reported its clients under DAC8. It collects the information and sends it to its national authority. Tax authorities will exchange the first data, for reporting year 2026, by September 30, 2027.
The EU list of non-cooperative jurisdictions
The Council revised the list on February 17, 2026. Ten jurisdictions are on Annex I after that revision. Panama, the Russian Federation, the Turks and Caicos Islands and Viet Nam are among them.
A group that pays dividends or interest to an associated company in a listed jurisdiction meets defensive tax measures in every member state. Cyprus, for example, levies its defence contribution on those payments. In October 2026, the Council will revise the list again.
Comparing common holding locations
A shareholder outside the EU pays the domestic withholding rate on dividends, since the directives remove that rate only inside the EU. If a tax treaty applies, the rate may be lower. A group above the €750 million revenue threshold of the global minimum tax, known as Pillar Two, has one more cost. It pays top-up tax where a country’s effective rate is under the global minimum.
| Country | Corporate income tax in 2026 | Domestic withholding tax on dividends | Participation exemption threshold |
| Netherlands | 19% up to €200,000. 25.8% above | 15% | 5% |
| Luxembourg | 23.87% combined in Luxembourg City | 15% | 10% or a cost of €1.2 million, held for 12 months. €6 million for capital gains |
| Ireland | 12.5% on trading income. 25% on non-trading income. 15% effective rate for large groups in scope of Pillar Two | 25% | 5% of share capital for foreign dividends, held for 12 months |
| Cyprus | 15% | None for most non-resident shareholders | No minimum holding for the dividend exemption |
| Malta | 35% with shareholder refunds, or an elective 15% final tax | None for non-resident shareholders | 5% |
Proposals still pending
BEFIT, the Business in Europe Framework for Income Taxation, would set a common tax base for groups with combined revenue of at least €750 million. The Council set it aside in late 2025, since the proposal needs unanimous agreement there. Although the Council has stopped work on it, the Commission still treats it as pending.
On June 24, 2026, the Commission proposed a tax simplification package. It would make the small-amount threshold for interest limitation mandatory and higher. A recast of the directive on administrative cooperation would end cross-border arrangement reporting for about 3,000 large groups. The Council hasn’t adopted either proposal.
FAQ
Do the directives apply to a parent company outside the EU?
No. Only a company of a member state qualifies under the Parent-Subsidiary Directive. A parent outside the EU relies on the source country’s domestic law or on a tax treaty instead. Either may reduce withholding tax on its dividends.
Is there a single EU company form?
Yes, the European Company, or SE, under Regulation 2157/2001. It has been available since October 8, 2004. An SE needs subscribed capital of at least €120,000. Its tax position still follows the law of the member state where it is resident.
Has the Unshell directive been adopted?
No. The Council stopped examining it in June 2025. The Commission put it among the proposals it intends to withdraw in its 2026 work programme. No formal withdrawal had appeared in the Official Journal by early October 2026.
IBSA European branch
The International Business Structuring Association (IBSA) launched its European branch in Geneva, at Lombard Odier. Its opening discussion dealt with confidentiality and the exchange of tax information. Speakers examined the US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard under the planned multilateral agreement. They also looked at automatic exchange of bank account data between participating countries.
Every IBSA branch had a committee of practitioners in tax, banking, law, compliance, real estate and accounting. IBSA founder Roy Saunders served on the European committee himself. IBSA’s Knowledge Bank carried further notes on the Geneva discussion.
Branch committee
- Aliasghar Kanani
- Patrice Lefèvre-Péaron
- Matteo Rapinesi
- Roy Saunders
- Geraldine Schembri
Upcoming branch events
There are currently no upcoming chapter events. Check back soon.
Past branch events
Member firms hosted most meetings in their own offices. Malta members also met as a branch of their own.
| Date | City | Event | Venue |
| March 2, 2017 | Geneva | Residence planning for entrepreneurial clients | Cité du Temps |
| February 6, 2017 | Valletta | Creating, valuing and financing tax-efficient IP structures | Bank of Valletta conference hall |
| November 25, 2015 | Lisbon | Investing in Africa and Europe’s role in business growth | MLGTS |
| October 29, 2015 | Paris | Business growth after the BEPS revisions | Jeantet Associés |
| October 15, 2015 | Malta | Malta branch meeting | Grant Thornton |
| May 12, 2015 | Luxembourg | Financing techniques, manager incentives and regulation for private equity funds | Vistra |
| February 24, 2015 | Geneva | Launch of the European branch | Lombard Odier |