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Where Taxpayers and Advisers Meet

parent subsidary directive

del086
Posts: 7
Joined: Wed Aug 06, 2008 3:17 pm

parent subsidary directive

Postby del086 » Sat Nov 01, 2008 4:10 pm

Can someone briefly explain the EU's parent/subsidary directive?

What are the tax implications of a cyprus (holding) company (limited by shares) having a branch or wholly owned subsidary company (limited by shares) tranding in the uk and remitting dividend income to the 'parent' cyprus holding company?

The director and shareholder of the cyprus holding company is cypriot national and cyprus resident.

You replies are most appreciated.

Del086.

JSK TAXATION
Posts: 200
Joined: Wed Aug 06, 2008 2:18 pm

Re: parent subsidary directive

Postby JSK TAXATION » Mon Nov 03, 2008 5:00 pm

Del,

The EU parent subsidiary directive was originally introduced in 1990 and was designed chiefly to eliminate tax obstacles in the area of profit distributions between groups of companies in the EU. This was achieved by abolishing withholding taxes on payments of dividends between associated companies of different Member States and preventing double taxation of parent companies on the profits of their subsidiaries. The directive was broadened in December 2003, however the UK still doesn't participate fully even though there is growing pressure to do so.

In answer to the rest of your question:

First of all if a Cypriot company is operating in the UK through an unincorporated branch then profits relating to that branch may be taxable in both the UK (as a permanent establishment) and Cyprus. Resolving who has primary taxing rights on the income etc would be determined by a review of the double tax treaty between the two countries.

A Cypriot company will not pay tax on dividends from a UK subsidiary since the UK does not deduct withholding taxes from company distributions, whether to foreign residents or not. This is not because of the directive, but the way the UK tax regime works.

Hope this helps. let me know if you need further information. Kind regards.
John S King
Chartered Tax Adviser
e: help@taxation-advice.com
w: http://www.taxation-advice.com
01732 897850


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