European Union - Thin Capitalization Legislation and the EU Corporate Tax Directives
- European Union
- T.J.C. van Dongen
- European Taxation, 2012 (Volume 52), No 1
- 19 December 2011
Many Member States have thincap legislation limiting the deductibility of interest payments and possibly reclassifying (remuneration on) debt instruments. This article argues that if this legislation results in the non-deductibility of interest only, both the EU Interest and Royalties Directive and the Parent-Subsidiary Directive are not applicable. The latter is, however, applicable where thincap legislation reclassifies (remuneration on) debt instruments as equity (dividends). As a result, a gap exists between the application of the EU directives and thincap legislation.