Taxation of Hybrid Entities under the Parent-Subsidiary Directive: The Example of the Netherlands

In this article, the application of the Parent-Subsidiary Directive in respect of hybrid entities is analysed by Prof. Ton Stevens and Dr Gijs Fibbe.

A distinction is made between outbound and inbound situations. In outbound situations, Member States can differ of opinion on which is the profit-generating entity: the parent company or its hybrid subsidiary. In inbound situations, where a dividend is paid to a hybrid entity, Member States can differ of opinion about the question to whom the dividend is paid: the hybrid entity or its participants.

The authors describe the explicit solution in outbound situations included in Article 4, paragraph 1a, of the Parent-Subsidiary Directive. For inbound situations, such explicit provision addressing hybrid entities is missing. The authors describe how according to them the Parent-Subsidiary Directive should be applied in respect of hybrid entities in inbound situations. After a thorough analysis, they describe why in their view Member States are, for purposes of the Parent-Subsidiary Directive, no longer autonomous in the tax classification and income allocation in respect of hybrid entities established in other Member States in inbound situations.