Small and medium-sized businesses that own holding companies and other legal entities registered in European Union (EU) member states need to prepare for the prospect of paying significantly higher tax rates on dividend income.
However, companies that examine the composition of their European corporate structures may be able to avoid some of these higher tax rates if they begin aligning their operations to reflect the guidelines set forth in a proposed directive.
The pending tax rule — known in EU parlance as the third Anti-Tax Avoidance Directive 3, or ATAD 3 — passed the European Parliament in January. If unanimously approved by the Council of the European Union, ATAD 3 will add complexity — and potential accounting and compliance costs — to already cumbersome tax reporting requirements for multinational companies, regardless of domicile, industry, and conformity to the pending measure.
