Infringement Notices Under the Parent-Subsidiary & Pillar 2 Directives: Compliance Steps for EU Multinationals

What's going on?

• The European Commission has formally notified Germany, France, and Italy for failing to align their legislation on taxation of dividends from subsidaries with the Parent-Subsidiary Directive. (malta.representation.ec.europa.eu)
• Belgium, Bulgaria, and Cyprus have been issued reasoned opinions for not fully transposing Directive (EU) 2025/872, which amends the Directive on Administrative Cooperation (DAC) to facilitate information exchange under the Pillar 2 global minimum tax regime. (malta.representation.ec.europa.eu)

Key Directives & What They Require

• Parent-Subsidiary Directive: Prevents double taxation of intra-EU dividends, ensures parent companies don't suffer excessive withholding or other taxes beyond the Directive’s limits.
• Pillar 2 / Directive 2022/2523 & DAC Update (Directive 2025/872): Introduce a mandatory top-up tax information return to be exchanged automatically among Member States for large multinationals, part of ensuring a minimum 15% effective tax rate. (malta.representation.ec.europa.eu)

Implications for Multinational Enterprises

• Businesses operating cross-border in or among the affected countries could face:
  • withholding tax exposure or legal uncertainty on dividends
  • risks of inconsistent or outdated national laws conflicting with EU minimum tax rules
  • potential delays or adjustments in tax relief or exemptions

What Affected Companies Should Do Immediately

1. Review national dividend taxation laws: Are your country’s laws consistent with Parent-Subsidiary Directive (e.g. no excess withholding or layering)?
2. Monitor transposition of Pillar 2 / DAC revisions: For concerned Member States, verify whether national legislation has been updated to implement Directive 2025/872 fully. If not, there may not yet be automatic exchange of top-up tax returns.
3. Engage local tax counsel: Changes in law or regulation will matter both at the national and EU level; companies may want to participate in consultations or respond to formal notices if affected.
4. Document compliance carefully: Retain legal analyses and rationale for tax positions in case national law is later declared non-compliant.

Example Scenario

A large French company receives dividends from its German subsidiary. Under the Directive:

• Dividend withholding in Germany should be alleviated or reduced under the Parent-Subsidiary Directive.
• If France allows a deduction or credit, it must align with EU law.
• If France or Germany changes laws in reaction to the formal notice, companies should adjust withholding procedures, documentation, and investor communications.

Planning Tips for Stability

• Structure dividend flows using entities in jurisdictions with clear compliance records.
• Use advance rulings or opinions where possible.
• Stay alert to notices from the European Commission; in many cases you have only two months to respond before further enforcement.

Strong compliance with Directive requirements avoids penalties, preserves tax predictability, and protects cross-border investment. Signal to investors that your operations are robust and align with EU standards.