The Council of the European Union is targeting corporate tax avoidance by adding a binding anti-abuse clause to the EU’s parent-subsidiary directive.

This week the council’s Economic and Financial Affairs Council (Ecofin) approved the amendment to the directive in an attempt to stop the 2011 regulation from being misused by corporate groups seeking to avoid taxes by shifting profits between subsidiaries. The rule initially was designed to prevent corporations doing cross-border business from being taxed twice by different member states. It prevented member states from taxing profits received by parent companies from subsidiaries in other member states.

Artificial shifting of profits to lower or no-tax regimes was already a hot-button issue globally, but in November the so-called LuxLeaks scandal erupted, with leaked evidence of hundreds of major corporations like AIG and Deutsche Bank getting sweetheart tax deals through Luxembourg. Members of European Parliament are pushing for a formal inquiry into the scandal, and tax regimes in Ireland and other member states have come under scrutiny in recent years for favorable tax deals for large corporates.

The anti-abuse clause approved by the council bars member states from granting benefits under the parent-subsidiary to arrangements deemed “not genuine” by regulators, which the council defined as arrangements put into place to obtain a tax advantage without reflecting economic reality. National tax administrations will be called upon to undertake objective reviews of the circumstances and facts surrounding the arrangements. The national regulators will be able to find an entire arrangement is not genuine, or specific parts of an arrangement without prejudice to the rest of the deal, the amendment states. Member states have until the end of the year to implement the anti-abuse measure, but have flexibility to apply stricter national rules.

“This is the second important change we have made to the parent-subsidiary directive,” Latvian Minister of Finance and Council President Janis Reirs said in a statement. “Fighting tax avoidance by multinationals is a high priority both for the EU and at the international level.”

The EU previously amended the directive last year with new provisions to prevent corporate groups from using hybrid loan arrangements in order to receive double non-taxation under the rules. Member states also have until the end of 2015 to implement the amendment on hybrid loan mismatches.

The council also pointed to the battle against tax avoidance and aggressive tax planning on the global level, citing the work of the Organisation for Economic Co-operation and Development (OECD). The OECD’s Base Erosion and Profit Shifting group is expected to release several recommendations this year, tackling issues like artificial avoidance of permanent establishment status, base erosion through interest deductions or other payments, transfer pricing rules, and dispute resolution mechanisms.

In other action this week, the council endorsed an agreement with European Parliament to strengthen anti-money laundering rules, and in particular bolster the fight against the financing of terrorism in the wake of the Charlie Hebdo attack in Paris earlier this month. The AML measure still needs to undergo a second reading in parliament, and the council called on MEPs to accelerate the timetable for implementation by member states and strengthen cooperation between national financial intelligence authorities.

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