The EC’s Anti-Tax Avoidance Directive (ATAD) is likely to be implemented, in some form, within the next few months.
On 26 May, the EU’s Economic and Financial Affairs Council (ECOFIN) met to discuss the European Commission’s Anti-Tax Avoidance Directive (ATAD). Agreement was not reached, but the issue will be brought back to the next ECOFIN meeting in June.
The European Commission’s proposed ATAD was announced in January, and is designed partly to ensure consistent implementation across the EU of the OECD BEPS package. Whilst a consistent pan-EU approach to BEPS is to be welcomed, ATAD goes further than BEPS in some respects and hence risks damaging the hard-won political consensus which has been reached in relation to the overall BEPS package.
If implemented, ATAD would require all EU member states to introduce restrictions on interest deductibility, hybrid mismatch rules, CFC rules and an exit charge to prevent assets or company residence being shifted to low tax jurisdictions. There is also a ‘switchover rule’ which would enable member states to deny tax exemptions if income (such as dividends, capital gains or profits from permanent establishments) had been taxed at a low or zero rate in a non-EU country before being remitted to the EU.
The proposed restrictions on interest deductibility are similar to those in BEPS, with a suggested cap of 30% of EBITDA. A stricter limit of 20% was proposed by the Economic and Monetary Affairs Committee of the European Parliament, but this was not adopted by ECOFIN. On hybrid mismatches, the UK and Ireland expressed concern that the EU proposal does not go as far as the OECD recommendations, and recommended that it should be strengthened.
The CFC and ‘switchover rule’ proposals were the elements which proved controversial. The CFC proposal goes beyond current EU case law, since it is not expressed as applying only to wholly artificial entities, so some member states were concerned that it could impede the fundamental freedom of establishment. On the ‘switchover rule’, a number of member states expressed concerns and it seems possible that this element of ATAD may be dropped in the final proposals.
ATAD also included a proposal for a general anti-abuse rule (GAAR) and there was general agreement to this element.
ATAD is part of the Commission’s anti-tax avoidance package, which also includes a revision of the Administrative Cooperation Directive to provide country by country reporting between member states’ tax authorities on key tax-related information on multinationals operating in the EU. This part of the package was approved unanimously, and is in line with the BEPS recommendation. Separately, the Commission has proposed that certain country by country information should be made public, but this proposal has not yet been approved.
It is clear that the momentum generated by the OECD BEPS project is ensuring that tax remains high on the EU political agenda. It is likely that ATAD will be implemented, in some form, within the next few months. Particular points to watch are whether or not the ‘switchover rule’ is included, and for the UK, whether the final detail of the EU proposals matches the UK draft legislation on interest deductibility, for which the detailed legislation will be published later this year.
Home >Articles > Update on the Anti-Tax Avoidance Directive
Update on the Anti-Tax Avoidance Directive
The EC’s Anti-Tax Avoidance Directive (ATAD) is likely to be implemented, in some form, within the next few months.
On 26 May, the EU’s Economic and Financial Affairs Council (ECOFIN) met to discuss the European Commission’s Anti-Tax Avoidance Directive (ATAD). Agreement was not reached, but the issue will be brought back to the next ECOFIN meeting in June.
The European Commission’s proposed ATAD was announced in January, and is designed partly to ensure consistent implementation across the EU of the OECD BEPS package. Whilst a consistent pan-EU approach to BEPS is to be welcomed, ATAD goes further than BEPS in some respects and hence risks damaging the hard-won political consensus which has been reached in relation to the overall BEPS package.
If implemented, ATAD would require all EU member states to introduce restrictions on interest deductibility, hybrid mismatch rules, CFC rules and an exit charge to prevent assets or company residence being shifted to low tax jurisdictions. There is also a ‘switchover rule’ which would enable member states to deny tax exemptions if income (such as dividends, capital gains or profits from permanent establishments) had been taxed at a low or zero rate in a non-EU country before being remitted to the EU.
The proposed restrictions on interest deductibility are similar to those in BEPS, with a suggested cap of 30% of EBITDA. A stricter limit of 20% was proposed by the Economic and Monetary Affairs Committee of the European Parliament, but this was not adopted by ECOFIN. On hybrid mismatches, the UK and Ireland expressed concern that the EU proposal does not go as far as the OECD recommendations, and recommended that it should be strengthened.
The CFC and ‘switchover rule’ proposals were the elements which proved controversial. The CFC proposal goes beyond current EU case law, since it is not expressed as applying only to wholly artificial entities, so some member states were concerned that it could impede the fundamental freedom of establishment. On the ‘switchover rule’, a number of member states expressed concerns and it seems possible that this element of ATAD may be dropped in the final proposals.
ATAD also included a proposal for a general anti-abuse rule (GAAR) and there was general agreement to this element.
ATAD is part of the Commission’s anti-tax avoidance package, which also includes a revision of the Administrative Cooperation Directive to provide country by country reporting between member states’ tax authorities on key tax-related information on multinationals operating in the EU. This part of the package was approved unanimously, and is in line with the BEPS recommendation. Separately, the Commission has proposed that certain country by country information should be made public, but this proposal has not yet been approved.
It is clear that the momentum generated by the OECD BEPS project is ensuring that tax remains high on the EU political agenda. It is likely that ATAD will be implemented, in some form, within the next few months. Particular points to watch are whether or not the ‘switchover rule’ is included, and for the UK, whether the final detail of the EU proposals matches the UK draft legislation on interest deductibility, for which the detailed legislation will be published later this year.
