Anti Tax Avoidance Directive
22 June 2016
On 21 June 2016, the EU Council reached agreement on the EU Anti Tax Avoidance Directive (“ATAD”). The ATAD is expected to be adopted in a forthcoming ECOFIN meeting, possibly on 12 July 2016.
The Council had reached initial agreement on 17 June but this was subject to the agreement of the Belgian government which had requested additional time to consider its position. The Belgian government was concerned that the OECD has not yet reached a binding agreement/minimum standard regarding a rule on limiting interest deductions. The EU member states agreed on the end-date for implementation of this rule to be set at 2024. On 20 June, the Belgian government confirmed its agreement. Other measures will be implemented as of 1 January 2019.
The ATAD, which was watered down from the original proposal in February, aims to create a level playing field within the EU in order to attack aggressive tax planning. We refer to the links below for the latest updates on the ATAD.
The ATAD includes measures in respect of the following topics:
- Interest deduction limitation;
- Exit taxation;
- General abuse of law;
- Controlled foreign companies (CFC);
- Hybrid mismatches
Agreement was not reached as to the extent to which the rules on hybrid mismatches should apply to entities established in the EU and those established outside the EU, such as the US (often referred to as “third countries”). On this point, the position is that:
"The Council requests the Commission to put forward a proposal by October 2016 on hybrid mismatches involving third countries in order to provide for rules consistent with and no less effective than the rules recommended by the OECD BEPS report on Action 2, with a view to reaching agreement by the end of 2016."
Notwithstanding that the provision for hybrid mismatches involving third countries is postponed for the time being, these provisions could, if agreed upon, have an impact on structures which make use of different tax classifications of the same corporate entity, e.g. by applying the US check-the-box rules. It is, however, difficult to assess the consequences at this time.
The Global Tax practice is advising our clients on these measures and how best to prepare for the potential changes to their business. If you have any questions about the impact of the EU Anti Tax Avoidance Directive, please do not hesitate to contact us or your local contact of the Allen & Overy Global Tax practice.