We wrote in February (European Commission Publishes Anti Tax Avoidance Package) about the draft EU Anti Tax Avoidance Directive (“ATAD”).
On 21st June 2016, the EU Council agreed on the final text of the ATAD and it will be adopted in the next Council meeting, which is scheduled for 12th July.
The Council had reached agreement on 17th June but certain Member States had requested additional time to consider its position.
The final ATAD includes measures in respect of the following topics:
- Interest deduction limitation;
- Exit taxation;
- General abuse of law;
- Controlled foreign companies (CFC); and
- Hybrid mismatches.
Interestingly, the original proposal concerning a “switch-over” clause, which would have limited Member States’ ability to apply tax exemptions for income from low-taxed foreign subsidiaries and permanent establishments, was not adopted in the final version.
There have been some changes to the original draft text. The CFC provisions were debated significantly, for example. In effect, the final rules will treat as a CFC an entity or permanent establishment that that is taxed at less than 50% of tax rate applicable in the controlling company’s home Member State.
It is expected that the Member States will have until 31st December 2018 to implement the ATAD into their national law, except for the exit taxation rules, where the time limit will be 31st December 2019. The implementation of the interest deduction limitation provision may be postponed until 1st January 2024 in some circumstances, pending the OECD reaching agreement on a minimum standard (in situations where Member States have targeted rules that are equally effective to the interest limitation rules).
How these proposals will be integrated into the various Member States’ existing (often complex and sophisticated) anti-avoidance legislation remains to be seen, particularly in the light of the outcome of the OECD BEPS Action Points, which cover several of the same areas but in overlapping and sometimes conflicting ways.
The final proposal can be found at this link: Council June ATAD