On 25 May 2016, the EU Council was called on to reach a political agreement on the EU Anti-Tax Avoidance Directive (“ATAD”). In addition it was due to adopt two other texts: (i) a directive on EU country-by-country reporting by multinationals and (ii) conclusions on external taxation strategy (EU-blacklist of non-EU tax havens) and measures against tax treaty abuse.

The EU Council adopted the two latter mentioned texts. It did not reach agreement on the ATAD. Several Member States expressed concerns on the proposed text of the ATAD. A new compromise will be tabled for the upcoming EU Council meeting on 17 June 2016.

1 ATAD

The most awaited topic on the Council’s agenda was the proposed ATAD. The ATAD aims at implementing some of the final recommendations of the OECD Base Erosion and Profit Shifting (BEPS) project into Member States’ national laws. A first draft of this ATAD was published on 28 January 2016 (see our Tax Flash of 28 January 2016).

The EU Council did not reach political agreement on the ATAD on 25 May 2016. Several Member States expressed concerns on the proposed text of the ATAD. Therefore, a new compromise will be tabled at the upcoming EU Council meeting to be held on 17 June 2016. This proposal is expected to take into account the following issues:

  • Possibly exclude the switch-over clause from the ATAD;
  • Clarify (possibly in the preamble of the ATAD) that the reference to an effective tax rate threshold provided in the CFC rule does not represent setting a minimum tax rate at the EU level in breach of Member States’ national sovereignty;
  • Provide a common definition of substance for the purposes of applying the CFC rule;
  • Reverse the burden of proof for the application of the CFC rule from the taxpayer to the tax authorities.

Furthermore, several Member States expressed the need to extend the hybrid mismatches provision to third (non-EU) country situations. This topic will be addressed later this year.

If a political agreement is reached, the transposition of the provisions of the ATAD into the national laws of the Member States will probably have to be completed by 1 January 2019 at the latest.

2 EU Country-by-Country Reporting by multinationals adopted

The EU Council officially adopted the EU directive that will implement OECD anti-BEPS action 13, on country-by-country reporting by multinationals and the exchange thereof between tax administrations (not to be confused with the European Commission’s proposal of 12 April 2016 on public country-by-country reporting for multinationals, which is still pending). The political agreement on this proposal was reached in March 2016. This directive needs to be implemented into domestic law before 31 December 2016. The Netherlands already implemented country-by-country reporting for multinationals as per 1 January 2016.

3 Conclusions on external taxation strategy (list of non-cooperative jurisdictions) and measures against tax treaty abuse

The EU Council adopted conclusions on the third country (non-EU States) aspects of the European Commission anti-tax avoidance measures. The most important element is that an EU-list of third country, non-cooperative jurisdictions will be established and that defensive measures against those third states, to be implemented in the tax as well as in the non-tax area, will be explored. The Code of Conduct Group will work on this list and these defensive measures as of September 2016 with a view to endorsement by the EU Council in 2017.

Furthermore, the EU Council invited the European Commission to consider legislative initiatives on mandatory disclosure rules for aggressive or abusive transactions (based on Action 12 of the OECD BEPS project) with a view to introducing more effective disincentives for intermediaries who assist in tax evasion or tax avoidance schemes.

Finally, the EU Council welcomed the European Commission’s recommendation to implement OECD BEPS Actions 6 (tax treaty abuse) and 7 (artificial avoidance of permanent establishment) by including a principal purpose test and permanent establishment provisions as proposed by the OECD in tax treaties.