On 20 June 2016, the Economic and Financial Affairs (ECOFIN) Council agreed on the Anti-Tax Avoidance Directive (ATAD) proposal of the European Commission, following approval of the Dutch presidency’s final proposal by the Belgian government and no further comments from other Member States.
On 8 June 2016, the European Parliament (EP) approved 91 amendments to the draft report of the ATAD. These amendments related, amongst others, to the proposals for a 15% rate for the application of the switch-over rule, an EU blacklist of tax havens and sanctions against uncooperative jurisdictions, and additional limitations on the deductibility of exceeding borrowing costs.
On Friday (17 June 2016), the Finance Ministers of the 28 Member States came to a preliminary informal political agreement on the ATAD as a whole, following public discussions based on the ECOFIN document prepared by the Dutch Council presidency and including some new last-minute amendments. Although the lobbying work of a number of countries has certainly limited the reach of the rules in the ATAD, the Dutch Finance Minister (and chair of the meeting), Jeroen Dijsselbloem, was nonetheless “confident that what we have is still a good step forward in the fight against tax avoidance”.
Important to note is that the so-called switch-over clause has been left out, as certain Finance Ministers were concerned that this provision could hinder the competitiveness of European companies due to potential double taxation. Furthermore, Member States also agreed on the postponement of the entry into force of the new rules on the limitation of interest deduction, which is now scheduled for 2024 (instead of 2019), thus introducing a so-called “grandfathering period” of five years. Lastly, certain changes were made to the Controlled Foreign Company (CFC) rules to the effect that the new tax rate threshold splits the difference between the actual corporate tax expense incurred in a non-member country and what it would have been if it had been taxed in a Member State. Also in line with the amended text, CFC rules would not apply “where the controlled foreign company carries on a substantive economic activity supported by staff, equipment, assets and premises”.
Nonetheless, formal approval of the ATAD was delayed until Monday (20 June 2016) midnight, as the Belgian Minister of Finance, Johan Van Overtveldt, requested some additional time to address certain technical issues with the national government. Belgian approval came just hours before the expiry of the granted delay, and without any further comment from other Member States by the midnight expiry period, the ECOFIN’s agreement on the ATAD became final.
In a press communiqué, Van Overtveldt stated that the agreement on the ATAD is a win-win situation, describing the directive as striking a perfect balance between the battle for a fair tax system and the enhancement of economic growth. The Minister further emphasized the importance of aligning the EU and OECD initiatives and further international collaboration.
Read the Council’s press release on the voting of the Anti-Tax Avoidance Directive here.
For more insights on the ATAD and to understand the implications for your organisation, please contact Jonas Van de Gucht or your local PwC contact.