The final European Anti-Tax-Avoidance Directive: impact to EU jurisdictions

On 21 June at midnight, the Ministers of Finance of the Member States to the European Union (EU) reached an agreement on the Anti-Tax-Avoidance Directive (ATA Directive or the Directive). The agreement is a political agreement in the Economic and Financial Affairs Council (ECOFIN) and the Directive still needs formal adopting by the European Council. It is expected that the Council will adopt the Directive without making amendments. The European Parliament had already adopted the ATA Directive on 8 June.

The Directive is part of the Anti-Tax-Avoidance Package (ATA Package), which was published by the European Commission (EC) on 28 January 2016. Previously, we described the measures proposed in the initial version of the ATA Package and included comments on the ATA Package from Bird & Bird tax lawyers from multiple EU jurisdictions.

The Directive has been heavily debated in the ECOFIN Council and was subject to multiple important amendments. One important change compared to the initial version of the ATA Directive, is the deletion of the so-called switch-over clause.[1]

In this article we will briefly describe the measures of the final version of the ATA Directive and comment on the expected impact of the Directive to various EU jurisdictions. On a preliminary note, the provisions of the ATA Directive are expressly meant as a minimum standard. Member States are free to implement the measures in a stricter way.[2]

The final version of the ATA Directive prescribes EU Member States to implement the following measures in their respective corporate tax systems. The measures must be effective 1 January 2019 at the latest.[3]

1. Interest deduction limitation rule

This rule stipulates that the deductible exceeding borrowing costs (i.e. taxable interest and equivalents minus deductible borrowing costs) are limited to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortization (EBITDA)[4].  Member States may choose to allow taxpayers to deduct exceeding borrowing costs in excess of 30% of the EBITDA, but only up to € 3 million. They may also choose to apply the 30%-rule and the € 3 million at the level of a group as defined in national tax law. Additionally, Member States may choose not to apply the interest limitation rule to standalone entities.

The interest limitation rule contains two (optional) group escapes:

  • Equity escape rule: if the ratio between equity and total assets of a taxpayer is equal to or higher than the equivalent ratio of the group, the taxpayer may fully deduct the net borrowing costs. A ratio of up to two percentage points below the group’s will be deemed equivalent to the group’s ratio for purposes of the equity escape rule.
  • Group ratio rule: a group ratio is determined by dividing the exceeding third party borrowing costs of the group by the EBITDA of the group. That ratio is multiplied by the EBITDA of the taxpayer to determine the amount of deductible exceeding borrowing costs.
  • Member States may choose to allow taxpayers to either:
  • Carry forward, without time limitation, exceeding borrowing costs which cannot be deducted as a result of the interest deduction limitation rule; or
  • Carry forward, without time limitation, and back, for a maximum of 3 years, exceeding borrowing costs which cannot be deducted as a result of the interest deduction limitation rule; or
  • Carry forward, without time limitation, exceeding borrowing costs and, for a maximum of 5 years, unused interest capacity, which cannot be deducted as a result of the interest deduction limitation rule.

The interest limitation rule provides for an optional grandfathering clause, allowing Member States to exclude loans which were concluded before 17 June 2016 from the scope of the interest deduction limitation rule. Importantly, the exclusion does not extend to any subsequent modifications to such loans. Additionally, Member States may choose to exclude loans used to fund long-term public infrastructure projects (as defined in the Directive) in the EU. Financial undertakings (as defined in the Directive) may also be excluded from the scope of the interest deduction limitation rule.

Member States must have implemented the interest limitation rule by 1 January 2024 at the latest.

Some Member States do not have a general interest deduction limitation rule in their corporate tax systems. It is advisable to carefully check the possible consequences of this rule. For instance, it could be advisable to properly document and not to modify loans that were concluded before 17 June 2016.

2. Exit taxation

Based on this rule a tax is levied on the transfer of assets if:

  1. Assets are transferred from the taxpayer’s head office to its permanent establishment (PE) in another Member State or third country in so far as the Member State of the head office no longer has the right to tax the transferred assets due to the transfer;
  2. Assets are transferred from a PE in a Member State to the head office or another PE in another Member State or in a third country in so far as the Member State of the PE no longer has the right to tax the transferred assets due to the transfer;
  3. The tax residence is transferred to another Member State or to a third country, but not with respect to assets that remain effectively connected with a PE in the first Member State;
  4. A business carried out by a PE is transferred out of a Member State to another Member State or third country in so far as the Member State of the PE no longer has the right to tax the transferred assets due to the transfer.

The taxable base is formed by the difference between market value and value for tax purposes at the time of exit of the assets concerned.

If assets are transferred to another Member State (or in certain cases to a state that is party to the EEA Agreement), those Member States are obliged to allow taxpayers to value the assets at market value. In such cases taxpayers also have the right to defer tax claims arising from exit taxation by paying in installments for five years. If a taxpayer chooses to defer a tax claim, interest may be charged and, if there is an actual risk of non-recovery, securities may be demanded by the Member State involved. The deferral ends if:

  • the transferred assets or the business carried on by the PE are disposed of;
  • the transferred assets are subsequently transferred to a (non-EEA) third country; 
  • the taxpayer’s tax residence or the business carried on by its PE is transferred to a (non-EEA) third country; 
  • the taxpayer goes bankrupt or is wound up; or
  • the taxpayer fails to honor its obligations in relation to the installments and does not correct its situation over a reasonable period of time (12 months maximum).

If the transferred assets are set to revert to the Member State of the transferor within 12 months, this rule does not apply to asset transfers related to the financing of securities, assets posted as collateral or where the asset transfer takes place in order to meet prudential capital requirements or for purposes of liquidity management.

This provision for the most part codifies jurisprudence from the European Court of Justice. However, certain countries have signaled that they expect difficulties implementing the provision. In deviation of the general deadline for implementation, Member States may therefore choose to extend the term for implementation of the provision on exit taxation by one year. Member States must apply this provision by January 1, 2020.

3. General anti-abuse rule

The GAAR stipulates that any non-genuine arrangement (i.e. arrangement or series thereof to the extent that they are not put in place for valid commercial reasons which reflect economic reality) carried out for the main purpose of obtaining a tax advantage that defeats the object or purpose of the otherwise applicable tax provisions, is to be ignored for the purposes of calculating the corporate tax liability. The tax liability shall then be calculated in accordance with national law. The GAAR does not affect the applicability of specific anti-abuse rules. Its application should be limited to ‘wholly artificial arrangements’: a taxpayer may in principle still choose the most tax-efficient structure. The GAAR would work throughout all corporate tax acts of Member States and target any situation of alleged abuse.

Since the GAAR is relatively vague and many Member States have general anti-abuse provisions in their domestic tax systems, there has not been much debate around the GAAR. However, taking into account that the GAAR is very broad and particularly open to interpretation by Member States and tax authorities, it is difficult to predict the GAAR’s impact on investments in the EU. 

4. Controlled foreign company legislation 

The Controlled Foreign Company (CFC) rule attributes non-distributed income of a foreign company or a PE, to the domestic parent company. The CFC rule targets taxpayers that (together with associated enterprises) directly or indirectly hold more than 50% of capital or voting rights or are entitled to receive more than 50% of the profits of low-taxed foreign entities and low-taxed PEs. For the purpose of the CFC rule, entities and PEs are regarded as low-taxed if they are subject to an effective corporate tax rate of less than 50% of what would have been charged in the parent company jurisdiction.[5] 

As regards the method of determining what income is to be attributed to the parent entity, the ATA Directive provides a choice to Member States: (i) an entity based approach and (ii) a transactional approach.

Under the entity based approach, the non-distributed income of the CFC that is derived from categories of income listed in the Directive. Those categories include income from financial activities and passive income such as dividends, royalties and interest. No income will be attributed to the parent entity under the transactional approach if the CFC carries on a substantive economic activity, supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances. Member State may choose not to apply this exception if the CFC is resident in a (non-EEA) third country. Additionally, Member States may choose not to treat an entity or PE as a CFC if one third or less of the income accruing to the entity or PE falls within the listed categories.

The transactional approach attributes CFC income to the parent entity if the income arises from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage. An arrangement (or a series thereof) shall be regarded as non-genuine to the extent that the entity or PE would not own the assets or would not have undertaken the risks which generate its income if it were not controlled by a company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the CFC's income. The CFC income to be included in the tax base of the parent entity shall be limited to amounts generated through assets and risks which are linked to significant people functions carried out by the parent entity. Member States may choose to exclude from the scope of the transactional approach a CFC that has accounting profits of no more than € 750.000 and non-trading income of no more than € 75.000 or CFCs of which the accounting profits amount to no more than 10 percent of its operating costs for the tax period.

Losses will not be allocated to the controlling company, but the CFC rule provides for a carry-forward to subsequent tax years. 
Finally, the CFC rule includes a provision to prevent double taxation when the income is distributed. It does not, however, contain a mechanism to prevent CFC income from being included in the taxable base of multiple entities: it does not provide for a rule that prescribes the order in which income must be attributed to parents and grandparents in Member States.

It is advisable to make an analysis of existing corporate structures in order to understand the potential impact the CFC rule may have. 

5. Hybrid mismatches 

This measure deals with double deductions and deduction/no inclusion situations resulting from different classifications of the same financial instrument or entity by different Member States. In case of a double deduction, the deduction shall be allowed only in the Member State where the payment has its source. If the mismatch results in a deduction/no inclusion the Member State of the payer shall deny deduction of the payment. 

The hybrid mismatch measure is only applicable between Member States and not between Member States and third countries. It is expected that the European Council will ask the EC to present in October 2016 at the latest a proposal to widen the scope of the hybrid mismatch measure to third countries. The aim would be to reach an agreement on the extension of the hybrid mismatch rule to third countries at the end of 2016.

Comments to the final ATA Directive from tax practices

The Netherlands

In our reaction to the initial version of the ATA Directive, we expressed our concerns about the switch-over clause. Now that the switch-over clause has been deleted, the effects of the ATA Directive to the Dutch tax system should be mitigated. The rule on exit taxation and the GAAR are generally in line with existing provisions in the Dutch (corporate) tax system.

A relevant change, however, could be with the implementation of the general interest deduction limitation rule. Although the Netherlands has many specific interest deduction limitation provisions in its corporate tax laws, no general rule yet exists. In addition, most of the specific interest deduction measures apply to transactions with associated enterprises, as opposed to the interest deduction limitation rule in the ATA Directive that does not distinguish between associated enterprises and third parties.

The Netherlands has no official CFC rules, but has a rule that sorts a similar effect. However, more Dutch companies would be targeted by the CFC rule in the ATA Directive than currently under the Dutch rule. One important difference would be that under the CFC rule in the ATA Directive, an entity or PE is regarded low-taxed if it is subject to an effective corporate tax rate of less than 50% of the effective tax rate in the Member State of the parent entity. Under the Dutch rule, an entity is regarded low-taxed if it is subject to a corporate tax rate of less than 10% of what would have been charged in the Netherlands.

There currently are no general provisions tackling hybrid mismatches in the Netherlands. The Netherlands has, however, implemented the hybrid mismatch rule in the EU parent/subsidiary directive. That rule stipulates that Member States must tax profit distributions derived from subsidiaries in EU Member States to the extent that the distributions are tax deductible on the level of the subsidiary, and exempt such distributions to the extent that they are non-deductible. The Netherlands has implemented that rule in the Dutch participation exemption. The possible extension of the hybrid mismatch measure to third countries could have an impact on certain structures often used by US investors in the Netherlands to (indefinitely) defer tax in the US. However, it is highly uncertain how the third country hybrid mismatch measure would be shaped and even more so how it would be implemented. 


The Minister of Finance defines the Directive as a "win-win", preserving a perfect balance between honest taxation policy and reinforcement of economic growth. Belgian tax practitioners describe the agreement as highly influential, despite some slight mitigations compared to the proposal launched on 28 January 2016. Some even hope that the Directive might accelerate the enhancement of competitiveness of Belgian companies, which is currently afflicted by the high Belgian tax rates and the lack of fiscal consolidation.

For Belgian companies in general, the most significant impact will, without any doubt, result from the Directive's limitation on interest deduction, as the limitation also applies to situations which are completely distinct from (international) tax avoidance. The Directive limits the deductibility of net interest to a maximum of 30 % of the EBITDA. The tax exempt income, a notion on which the Directive did not further elaborate, must not be taken into consideration for the calculation of the EBITDA. Strictly speaking, dividends benefitting from the Belgian (95%) dividends received deduction regime, as well as capital gains realized on shares by non-SMEs, may in principle still be included in the EBITDA, as both types of income are not entirely 'exempted'. It remains to be seen how the Belgian authorities will interpret this unspecified notion. Furthermore, the ultimate implementation deadline of 1 January 2024 will only apply to Member States that already have local BEPS-rules equally effective as the EBITDA limitation of the Directive. The European Commission would have to assess whether the degree of efficiency of the relevant existing Belgian tax provisions (i.e. thin-capitalization rules, the general condition of deductibility of business expenses and the absence of fiscal consolidation) are "equally effective" as the EBITDA limitation of the Directive.

Finally, Belgian tax law does not yet contain CFC-measures and would therefore require rather drastic changes. Furthermore, it may be expected that, in accordance with the Directive's Preamble, the new anti-abuse rule will come to replace the currently applicable Belgian general anti-abuse rule and will apply in purely domestic situations.

Czech Republic

EU Affairs Committees of both chambers of the Czech Parliament have recently expressed their support for setting up common rules to fight tax avoidance. Yet at the same time they emphasize the fact that the regulation of direct taxes is solely a competence of the individual Member States. According to the Committees, the impact of the ATA Directive on the Czech state budget and its legal implications have not been analyzed yet, but it is generally assumed that the impact would be positive. Since the ATA Directive should be transposed 1 January 2019 and it will require major changes of the Czech legislation, the transposition period should be at least 24 months. 


The final version of ATA Directive is expected to have a greater impact on Finnish tax legislation than the initial version, especially on the interest limitation and CFC rules.

The proposed interest deduction limitation rule is quite similar to already existing interest limitation rules in Finland, which came into force in 2014. One of the main differences is, however, the scope of the rule. The proposed interest limitation rule in ATA Directive applies to all exceeding borrowing costs without distinction of whether the costs come from national, cross-border, intergroup or third party loans, while Finnish interest deduction limitation rules only apply to loans between associated parties. On the other hand, the existing Finnish rules are to some extent stricter than the proposed limitation rule in ATA Directive. For instance, under Finnish rules taxpayers can deduct only 25% of the EBITDA (as opposed to 30% under the ATA Directive) and the fixed threshold is € 500.000 (as opposed to € 3 million under the ATA Directive). There are some other slight differences with respect to accounting methods and definitions.

As regards the rule on exit taxation, there is nothing substantially new for Finland, except for the deferral period which does not currently exist in Finnish legislation. Finnish legislation already includes a general anti-avoidance clause which reflects the 'purpose over form' idea. The Finnish GAAR applies in both domestic and cross-border situations.

Finnish tax legislation does not currently contain special regulations on hybrid mismatches. So far, Finnish authorities have tried to address hybrid mismatches with provisions regarding transfer pricing and the Finish GAAR. The implementation of the hybrid mismatch rule from the ATA Directive could thus mean a change to Finnish tax legislation. 


With the introduction of the anti-abuse clause in the parent/subsidiary directive (as explained in relation to the impact to the Netherlands, see under par. A), French legislation already complies with the majority of the measures proposed in the ATA Package. For many years now, France has been modifying its tax legislation in this direction. Rules on exit taxation, hybrid mismatches and the CFC rule are already implemented within French tax legislation and many interest deduction limitations already exist.

The French tax authorities can challenge the reality of arrangements under the “abuse of law” provisions as implemented in French tax law. However, in doing so the tax authorities must follow a specific process and  strict procedures. Some wonder whether the ATA Directive could open a new door for the tax authorities to challenge non-genuine arrangements. The transposition of the ATA Directive will be subject to the French Constitutional Council review, so it is yet to be seen how the ATA Directive provisions will be implemented. 


The Federal Minister of Finance, Wolfgang Schäuble, stated that it is important to implement the rules provided in the ATA Directive. However, many of those provisions (e.g. the interest deduction limitation and rule on exit taxation) already exist under German legislation. 

In this context, however, it has to be noted that on 1 June 2016, the German Ministry of Finance published a draft bill of the act regarding the further measures against base erosion and profit shifting (BEPS) which can be obtained here. It is the starting point of the legislative procedure which is expected to be completed at the end of 2016. The draft bill includes:

  • The implementation of the Automatic Information Exchange Directive which provides a legal basis for the exchange of information regarding advance cross-border tax rulings and advance transfer pricing arrangements;
  • The implementation of a Country-by-Country (CbC) reporting standard;
  • Changes of the Income Tax Act and the Foreign Tax Act to avoid uncertain interpretation and application of double tax treaties;
  • Changes of the Income Tax Act and the Corporate Tax Act to combat certain tax planning schemes. 


Hungarian rules on exit taxation are limited compared to the rule on exit taxation in the ATA Directive. Currently, Hungarian tax law contains two taxable events with respect exit taxation: the transfer of tax residence and cross-border mergers. In cases of transferal of tax residence, the tax base is formed by the difference between the accounting value and the value for tax purposes of the migrated assets. In cross-border mergers, revaluation gains realized on assets migrated in such mergers form the tax base. Implementing the rule on exit taxation in the ATA Directive will require amendments to the existing rules to bring the scope of exit taxation in line with the Directive.

Although Hungary has thin capitalization rules, certain amendments will have to be implemented to the existing law in order to implement the interest deduction limitation rule. The thin cap rules are currently limiting deduction of interest based on a debt-to-equity ratio. Accordingly, this rule will have to be supplemented or replaced by the EBITDA-ratio rule.

Hungarian CFC-legislation will have to be modified, as it differs from the CFC rule in the ATA Directive. The most important changes would concern the effective tax rate test and the income to be included in the tax base of the parent company.

Hungarian hybrid mismatch rules should only need a minor amendment, as they already cover transactions with countries that have a tax treaty with Hungary.

No amendments to Hungarian tax legislation are required relating to the GAAR.


The ATA Package presented by the European Commission received strong support from the Polish government. According to an official statement, "[i]t is our government's priority to eliminate tax optimization and shifting profits outside the country (…) therefore the ATA package has met with our positive approach".

Discussions on taxation of groups using holding companies have been ongoing for several years in Poland. Poland does not have any specific provisions which would attract foreign holdings to register in Poland. Nevertheless, there are many foreign companies already present in Poland (mainly due to attractive employment costs and the large amount of European Union funds Poland has received). The consequences of international tax avoidance practices are particularly negative for Poland, as the State misses out on potential (corporate) income tax revenue. The prevention of tax optimization and of shifting profits abroad are therefore presented as priorities for the Polish government.

An amendment to the Polish Tax Ordinance was recently adopted, inter alia introducing a general anti-tax avoidance clause. The amendment is effective since 15 July 2016. The new Polish anti-tax avoidance clause provides that in cases of non-genuine arrangements contrary to the object and aims of the Polish tax law, performed primarily for the purpose of obtaining tax benefits, Polish tax authorities may deny such benefits. It is similar to the wording of the GAAR in the ATA Directive. The new Polish provisions were criticized within legal and business communities. Tax advisers say that the anti-tax avoidance clause is vague and grants the Polish tax authorities excessive rights to interpret taxpayers' business intentions. Some even state that these provisions may be contrary to the Polish Constitution. It is important to note that the new Polish provisions also apply to actions performed prior to 15 July 2016, if their consequences occur after that date.

As regards Polish laws on holding companies in general, practitioners have identified the need for implementation of such laws in order to provide clear rules for holdings in Poland. There are Polish provisions concerning tax capital groups. However, these are not up-to-date and are insufficient for international holdings. A draft law on the matter has been prepared and the market is currently awaiting an update on further progress. 


On 1 July 2016, Slovakia took over the Presidency of the Council of the EU. During preparations for this important six month period, Slovakia clearly expressed its position and presented a 'Strategic program for the Union in times of change'. In the context of healthy public financing, Slovakia expressed the necessity to continue the fight against tax avoidance and ensure equitable fulfilment of the public budgets. The action plan contains aspects of both indirect and direct taxes. In the area of direct taxes, to which the ATA Directive applies, the action plan intends to introduce a series of measures for increasing transparency in the area of corporate income tax and in the fight against tax avoidance.


In general terms, measures included in the final version of the ATA Directive already exist under Spanish legislation. In particular, Spanish tax law includes rules regarding CFCs, exit taxation and hybrid mismatches similar to the rules in the ATA Directive. Therefore, no substantial modifications to Spanish tax law are expected in this respect.

Although Spanish regulations are inspired by the OECD BEPS-project and recommendations/tax practices that are generally followed in other jurisdictions, some changes to Spanish tax law are necessary in order to implement the ATA Directive.  Amendments are mainly expected with respect to the interest deduction limitation. The new measures are expected to be introduced in the short term, well before the implementation deadline in the ATA Directive expires.


One might ask to what extent the ATA Directive will require implementation in Sweden. Sweden already has CFC rules, rules on exit taxation, a rule addressing hybrid mismatches, interest deduction limitations and a Tax Avoidance Act. Therefore, the ATA Directive is not expected to cause major changes in Swedish tax law. However, some details of the Swedish rules will probably require adjustments to be fully compliant with the Directive. The current Swedish interest deduction limitation rules have been heavily criticized by the business community and are - according to the EC - contrary to EU law. Hence, this is the area where the most rapid changes are expected. It is expected that Sweden will implement the provisions from the ATA Directive well before the implementation deadlines, especially given the EC's view to Swedish rules. Apart from perhaps accelerating changes to the Swedish interest deduction limitation rules, the Directive will most likely have relatively limited impact on the Swedish tax system.

Read our prevoous article about the EC Anti Tax Avoidance Package: responses from European tax practices

  1. The (deleted) switch-over clause stipulated that Member States would no longer be allowed to exempt (certain types of) income derived from low-taxed subsidiaries and permanent establishments. In such cases Member States had to 'switch over' from an exemption system to the tax credit system.
  2. An example of stricter implementation would be lowering the control threshold of a Controlled Foreign Company (see par. 4)  
  3. Certain exceptions apply with respect to the implementation deadline (e.g. see par. 1 and par. 2).
  4. Tax exempt income shall be excluded from the EBITDA for the application of the interest limitation rule.
  5. According to the ATA Directive an entity or a PE is regarded low-taxed if the actual corporate tax paid on its profits by the entity or PE is lower than the difference between the corporate tax that would have been charged on the entity or PE under the applicable corporate tax system in the Member State of the taxpayer and the actual corporate tax paid on its profits by the entity or PE. This comes down to an effective tax rate lower thann 50%

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