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EU. Directive against tax evasion effective from 2019

On 28 January 2016 the Commission presented its proposal for an Anti-Tax Avoidance Directive (ATAD) as part of the Anti-Tax Avoidance Package. On 20 June 2016 the Council adopted the Directive (EU) 2016/1164 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.
 
The ATAD Directive implements the recommendations of the OECD (Organization for Economic Co-operation and Development) set out in the section of the Action Plan for Base Erosion and Profit Shifting (BEPS).
 
The ATAD Directive contains five basic rules applied within the struggle against tax evasion:
1.    Interest limitation rule. This rule is directed against company financing schemes realized through the provision of friendly loans, which allow the debtor to reduce the taxable base by including interest payments in its expenses. According to the ATAD directive, the allowable amount of such payments will be limited to a certain amount (30% of EBITDA, but not more than 3 million euros), calculated on the basis of the profit figures that the taxpayer receives in the corresponding reporting period.
2.    Exit Tax. This rule imposes the obligation on companies to assess the market value of their assets and to determine the capital gains accumulated in the EU country, when withdrawing their assets from the EU country to another jurisdiction. With a positive capital growth rate, the tax authorities of the state from which the assets are derived will be able to impose the withholding tax.
3.    Controlled Foreign Companies (CFC) rules. These rules will allow the tax authorities to levy taxes on the retained earnings of foreign companies that are controlled by residents of EU countries.
4.    Hybrid mismatch rules. Apply in such situations when taxpayers use loopholes and inconsistencies in the legislation of several countries and due to this receive tax advantages.
5.    General anti-abuse rules. These rules are now being applied by some states to combat such methods of tax evasion that do not directly contradict the legislation, but at the same time lead to double tax deductions (in both states) and to obtaining "unreasonable tax benefits".
 
Member States should apply these measures as from 1 January 2019.
 
Source: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32016L1164
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