Anti tax avoidance package

What is it?

The 'anti tax avoidance package' is a set of EU legislative and non-legislative initiatives, aiming to strengthen rules against corporate tax avoidance and to make corporate taxation in the EU fairer, simpler and more effective. 

It builds on the 2015 OECD (Organisation for Economic Co-operation and Development) recommendations to address tax base erosion and profit shifting (BEPS).

The aims of the package:

  • to prevent aggressive tax planning
  • to increase transparency
  • to create fairer environment for businesses in the EU

What does it contain?

The package consists of the following elements:

A communication on anti tax avoidance package

The communication explains the political and economic reasoning behind the measures proposed in the package.

An anti tax avoidance directive

The directive establishes a number of legally binding measures against aggressive tax planning. In particular, it aims to address situations where corporate groups take advantage of disparities between national tax systems in order to reduce their overall tax liability. For this purpose it provides for legal provisions against aggressive tax planning relating to:

  • interest limitation 
  • exit taxation rules
  • controlled foreign company rules
  • general anti-abuse rule
  • rules on hybrid mismatches

It will also ensure that the OECD anti-BEPS measures are transposed in a coordinated manner, including by 7 EU member states that are not members of the OECD.

The Council adopted the anti tax avoidance directive on 12 July 2016. It further adopted its amendment, introducing rules to tackle hybrid mismatches with the tax systems of countries outside the EU, on 29 May 2017. 

The member states will have until 31 December 2018 to transpose it into their national laws and regulations, except for the exit taxation rules, for which they will have until 31 December 2019. The amended amended anti-tax avoidance directive which introduces the rules neutralising hybrid mismatches with third countries has to be implemented by 1 January 2020. 

Member states which have targeted rules that are equally effective to the interest limitation rules of the anti tax avoidance directive, may apply them until the OECD reaches agreement on a minimum standard, or until 1 January 2024 at the latest.

A recommendation on implementation of measures against tax treaty abuse

The recommendation provides advice to member states on how to reinforce their tax treaties against abuse by aggressive tax planners, in a way that is compliant with  EU law.

A revision of the administrative cooperation directive

The aim of the amendment of the existing directive was to introduce the practice of country-by-country reporting between tax authorities on key tax-related information pertaining to multinational companies. The amendment allows the member states to detect and prevent tax avoidance schemes more efficiently.

The Council adopted the draft directive on 25 May 2016, following its agreement on the text in March 2016.

A communication on an external strategy for effective taxation

The communication proposes that EU member states coordinate their action against external risks of tax avoidance more closely and promote international tax good governance.

Why do we need it?

EU member states suffer significant revenue losses due to the aggressive tax planning practices of some multinational corporations. Amongst other things, this also means that other taxpayers have to take on a heavier tax burden. The situation is particularly acute given the fact that EU is emerging from an economic crisis, and therefore there is a clear need to prevent these practices and to ensure that the tax burden is shared fairly. 

In addition, an EU-wide uniform solution to this problem will be more effective than individual action taken by member states on their own. This is mainly  due to the fact that differences in rules across the member states can create further loopholes for aggressive tax planners, or weaken the effectiveness of the rules of other countries.

Finally, differing solutions may enhance uncertainty as well as increase the administrative burden shouldered by businesses. The tax avoidance package is therefore an EU-wide initiative aiming to address various aspects of known corporate tax avoidance practices in the EU.

In the Council

The Council started working on the proposals in January 2016, following their publication by the European Commission.

The Council takes decisions on EU taxation laws alone, voting unanimously, and the European Parliament issues its opinion.

2017

29 May

Council adopts the amended anti-tax avoidance directive

The Council adopted the final version of the amended anti-tax avoidance directive, introducing the rules to tackle hybrid mismatches with the tax systems of countries outside the EU.

The member states have to implement the directive in their national law by 1 January 2020.

21 February

Council adopts its general approach on the amended anti-tax avoidance directive

The Council agreed a text for a proposal on an amended anti-tax avoidance directive. The amendment introduces rules that help address hybrid mismatches between the EU and third countries.

'Hybrid mismatch arrangements' are arrangements often used by multinational companies or other entities. They make it possible to exploit differences between two or more countries in the tax treatment of financial instruments, organisations or transfers. In this way, corporations manage to reduce their overall tax liabilities. 

The newly agreed rules aim to prevent such arrangements and prevent the erosion of taxable bases in the EU countries. 

The implementation date for the amended directive is set for 1 January 2020. Member states have to transpose the directive into national laws and regulations until 31 December 2019.

The agreed text of the amended directive is to be adopted formally by the Council once the European Parliament has issued its opinion on it. 

2016

6 December

Council marks progress on amendment on hybrid mismatches with third countries

The Council achieved a broad consensus on the draft amended anti-tax avoidance directive, which aims at preventing 'hybrid mismatches' with the tax systems of third countries.

Ministers agreed on a text for most provisions, leaving only two issues to resolve: rules that would allow member states to apply limited exemptions and the date of implementation.

26 October

Proposal for an amended anti-tax avoidance directive

The European Commission issued a proposal to amend the anti-tax avoidance directive, which was adopted by the Council in July 2016. The amendment concerns hybrid mismatches with countries outside the EU.

12 July

Council adopts the anti-tax avoidance directive

The Economic and Financial Affairs Council formally adopted the anti-tax avoidance directive.

The directive will come into force on the 20th day after its publication in the Official Journal of the EU.

21 June

Council reaches agreement on the anti-tax avoidance directive

The Council reached an agreement on the draft anti-tax avoidance directive, following a silence procedure, which expired on 20 June 2016 without any member state raising objections. 

The European Parliament issued its opinion on 8 June 2016, and the Council will formally adopt the directive after the text has been finalised in all official EU languages. 

25 May

Economic and Financial Affairs Council meeting

Anti tax avoidance directive

The Council held a constructive debate on a draft directive, which aims to address tax avoidance practices commonly used by large companies.

Ministers narrowed down the number of key open issues that remain to be resolved, and postponed the agreement on the text to the next Ecofin meeting which is scheduled to take place on 17 June 2016.

External taxation strategy and measures against tax treaty abuse

The Council adopted conclusions on the Commission communication on an external taxation strategy and on the Commission recommendation on measures against tax treaty abuse.

Directive on administrative cooperation in the field of taxation

The Council formally adopted the directive on the exchange of tax-related information on multinational companies, following its agreement reached on the text in March 2016.

Once the directive has been published in the Official Journal, the member states will have 12 months to transpose the directive into their national law.

8 March

Economic and Financial Affairs Council meeting

Council agrees its position on exchange of tax-related information 

The Council agreed its position on a draft directive on the exchange of tax-related information on the activities of multinational companies.

 The directive will require multinationals to report tax-related information, detailed country-by-country. Information to be reported includes: 

  • revenue
  • profits
  • taxes paid
  • capital
  • earnings
  • tangible assets
  • the number of employees

Under the directive, multinational companies will be obliged to file their country-by-country report to the tax authorities of the member state where they are tax resident, including for the 2016 fiscal year. New rules will cover multinationals with a total consolidated group revenue of at least €750 million. 

Under the directive national tax authorities will exchange information reported by multinationals automatically.  

12 February

We are hopeful that this ambitious timetable will confirm the EU as a front-runner in implementing last year's OECD conclusions on tax base erosion and profit shifting

Jeroen Dijsselbloem, Minister for Finance of the Netherlands and President of the Council.

Economic and Financial Affairs Council meeting

Council discusses the package and sets ambitious timeline 

 The Council held a first discussion on the anti tax avoidance package

 The Council Presidency set the objective of reaching political agreement by summer 2016 on: 

  • a draft directive on the revision of administrative cooperation
  • a draft directive on anti tax avoidance 

 The aim is to reach an agreement on the first directive in March and to move as rapidly as possible on the other elements.

28 January

The European Commission presents the anti tax avoidance package

 The Commission publishes the anti tax avoidance package 'for fairer, simpler and more effective corporate taxation in the EU.'