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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.

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