As of 1 January 2019, all EU Member States are required to apply three anti-abuse measures that target tax avoidance. These measures, set out in the EU anti-avoidance directive (ATAD) build on global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting (BEPS) and should help to prevent profits being siphoned out of the EU where they could go untaxed. In detail:
- All Member States will now tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules)
- To discourage companies from using excessive interest payments to minimise taxes, Member States will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules)
- Member States will be able to tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied (general anti-abuse rule).
Further rules governing hybrid mismatches to prevent companies from exploiting mismatches in the tax laws of two different EU countries in order to avoid taxation, as well as measures to ensure that gains on assets such as intellectual property moved from a Member State's territory become taxable in that country (exit taxation rules) will come into force as of 1 January 2020.
Read more in this European Commission press release.
