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5/1/2019 Document - European Union - The Impact of the ATAD on Domestic Systems: A Comparative Survey - Tax Research Platform - IBFD
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European Union - The Impact of the ATAD on Domestic
Systems: A Comparative Survey
Daniel Gutmann,
Andreas Perdelwitz,
Emmanuel Raingeard de la Blétière,
René Offermanns,
Marnix Schellekens,
Giulia Gallo,
Adrián Grant Hap and
Magdalena Olejnicka
Vol. 57
Issue: European Taxation, 2017 (Volume 57), No. 1
Published online: 12 December 2016
This article provides an analysis of the Anti-Tax Avoidance Directive (2016/1164) of 12 July 2016.
Following a discussion of the Directive’s main features (the interest limitation, exit taxation,
general anti-avoidance, CFC and hybrid mismatch rules), a survey is provided of the impact of the
Directive on the tax systems of various Member States. It concludes with a comparative analysis
and reections on the manner in which the Directive will be transposed by the Member States.
1.General Presentation of the Anti-Tax Avoidance Directive
(2016/1164)
1.1.Importance of the Anti-Tax Avoidance Directive
The Anti-Tax Avoidance Directive (2016/1164) (the ATAD or Directive) represents a turning point in
the history of EU tax legislation. It establishes a minimum framework that Member States have to
implement in order to cope with tax avoidance practices that, according to its title, “directly affect the
functioning of the internal market”. Member States are, therefore, faced with an obligation to transpose
the ATAD into their domestic legislation and, in doing so, make structural policy choices that are likely
to affect their tax systems in the long run.
[*]
[**]
[***]
[****]
[*****]
[******]
[*******]
[********]
[1]
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The historical importance of the ATAD is not only attributable to the fact that it lays down rules of
substantive law that go far beyond the reach of existing directives in the eld of direct taxation (which,
in short, are mainly aimed at eliminating tax surcharges that adversely affect the functioning of the
internal market). The ATAD’s importance is also due to its very broad scope, which is dened in article
1. The ATAD indeed “applies to all taxpayers that are subject to corporate tax in one or more Member
States, including permanent establishments in one or more Member States of entities resident for tax
purposes in a third country”. Although Recital 4 of the ATAD claries that this scope does not extend to
entities that are considered to be transparent for tax purposes, one understands that the ATAD
constitutes a rst step towards a more general harmonization of tax bases for groups of companies
operating within the European Union – a more general trend that is now gaining headway as a result of
the publication by the European Commission of two proposals on the C(C)CTB.
It is evident, in particular, that even purely domestic situations might fall within the scope of the ATAD.
Although some provisions of the Directive (such as rules on controlled foreign corporations, exit taxes
and hybrid arrangements) might only affect cross-border situations, others may well apply regardless
of any international element: interest limitation rules have a general scope and, therefore, their
application is not limited to cross-border nancing structures; the anti-abuse mechanism enshrined in
article 6 is of a general nature as well. While article 115 of the Treaty on the Functioning of the
European Union (TFEU) (2007), which is the legal basis for the adoption of the ATAD, makes a
connection between the approximation of laws and rules that “directly affect the establishment or
functioning of the internal market”, it is noteworthy that the Member States have chosen to agree on a
means of harmonization that might, in specic situations, have a rather remote connection to the
internal market.
1.2.Methodology of the study
The context of the ATAD and its objectives have already been described in an earlier issue of European
Taxation. The goal of this article is, therefore, different. It aims to provide tax experts with a clear
understanding, not only of the ATAD as such, but also of the impact that it will have on the tax systems
of various Member States.
In order to reach this goal, the following methodology has been implemented:
[2]
[3]
[4]
every article of the ATAD is briey presented in order to remind the reader of the main features
of the system provided by the ATAD (i.e. the interest limitation rule in section 2., the exit taxation
rule in section 3., the general anti-avoidance rule (GAAR) in section 4., CFC rules in section 5.
and the provision on hybrid mismatches in section 6.);
–
this presentation is followed by a survey of the tax legislation of selected Member States. The
countries surveyed include (in alphabetical order) Belgium, France, Germany, Italy, the
Netherlands, Poland and Spain. This comparative approach to European tax systems allows for
the identication of the tax systems that are most impacted by the ATAD and the extent to
which domestic reforms will be necessary; and
–
concluding remarks (section 7.) provide for a comparative analysis of this material and present
some reections on the way the ATAD will be transposed by EU Member States.
–
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2.Article 4: Interest Limitation Rule
In addition to the above-mentioned rules, article 15ad of the Corporate Income Tax Law (CITL)
provides for a rule that limits the deductibility of interest paid in respect of a loan used to nance the
takeover of a business in the Netherlands (including interest paid to third parties, for example, banks).
The interest on such loans remains deductible if, at the moment of acquisition, the debt component of
the acquisition price was less than 60% of that amount, or if the interest expense does not exceed EUR
1 million.
While no group ratio rule similar to that contained in article 4(5) of the ATAD is contemplated under the
Spanish legislation, a stand-alone escape clause is available for tax-consolidated groups. Additionally,
the carry-forward of exceeding borrowing costs is currently limited to ve years under Spanish law,
whereas no such limitation is foreseen in the alternative options laid down in article 4(6) of the ATAD.
There seems to be no reason to believe that Spain will not adopt the group ratio rule proposed in the
ATAD. It is unclear, however, whether or not the ve-year carry-forward limit will be removed,
considering Spain’s alignment with the OECD BEPS Project, as well as the country’s inclination
towards introducing more restrictive rules regarding the tax deductibility of interest expenses.
2.1.General introduction
Article 4 of the ATAD provides for an interest limitation rule, the core provision of which stipulates that
corporate taxpayers are only able to deduct exceeding borrowing expenses incurred up to 30% of
the taxpayer’s EBITDA in a given tax period. Article 4 of the ATAD further contains a couple of
optional rules for the Member States to implement in order to provide relief from this limitation rule.
Member States may allow taxpayers a de minimis threshold of EUR 3 million to deduct exceeding
borrowing costs, exempt stand-alone companies, or introduce an escape clause based on the
ratio of the taxpayer’s equity over total assets. Further, Member States may enact a grandfathering
clause for loans concluded before 17 June 2016 and exclude loans in relation to long-term public
infrastructure projects. Lastly, Member States can choose to allow a carry-forward or carry back of
exceeding borrowing cost, with or without time limitation and a limited carry-forward of unused
EBITDA capacity.
2.2.Country report on Belgium
Belgian tax law currently does not provide for an interest limitation rule based on a 30% EBITDA
provision. Instead, two xed ratio thin capitalization rules apply: a 1:1 debt-to-equity ratio is applied to
loans granted by individual directors, shareholders and non-resident corporate directors to their
company; and a 5:1 debt-to-equity ratio applies (1) if the resident or non-resident creditor was
exempt or taxed at a reduced rate in respect of the interest paid on the debt, and (2) with regard to
intra-group loans. Excessive interest calculated under the ratios is reclassied as a non-deductible
dividend.
Furthermore, an anti-abuse provision applies pursuant to which interest is not deductible if the loan is
guaranteed or funded by a third party that partly or wholly bears the risk related to the loan. In this
situation, this third party is deemed to be the benecial owner of the interest, particularly if the
guarantee was provided articially to avoid taxation.
[41]
[49]
[50]
[5]
[6] [7]
[8] [9]
[10]
[11]
[12]
[13]
[14]
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Belgium also has various arm’s length provisions. One provision denies a deduction of excessive costs,
including interest, that cannot be justied on the basis of business reasons. The taxpayer has to
prove that the interest rate is at arm’s length, taking into account the nancial position of the company
and the term and amount of the loan.
Under a second rule, interest paid to a non-resident entity that is subject to a regime more favourable
than the Belgian tax regime is only deductible if the transaction is genuine and the amount does not
exceed normal limits, taking into account the nancial position of the company and the term and
amount of the loan. Special rules also exist regarding (the deduction of) interest payments by cash
pooling companies.
2.3.Country report on France
French tax law currently contains many rules with regard to interest limitation. None, however, are fully
aligned with the system provided for by the ATAD.
In addition to the arm’s length provisions applicable to interest rates, two rules deserve to be
mentioned.
First, the French thin capitalization rules set out in article 212 II and III of the French Tax Code
provide for some ratio tests. Interest paid to related parties – only – may be disallowed as a deductible
expense if the company’s interest payments exceed all of the following three limits:
Those three tests are cumulative. When they are met, interest over the higher limit is not deductible if it
exceeds EUR 150,000. This excess can, however, be carried forward and offset in the subsequent year
subject to some limits and conditions. This carry-forward is not unlimited since the interest carried
forward is reduced by a lump sum of 5% each year, starting from the second accounting period
following that in which the interest expenses were incurred.
There are exceptions to the interest limitation rule, for instance for nancial institutions and within the
tax consolidation regime.
A safe harbour rule also provides that excess interest may be deducted if the French indebted
company can demonstrate that the debt-to-equity ratio of the worldwide group to which it belongs is
equal to or exceeds its own debt-to-equity ratio.
Second, article 212 bis of the French Tax Code sets out a general limitation on the deduction of
nancial charges: companies are only allowed to deduct 75% of the total amount of net nancing
expenses unless this total amount is below EUR 3 million. This applies regardless of whether the
transactions are with related or non-related parties and the non-deductibility is nal.
[15]
[16]
[17]
the result of the interest multiplied by a ratio of 1.5 (net equity to related-party debts);–
25% of adjusted net income before tax (which, contrary to the ATAD provision, includes tax-
exempt dividends) plus related-party interest, amortization and certain specic lease payments;
and
–
interest income received from related parties.–
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The current provisions of the French Tax Code are not fully in line with article 4 of the ATAD. They can,
however, probably be considered “equally effective to the interest limitation rule set out in this
Directive”, within the meaning of article 11(6) of the ATAD.
2.4.Country report on Germany
It is arguable that the German rules on the limited deductibility of interest expenses served as a
blueprint for the interest limitation rule contained in article 4 of the ATAD. In 2007, Germany had
already adopted an interest limitation rule providing that interest expenses in excess of interest
income are deductible only up to 30% of a taxpayer’s EBITDA, which was subsequently “copied” by
other countries, such as Italy, Spain and Norway. The German interest limitation rule also
provides for the optional escape-clauses that may be implemented by the Member States. Section
4h(2)(a) of the EStG provides that the limitation rules do not apply if the total amount of excess
borrowing costs is less than EUR 3 million. While article 3(a) of the ATAD allows Member States to give
taxpayers the right to deduct exceeding costs up to EUR 3 million, however, the German escape clause
is an all-or-nothing rule. If net interest payments exceed the threshold of EUR 3 million, the limitation
applies to the full amount of the net interest payments. The German rule also provides for the
stand-alone entity escape clause. If the company does not belong to a group of related
companies, or only partially belongs to such a group, the interest limitation rule does not apply.
The third and nal escape clause from the limitation rule under German law is equivalent to the
optional clause provided by article 4(5)(a) of the ATAD. A taxpayer may avoid the application of the
limitation rule if the company belongs to a group of companies, provided its ratio of equity to total
balance sheet assets is not lower than 2% compared to the overall ratio for the whole group. As
the German rules were enacted back in 2007, the grandfathering rule in article 4(4) of the ATAD is of no
relevance. The same holds true for the alternative for calculating the group ratio mentioned in article
4(5)(b) of the ATAD. The German rules also provide for a mix of the options mentioned in article 4(6) of
the ATAD, namely an unlimited carry-forward and carry-back of exceeding borrowing costs and a carry-
forward of unused interest capacity for a maximum of ve years.
It appears that the German interest limitation rules are largely compliant with article 4 of the ATAD.
From a German perspective, the question of whether or not the German rules are compatible with
German constitutional law is far more interesting than their compatibility with the ATAD because of a
recent decision of the Federal Financial Court. In its decision of 14 October 2015, the Federal
Financial Court opined that the interest limitation rule is unconstitutional.
The Court found that limiting the deductibility of such expenses constitutes an infringement of the
ability-to-pay principle as derived from article 3 of the German Constitution and referred the matter to
the Federal Constitutional Court. It remains to be seen how the Constitutional Court will
evaluate the German interest limitation rule. This possible dilemma in respect of domestic law might
be resolved by the German legislator in an elegant way with effect from 1 January 2019, as
secondary EU law takes precedence over domestic constitutional law. Implementation of an interest
limitation rule throughout the European Union modelled after a German domestic rule that is found to
infringe German Constitutional law might, however, appear rather strange.
2.5.Country report on Italy
[18]
[19]
[20] [21] [22]
[23]
[24] [25]
[26]
[27] [28]
[29]
[30] [31]
[32] [33] [34]
[35]
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Under Italian law, interest expenses are fully deductible up to an amount equal to interest income
accruing in the same tax period. Any excess interest expenses are deductible only up to 30% of the
gross operating income (EBITDA) of the company. EBITDA is calculated as the difference between
(1) the value of production and (2) the costs of production, excluding depreciation, amortization
and nancial leasing instalments on business assets, derived from the company’s prot and loss
statement. Qualifying dividends received from a non-resident company in which the resident taxpayer
holds the majority of the votes at the shareholders’ meeting are also included in the calculation.
Any interest expenses in excess of the 30% threshold may be carried forward, without limitation, and
deducted in subsequent tax periods provided the relevant net interest expenses are less than 30% of
the EBITDA. Similarly, any unused amount of 30% of the EBITDA may also be carried forward, without
limitation, to increase the relevant threshold in subsequent tax periods. Where a taxpayer is a member
of a domestic consolidated group, any interest expenses exceeding the 30% threshold may be used to
offset the group’s overall taxable income, but only up to any unused amount of 30% of the EBITDA of
the other group’s companies. Finally, certain nancial undertakings, for example, banks, nance
companies and parent companies of banking groups, are beyond the scope of the EBITDA rule.
The Italian EBITDA rule is similar to the interest limitation rule contained in article 4 and generally
complies with the minimum standard set by the ATAD. The Italian rules do not, however, include certain
optional derogations and stricter rules apply where a taxpayer is a member of a domestic
consolidated group, providing for a higher level of protection for the domestic corporate tax base.
Certain problems arise with reference to the actual calculation of the EBITDA. In particular, the
Directive explicitly provides that tax-exempt income is excluded from the EBITDA of a taxpayer, while,
according to the Italian rules, qualifying foreign dividends, generally subject to the participation
exemption regime, are included in the calculation. Furthermore, under the ATAD, tax-adjusted amounts
should be taken into account in calculating the company’s EBITDA. The Italian rules, however, only
refer to the accounting values resulting from the company’s prot and loss statement.
2.6.Country report on the Netherlands
The Netherlands has a number of specic anti-avoidance rules that limit the deductibility of interest,
but no general EBITDA-based limitation rule as stipulated in the ATAD. Interest cannot be deducted
where (1) a loan is deemed to be an informal capital contribution (i.e. equity); (2) the loan is subject
to the fraus legis doctrine or just levy procedure, under which legal acts that are only aimed at tax
avoidance are ignored; or (3) the interest is deemed a hidden prot distribution.
2.7.Country report on Poland
The currently binding thin capitalization rules under Polish law were enacted with effect from 1
January 2015, after discussions undertaken at the EU and OECD levels. The current Polish provisions
limiting the deductibility of interest are considerably stricter than the previously applicable rules, but
differ from those envisaged by article 4 of the ATAD. Poland does not have a xed ratio rule as referred
to in the ATAD, which limits the deduction of a taxpayer’s net interest expense to (1) a percentage of its
EBITDA or (2) a xed group ratio rule that allows the taxpayer to deduct its net interest expense up to
its group’s net interest/EBITDA ratio. Instead, the value of debt must be compared to the value of the
[36]
[37]
[38]
[39]
[40]
[42]
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taxpayer’s equity and interest on loans and credit from related parties, both direct and indirect
(qualied lenders are direct and indirect shareholders that hold at least 25% of the borrower’s shares).
Any amount exceeding a debt-to-net equity ratio of 1:1 cannot be deducted.
Alternatively, taxpayers can elect a different method of calculating the allowable deductible level of
interest if they consider that the rules based on the debt-to-equity ratio do not correspond to the
particularities of their business and, therefore, distort the tax result. The alternative method is available
solely to qualied lenders (thus, lenders who do not meet the 25% shareholding requirement may not
benet from this option) who notify the tax authorities by the end of January of the tax year, or within
30 days if the taxpayer enters into a loan agreement in the course of the tax year. The alternative
method must be applied for a minimum period of three years.
The alternative method is based on the reference rate of the National Bank of Poland (NBP) and the
value of the assets capped at a percentage of EBIT. The amount of the deductible interest expense
(including related commissions and charges) cannot exceed the value of the taxpayer’s assets
(excluding intangibles) multiplied by the NBP reference rate, increased by 1.25%. Further, the amount
so claimed may not exceed 50% of EBIT. The limit of 50% of EBIT does not apply to banks, credit
institutions and certain nancial institutions. The alternative method of calculating deductible interest
gives the taxpayer the right to carry forward excess interest payments to the subsequent ve tax years,
which complies with the ATAD requirements. A carry-forward of non-deductible interest is, however,
not allowed under the standard debt-to-equity method.
It is clear that the Polish interest limitation rules differ from the rules provided by the ATAD but at the
same time it is dicult to evaluate whether or not they are stricter or equally effective. This is in part
due to the fact that the reference values of EBIT and EBITDA vary signicantly and can be compared
only on a case-by-case basis. It is arguable, however, that the Polish rules are effective and, therefore,
by way of derogation envisaged by article 11(6) of the ATAD, Poland may be allowed to continue to
apply the domestic rules until 1 January 2024.
2.8.Country report on Spain
The interest limitation rule applicable in Spain was introduced in 2012, along with a series of measures
aimed at reducing the public decit, and amended in 2014 when the new Corporate Income Tax
Law was enacted. The rule replaced the former article 20 of the 2004 Corporate Income Tax Law
(LIS), which consisted of a widely criticized thin capitalization rule. The Spanish interest
limitation rule, as currently laid out in article 16 of the LIS, includes most of the main measures set out
in the ATAD, namely:
[43]
[44]
[45]
[46] [47]
a limitation in respect of deductions exceeding borrowing costs set at either 30% of EBITDA or a
maximum of EUR 1 million;
–
a carry-forward of unused EBITDA;–
a carry-forward of borrowing costs that cannot be deducted in the current year;–
exceptions for nancial institutions and insurance undertakings; and– [48]
the application of the interest limitation rule to tax-consolidated groups.–
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3.Article 5: Exit Taxation
3.1.General introduction
An exit taxation rule is contained in article 5 of the ATAD. The objective of this measure is to
discourage taxpayers from transferring their tax residence and/or assets for aggressive tax planning
purposes. The four scenarios covered by article 5(1) of the ATAD provide for comprehensive
protection. The rule contained in article 5 of the ATAD takes into account settled case law of the ECJ in
recent years on the subject of exit taxation. The right to a deferral of payment for corporate taxpayers,
as provided for by article 5(2) of the ATAD, stems from National Grid Indus (Case C-371/10), as well
as the options granted under article 5(3) of the ATAD to charge interest on the outstanding amount of
exit tax or to require a bank guarantee. The measure regarding instalment payments spread over ve
years was found to be compatible with EU law in DMC (Case C-164/12) and VerderLabTec (Case C-
657/13).
3.2.Country report on Belgium
Belgium currently has exit provisions in place providing for the taxation of unrealized capital gains in
the following situations: (1) a transfer of assets from a Belgian head oce to a foreign permanent
establishment (PE); (2) a transfer of assets from a Belgian PE to a foreign head oce; (3) a transfer of
tax residence of a company abroad; and (4) a transfer of the business of a Belgian PE to a foreign
country as a result of which Belgium no longer has the right to tax the transferred assets of the PE.
With regard to a transfer of a company, the exit tax is calculated on the difference between the book
and market values of the net assets. The tax is due immediately, without the option of deferring the
payment. There is, however, an exemption in situations in which there is a transfer of a company’s tax
residence to another EU Member State. Under this exemption, any gains on assets that remain in
Belgium (i.e. those connected to a PE) and that are used to generate Belgian-source income are
exempt from exit taxation. The same applies in respect of any accumulated earnings of the
transferring company that are attributable to a Belgian PE as foreseen under the EU Merger Directive
(2009/133).
Belgium is currently implementing legislation that provides for exit taxation upon a transfer of legal
seat to another EU Member State or an EEA Member State with which Belgium has signed an
agreement on assistance in the collection of taxes. In that instance, the company will have the
option between an immediate payment of any exit tax due and payment (accompanied by an
obligation to provide a guarantee) of ve instalments. If the conditions for deferral are no longer met,
the tax has to be paid at the latest on the last day of the subsequent month. This deferral possibility is
new and only applies where there is a transfer of legal seat. The other situations mentioned above
under (1) to (4) are, in substance, similar to those mentioned in article 5(1) of the ATAD. Not covered
under Belgian law, but covered under the Directive, are a transfer of assets from a Belgian PE to a
foreign PE and a transfer of assets to a third state.
The Belgian legislation is, to a large extent, similar to article 5 of the ATAD. Rules similar to article 5(5)-
(7) of the Directive, however, remain to be implemented. Further, in order to fully comply with the
Directive as regards events that trigger exit taxation, a transfer of assets from a Belgian PE to a foreign
[51]
[52]
[53]
[54]
[55]
[56]
[57]
[58]
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PE and a transfer of assets to a third state will also need to be addressed under domestic law.
3.3.Country report on France
French tax law provides for an exit taxation regime in article 221 of the French Tax Code, which was
introduced along the lines of the ECJ’s decision in National Grid Indus (Case C-371/10). It applies
on a transfer of seat or a PE from France to an EU Member State (or EEA Member State provided
certain conditions are fullled) together with a transfer of assets. In such a scenario, the French tax
liability on unrealized capital gains can either be paid immediately or over ve instalment payments.
With regard to the “starting value” to be recognized in France when acting as the “arrival” state, the law
is silent but the French tax authorities consider, in its interpretative guidelines, that the fair market
value should be used.
The ATAD and the French provision are broadly in line, subject to some slight differences. The main
one is that, in France, the option for a payment over ve years is not applicable to a mere transfer of
assets between PEs or between a head oce and a PE (contrary to article 5(1)(a) and (b) of the
Directive).
3.4.Country report on Germany
German law provides for exit taxation corresponding to article 5(1) of the ATAD. A key element
triggering the exit taxation, according to article 5(1) of the ATAD, is a Member State’s loss of taxation
right over an asset. Germany codied a corresponding rule back in 2006. That rule is based on
former case law of the Federal Financial Court, according to which a transfer of an asset to a foreign
PE gave rise to an immediate taxation of the built-in hidden reserves if the prots of the foreign PE
were exempt from German taxation according to a tax treaty (Theorie der nalen Entnahme). While
section 4 of the EStG and section 12 of the KStG provide for the exit taxation rule, section 4g of the
EStG corresponds largely to article 5(2) of the ATAD. Section 4g of the EStG offers the taxpayer an
opportunity to defer the payment of an exit tax by paying it in instalments over ve years. The provision
providing for the payment of instalments over ve years was recently found to be compatible with EU
law in VerderLabTec. Section 4g of the EStG is, however, limited to exit taxes levied due to a transfer
to another EU Member State. The scope of the provision must be extended to cover transfers to EEA
Member States that have concluded an agreement with Germany or the European Union on mutual
assistance for the recovery of tax claims, equivalent to the mutual assistance provided for in the
Recovery Directive (2010/24) in order to comply with the minimum standard set by the ATAD.
The German rules do not provide for interest to be charged if the exit tax payment is deferred. Nor is
there a requirement that a guarantee be provided as a condition for deferring the payment. Another
feature that is missing under German law is a step-up in value for assets transferred as mentioned in
article 5(5) of the ATAD. Section 6(1) No. 5a of the EStG stipulates that such assets are to be valued at
market value. There is no direct link, however, to the (market) value established by the Member State
that levied an exit tax. In this regard, there is a further need to adjust the current German rules to
conform with the ATAD.
3.5.Country report on Italy
[59]
[60]
[61]
[62]
[63]
[64]
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A transfer of tax residence of an Italian company abroad constitutes a deemed disposal at market
value of the company’s assets and the deemed gains are subject to tax, unless the assets are
allocated to a PE in Italy. The exit tax is calculated on the difference between the market value and
the tax basis of the company’s assets at the time the company ceases to be tax resident in Italy.
Companies transferring their residence to an EEA Member State that allows for adequate exchange of
information and has concluded a mutual assistance agreement for the collection of taxes in line with
the assistance provided for by Directive (2010/24) may, however, alternatively elect to: (1) pay
the full tax due immediately; (2) defer the taxation of the deemed gain until the moment of realization;
or (3) pay the tax due over six annual instalments.
Under the deferral regime and the instalment payment regime, the company is required to pay interest
and the tax authorities may request a guarantee where there is a serious actual risk of non-recovery.
Both regimes are, however, no longer applicable where:
The same rules apply (1) to a transfer of an Italian PE or of part of its assets where they constitute a
going concern, to a qualifying EEA Member State and (2) to qualifying cross-border mergers,
demergers and other corporate reorganizations involving a qualifying EEA Member State, where no PE
is left in Italy.
In order to fully comply with the ATAD, the Italian rules on exit taxation should be amended by repealing
the possibility of deferral of taxation until the moment of realization and reducing the number of
possible annual instalment payments to a maximum of ve (the minimum standard set by the ATAD).
Furthermore, the scope of the regime should be extended to explicitly include a circumstance in which
a taxpayer transfers assets from its head oce to its PE in another qualifying EEA Member State.
3.6.Country report on the Netherlands
Articles 15c and 15d of the Netherlands CITL provide for taxation in situations in which a taxpayer
ceases to be a tax resident of the Netherlands. In such instances, the difference between the market
value and the book value of the transferred asset(s) is (are), in principle, subject to corporate income
tax that is to be paid upon emigration. Article 25a of the Tax Collection Law of 1990, introduced after
the ECJ’s decision in National Grid Indus (Case C-371/10), provides, however, for a deferral of
payment of the tax due until the moment of actual realization of the capital gain.
The Netherlands rules on exit taxation are, in large part, aligned with the provisions of the Directive.
There are, however, a number of issues that need to be addressed. Under the current rules, a transfer
of an asset from a head oce to a PE is not an event that triggers exit taxation. This has to be
amended to bring the rules in line with the Directive, specically article 5(1)(a) and (b) thereof.
In addition, article 5(2) of the Directive provides for the option to pay the tax due in instalments
(instead of upon emigration/transfer) over a period of at least ve years. As mentioned earlier,
Netherlands law currently provides for the possibility of payment over ten instalments, a provision that
[65]
[66] [67]
[68] [69]
following a merger, demerger or acquisition, the assets are transferred to a resident of a non-
qualifying third country;
–
the company winds up and liquidates; or–
the company transfers its residence to a non-qualifying third country.–
[70]
[71]
[72]
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is signicantly more lenient than that contained in the Directive and thus requires amending.
3.7.Country report on Poland
Currently, there is no exit taxation regime under Polish tax law. Further, no corporate or individual
income tax is levied on unrealized underlying prots upon a transfer of assets or transfer of residence
out of Poland’s jurisdiction. In March 2016, the Polish Parliamentary Commission for EU Affairs
announced that the Ministry of Finance will debate the issue of the introduction of an exit tax. Since
then, however, no further actions have been undertaken.
3.8.Country report on Spain
Spain’s exit taxation rule regarding a transfer of tax residence, currently contained in article 19 of the
LIS, was substantially modied in 2013, following the ECJ decision in Commission v. Spain (Case C-
64/11), which forced Spain to introduce the possibility of deferring exit taxation in situations
involving other EU and EEA Member States.
As it stands today, the exit taxation rule regarding a transfer of tax residence shares the same spirit as
article 5 of the ATAD, but lacks certain general key elements, namely:
Additionally, Spanish legislation also lacks a rule to counter the risk of non-recovery, an optional
measure under the Directive. Most importantly, article 5 of the ATAD covers a broader range of
situations than article 19 of the LIS, as it also deals with transactions involving a transfer of assets
between a head oce and its PE. A comparable rule under Spanish legislation can be found in article
18(5) of the Law on Income Tax on Non-Residents, although it only covers asset transfers from a
Spanish PE to another state. Based on the wording of article 18(5) of the LIRNR (assets of a Spanish
PE transferred abroad), however, it is arguable that both foreign entities and PEs are covered when
assets are transferred from a Spanish PE. Nevertheless, it is unclear whether or not a transfer of
assets from a Spanish head oce to a foreign PE, covered by article 5(1)(a), is covered under the
Spanish exit taxation rules.
4.Article 6: GAAR
The GAAR targets situations in which the only objective of a transaction is to obtain a tax advantage,
the non-tax objectives are very general and not specically connected with the underlying transaction,
or the non-tax objectives, although connected with the underlying transaction, are immaterial. In
applying the provision, the tax authorities only have to prove that abuse exists and not that this was the
main reason for the taxpayer to opt for a transaction or series of transactions.
[73]
[74]
a minimum deferral of ve years for instalment payments;–
discontinuing deferral of payment in the event the instalment paying obligations are not met;–
a market value equivalency rule; and–
an exception for temporary transfers.–
[75]
[76]
[80]
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Further clarication on the scope of the provision is provided by a Circular of 4 May 2012. The
Circular, inter alia, claries that if abuse exists, the tax base and tax calculation will be adjusted such
that a legal act is taxed in line with the aims of a provision.
The Belgian GAAR is similar to the Directive but not identical. One of the main differences between the
Belgian GAAR and article 6 of the Directive is that no reference is made to an arrangement being
regarded as non-genuine to the extent that it is not put into place for valid commercial reasons that
reect economic reality. Instead, the Belgian GAAR obliges the taxpayer to show that a legal act was
based on motives other than tax avoidance.
4.1.General introduction
The general anti-avoidance rule (GAAR) is found in article 6 of the ATAD. It displays elements of
various anti-avoidance doctrines, for example, sham, substance-over-form and fraus legis. When
applying the GAAR, tax authorities may disregard a chosen legal structure or arrangement if it was put
into place for the main purpose, or one of the main purposes, of obtaining a tax advantage that defeats
the object or purpose of the applicable tax law and is not genuine with regard to all the relevant facts
and circumstances.
Otherwise, the taxpayer should have the right to choose the most tax ecient structure for its
commercial affairs. Recital 11 of the ATAD states further that it is important to ensure that the
GAAR applies in domestic situations, within the European Union and vis-à-vis third countries in a
uniform manner, so that the scope and results of the application in domestic and cross-border
situations do not differ.
4.2.Country report on Belgium
Belgian tax law provides for a GAAR under which a transaction or series of transactions may be
disregarded by the Belgian tax authorities if an arrangement was based on an abuse of law. An
abuse of law is deemed to occur when the taxpayer carries out a transaction whereby the taxpayer
either avoids the application of tax provisions in a manner that is not compatible with their objectives
or claims a tax benet that is contrary to the legislative intent of a tax provision.
4.3.Country report on France
Article L64 of the Tax Procedure Code (TPC) prohibits an abuse of law (abus de droit). The sanction
attached to an abuse of tax law is signicant; the tax authorities are entitled to reassess the tax that
was avoided, plus late payment interest of 4.80% per year, plus a penalty amounting to up to 80% of the
tax avoided.
Article L64 of the LPF provides that:
[80]
[77]
[78]
[79]
[81]
[82]
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In order to restore their true character, the tax administration is entitled to disregard
acts constituting an abuse of rights, either when those acts have a ctitious character,
or when they seek the benet of a literal application of texts or decisions contrary to
the objectives sought by their authors, provided such acts could not have been inspired
by any purpose other than that of avoiding or reducing the tax liability that, had such
instruments not been concluded, the taxpayer would normally have borne with regard
to its actual situation and real activities.
As a result, abuse of law has two aspects:
There are two main differences between the ATAD GAAR and the French concept of abuse of law. The
rst is that the ATAD GAAR explicitly refers to arrangements that are “non-genuine to the extent that
they are not put into place for valid commercial reasons which reect economic reality”. Although the
wording of the French GAAR does not explicitly mention this, the interpretation of “abuse of law” by the
French Courts actually takes “substance” into account.
The second is that the ATAD GAAR applies when the “principal purpose or one of the principal
purposes” is to obtain the tax advantage while the French rule applies when the “exclusive” purpose is
to obtain it. Interestingly, in 2014, article L64 of the Tax Procedure Code was modied by
parliament such that the exclusive purpose test was substituted by a principal purpose test in order
to prevent the exclusive purpose test from being circumvented by nding an economic or nancial
advantage, which could have been negligible, to justify the operation. The rule never became
effective, however, as the Constitutional Council considered that it would grant an “important margin of
appreciation to the tax authorities” and based on the constitutional principle of legality of offences,
which obliges the legislator to precisely dene the criteria to be applied, it was unconstitutional. In
its own commentary on the decision, the Constitutional Council notes that the Conseil d’Etat already
considered that if the tax advantage is “predominant” in comparison to the economic advantage, it can
be concluded that the taxpayer behaviour was inspired by an exclusive tax motive. It must be noted
that when the Parent-Subsidiary Directive (2015/121) GAAR was implemented under French tax
law, the Constitutional Council considered that the rule denes the tax base for corporate income tax
purposes and does not trigger a sanction that could be characterized as a punishment. As a result, the
principle of legality of offences was not applicable and, therefore, the text was deemed constitutional.
It remains to be seen whether or not France will rely upon the interpretation of article L64 of the Tax
Procedure Code of the Conseil d’Etat and the Constitutional Council to conclude that the provision is in
line with the ATAD or if it will consider it necessary to introduce a provision similar to that of the ATAD.
4.4.Country report on Germany
a prohibition against simulation, i.e. acts that are ctitious; and–
a prohibition against fraus legis, acts that exclusively pursue a tax purpose. Two elements must
be present: the act/transaction must be undertaken exclusively for a tax purpose and the
taxpayer must be seeking to benet from a literal application of the law that is contrary to the
intent of its authors.
–
[83]
[84]
[85]
[86]
[87]
[88]
[89]
[90]
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The German GAAR is codied in section 42 of the AO. Paragraph 2 of section 42 of the AO denes
abuse. Accordingly, an abuse shall be deemed to exist where an inappropriate legal option is selected
that, in comparison with an appropriate option, leads to tax advantages unintended by law for the
taxpayer or a third party. This does not apply where the taxpayer provides evidence of relevant non-tax
reasons for the selected option when viewed from an overall perspective. The Federal Financial Court
has interpreted the provision over the years such that a legal arrangement that is inappropriate
compared to the economic intention, is aimed at achieving a tax reduction and is not justiable by
economic or other relevant non-tax reasons, is considered to be abusive. It is also established case
law of the Federal Financial Court, however, that taxpayers are allowed to arrange their affairs such
that their tax burden is reduced. If the taxpayer crosses the line between a legitimate transaction and
an abusive arrangement, however, the transaction may be disregarded under the GAAR.
Compared to the German GAAR, the GAAR contained in article 6 of the ATAD puts more emphasis on
the intention of the taxpayer, as an arrangement must have been put into place for the main purpose or
one of the main purposes of obtaining a tax advantage. Article 6(2) of the ATAD denes further that an
arrangement or a series thereof shall be regarded as non-genuine to the extent that it is not put into
place for valid commercial reasons that reect economic reality. At rst glance, the provision in the
ATAD appears to have a broader scope than the German GAAR.
It remains to be seen how the GAAR in the Directive will be interpreted. A different interpretation of the
existing German GAAR, in light of the ATAD, might be required in the future. Legislative action does not,
however, seem to be required.
4.5.Country report on Italy
Under the statutory GAAR, introduced by Legislative Decree No. 128/2015, one or more
transactions constitute abuse of law where they lack economic substance and, even if formally
consistent with tax law, are essentially aimed at obtaining undue tax advantages. The provision
species that:
The statutory GAAR is, to a large extent, in line with article 6 of the ATAD. Indeed, both provisions
characterize abusive transactions in relation to tax advantages that defeat the purpose of the
applicable tax law. Under the ATAD, however, obtaining an undue tax advantage must be the main or
one of the main purposes. Consequently, the ATAD seems to have a broader scope than the Italian
GAAR, based on a narrower essential purpose test.
4.6.Country report on the Netherlands
[90]
[91]
[92]
[93] [94]
transactions are deemed to be lacking economic substance where they consist of facts, acts
and contracts, also interconnected, that do not generate signicant effects other than tax
advantages. Possible indicators of a lack of economic substance include inconsistency (1)
between the qualication of single transactions and their legal basis as a whole or (2) between
the use of certain legal instruments and ordinary market practices; and
–
undue tax advantages consist of tax benets, even if not immediate, obtained in contrast to the
purpose of the tax provisions or the principles of the tax system. Transactions do not, however,
constitute abuse of law where justied by valid and non-marginal non-tax reasons.
–
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Aside from article 17(3)(b) of the CITL, which implements the anti-abuse rule contained in EU Directive
(2015/121), the Netherlands has one other statutory anti-abuse rule: the just levy rule (richtige
heng). The main method for tackling abuse is, however, the doctrine of fraus legis (abuse of law)
developed through case law. In order to apply fraus legis, two requirements must be met:
If these two requirements are met, the tax authorities may ignore the taxpayer’s arrangement and even
replace it with a close equivalent that allows for (greater) taxation.
In a letter to the Lower House of Parliament, the State Secretary for Finance stated that the
Netherlands considers that it has already implemented, through the development of the fraus legis
doctrine, the GAAR. Considering the statement of the State Secretary for Finance, it is not likely that
the GAAR contained in the Directive will be codied in the near future. Although the fraus legis doctrine
is only dened in case law, that denition is conceivably close enough to that of the Directive’s GAAR
that further amendments might not be needed. The Directive speaks of the “[…] essential purpose of
obtaining a tax advantage […]”, while fraus legis requires that taxation be the exclusive or predominant
motive for the arrangement. Though the wording on this point differs, the central requirement that
there be a “tax motivated” arrangement is probably enough to meet the needs of the Directive. Further,
fraus legis is in line with the Directive as regards the reference to the “[…] object or purpose of the
otherwise applicable tax provisions […]”, the “[…] valid commercial reasons […]” carve-out and the
reference to taxation in accordance with economic substance (i.e. the close equivalent). Although the
wording appears similar enough, (ECJ) case law will have to more accurately demarcate the scope of
the GAAR as contained in the Directive, following which a more thorough comparison between the
GAAR and fraus legis can be made.
4.7.Country report on Poland
A GAAR was only recently introduced in Poland (effectively applicable from 15 July 2016). Its
introduction was inspired by the developments targeting aggressive tax planning at the EU level. It is
based mainly on the recommendations of the European Commission. In comparison to the ATAD and
the rules of other countries, the Polish GAAR is more complex and encompasses measures in addition
to those of the minimum standard. The wording of the Polish GAAR, especially its core provision, is
fairly similar to the wording of and reects the main objective of the GAAR as envisaged by the ATAD.
The core provision provides that a tax advantage shall be denied if the principal purpose of an
arrangement (literal wording “an action”) was to obtain a tax advantage that contradicts the subject
and objective of a tax provision and the arrangement was undertaken in a ctitious manner (tax
avoidance). The Polish GAAR does not use the exact ATAD wording of “non-genuine arrangements” but
refers to actions of “an articial character” that would not be undertaken by an entity acting in a
reasonable manner and motivated by legitimate purposes other than achieving a tax advantage, which
is stricter. Furthermore, the Polish GAAR provides for a list of criteria to be considered when assessing
if an arrangement is of “an articial character”.
[95]
[96]
the decisive reason for entering into a (set) of arrangement(s) must be the frustration of
taxation – a subjective element that considers the intent of the taxpayer; and
(1)
[97]
the arrangement must be contrary to the object and purpose of the legislation – an objective
element.
(2)
[98]
[99]
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With regard to an arrangement deemed to be articial, the tax liability is to be determined by reference
to an arrangement that would be made in a reasonable manner. An arrangement is deemed to be made
primarily in order to achieve a tax advantage if other commercial objectives or economic activities, as
indicated by the taxpayer, are insignicant. A “tax advantage” is dened as relief from tax, a reduction
in deferral of tax, an overestimate of a tax loss, an overestimate of a tax overpayment, or a tax refund.
A tax advantage will not be recognized for GAAR purposes if its amount or the sum of the tax
advantages gained by the taxpayer in a tax year or other tax settlement period does not exceed PLN
100,000 or the taxpayer has received a protective tax ruling from the Minister of Finance. A protective
tax ruling is a special kind of ruling that a taxpayer can apply for to ensure that, in his particular case, a
tax (ecient) structure will not be deemed as ctitious and will not be targeted by the GAAR.
4.8.Country report on Spain
A rule similar to the GAAR proposed in the ATAD was introduced in Spain in 2003 with the approval of
the General Tax Law. As it currently reads, article 15 of the LGT stipulates that a tax rule may
not be applied if the taxable event:
The Spanish rule seems to share similar intentions as article 6 of the ATAD, although it still lacks at
least two key elements in order to be fully aligned with the GAAR proposed in the ATAD, namely:
As it stands, the singular concepts used by the Spanish GAAR have been criticized for not giving
enough legal certainty in an international context. In aligning the Spanish GAAR with the standards
provided by the ATAD, Spain will have an opportunity to include the aforementioned missing key
elements.
5.Articles 7 and 8: CFC Rules
5.1.General introduction
Controlled foreign company (CFC) rules have the effect of re-attributing income of a low-taxed
controlled subsidiary to its parent company. While some Member States implemented CFC rules
as early as 40 years ago, more than half of the current Member States do not have CFC rules in place.
Depending on the policy priorities of the Member States, CFC rules may target an entire low-taxed
subsidiary, specic categories of income or be limited to income that has been articially diverted to
the subsidiary. The Directive had to offer different options in order for political agreement to be
reached on the Directive. In any event, the Directive provides for a substance carve-out for CFCs that
carry on a substantive economic activity supported by staff, equipment, assets and premises, as
[100] [101]
is notoriously articial or inappropriate in relation to the result obtained; and–
produces no judicial or economical results other than a tax saving.–
a description of the concept of an arrangement as comprising more than one step or part; and–
the inclusion of a concept of valid economic reasons.– [102]
[103]
[104]
[105]
[106]
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evidenced by relevant facts and circumstances, in accordance with the ECJ decision in Cadbury
Schweppes (Case C-196/04). The Directive further gives Member States the option to extend this
carve-out to CFCs resident in third states.
5.2.Country report on Belgium
Belgium has no CFC legislation in place and has not taken or announced further steps to introduce
CFC legislation.
5.3.Country report on France
France has CFC rules in article 209 B of the French Tax Code. One may consider that the provision
is broadly in line with the ATAD entity approach CFC provision.
The entity denition and the concept of control are broadly similar. With regard to the tax burden, one
has to compare the actual corporate tax charge to determine if the foreign entity is subject to a
“privileged tax regime”, i.e. an effective tax rate lower than 50% of what it would have been had the
company been taxable in France.
One main difference that seems to exist between the French and EU rule is that the French provision
establishes that all income of the CFC is attributed to its parent, in due proportion to its stake in the
foreign legal entity.
In line with article 8(1) of the ATAD, the results of the foreign entity that are taxable in France in the
hands of the French company are computed under the French tax rules and losses of the French
company are not offset against the French taxable result, but can be carried forward against its own
prots.
The result of the foreign entity is deemed to be distributed and is taxed as a deemed dividend. If
the French company owns a PE, it is taxable on its result as business income.
Finally, there are rules to prevent double taxation. The main difference is that the rule provided for in
article 8(6) of the ATAD seems to go further than the French tax rules since it also applies in the event
of a disposal of the CFC.
With regard to safe harbour, the French Tax Code provides for a specic rule applicable within the
European Union where article 209 B applies only to articial arrangements aimed at circumventing
French tax law. A more general safe harbour rule is applied when the French entity demonstrates that
the object and effect of the operations are not, principally, to localize prots in a country where it is
subject to a privileged tax regime. This is, for example, the situation when the CFC carries on mainly an
effective industrial or commercial activity in the foreign territory. It is arguable that having such a safe
harbour is compulsory under French constitutional principles, since an anti-abuse rule should not rely
on an irrebuttable presumption. As a result, France will probably keep this safe harbour despite the
possibility offered by the ATAD not to introduce one in third-country situations.
5.4.Country report on Germany
[106]
[107]
[108]
[109]
[110]
[111]
[112]
[113]
[114]
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CFC rules were enacted in Germany in 1972. Since their enactment, however, the rather extensive
rules have not been substantially updated. To a large extent, the German CFC rules are identical to the
minimum standard set by the ATAD or even go beyond that standard. The provisions apply if one or
more German residents hold, in total, more than 50% of the share capital of the non-resident company,
that company yields passive income and the passive income was subject to a tax rate of less
than 25%.
As regards the required level of control over a CFC, the German rules are identical. The German rules
are, however, even stricter and apply in circumstances in which a CFC receives specic capital
investment income where the taxpayer holds more than 1% of the shares in the CFC. Like the
ATAD, the German rules address low taxation based on the effective tax rate. While the ATAD refers to
a minimum standard rate of 50% of a Member State’s effective tax rate as the low taxation threshold,
the German CFC rules apply if the CFC is subject to an effective tax rate of less than 25% and thus
go beyond the ATAD standard. Even though this is acceptable in view of recital 12 of the ATAD,
the rate of 25% exceeds by far the minimum standard of article 7(1)(b) of the ATAD, which is
7.5% in respect of Germany. It is, therefore, likely that the German standard will be lowered to
15%-20%.
Contrary to the ATAD, which provides a list of income categories that are subject to the CFC rules in
article 7(2)(a), the German CFC rules provide for a list of different types of income that are deemed to
be active. Any other income is deemed to be passive and thus subject to the CFC rules. While the
German approach seems, at rst glance, to be simple, the list of types of income deemed to be active
is dicult to handle because of the complex language, as well as the legislative technique used, which
involves exceptions to the rule and exceptions to the exceptions. Nonetheless, it seems that the
German rules fall a bit below the minimum standard set by the Directive, as dividends and capital
gains, as well as income from insurance, banking and other nancial activities, is considered
active income in section 8(1) of the AStG, although income from banking and other nancial activities
is considered active income only if a CFC conducting such activities maintains a commercial operation
for the purpose of conducting its business. This is similar to the substance carve-out foreseen in
article 7(2)(a) of the ATAD and, therefore, an amendment to the rule should not be necessary. The
same may hold true for dividends and capital gains, as such income would be exempt under the
application of the German domestic rules that should be applied in calculating the CFC income.
Thus, the inclusion of such types of income as passive into the income of a CFC would not have
any effect. Section 8(2) of the AStG provides for a substance carve-out for CFCs that carry on a
substantive economic activity as foreseen in article 7(2)(a) of the ATAD. The German CFC
rules do not provide for a substance carve-out for CFCs situated in third countries as mentioned in
article 7(2)(a) of the ATAD. The second option of dening CFC income under article 7(2)(b) of the
ATAD and the related threshold exception are not relevant from a German perspective.
The German CFC rules relating to the computation of CFC income are also generally compatible
with the rules set out in article 8 of the ATAD. A minor deviation relates to article 8(4) of the ATAD,
which provides that the CFC income shall be included in the tax period of the taxpayer in which the tax
year of the entity ends, while the German rules provide that the CFC income be included only after the
scal year of the entity has ended.
5.5.Country report on Italy
[114]
[115]
[116]
[117]
[118]
[119]
[120] [121]
[122]
[123]
[124]
[125]
[126]
[127]
[128]
[129] [130]
[131]
[132]
[133]
[134]
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Under Italian law, prots realized by a non-resident entity are deemed to be the prots of an Italian
resident person if:
An entity is deemed to be controlled if:
A jurisdiction is deemed to have a privileged tax regime, whether it is a general or special regime,
where the nominal level of taxation is lower than 50% of that applied in Italy. The rule does not apply,
however, in respect of an EEA Member State that allows for an adequate exchange of information.
All prots realized by the CFC are attributed to the resident person in proportion to its equity
participation. CFC income is computed according to the Italian provisions applicable to resident
persons earning business income, with certain exceptions, and taxed, separately, at the resident
person’s average tax rate (not lower than the Italian corporate income tax rate). Relevant foreign taxes
may be credited against the Italian tax due.
The application of the CFC rules may be avoided if the resident person proves that:
Finally, CFC rules may also apply to controlled entities located in a jurisdiction with no privileged tax
regime, provided that the following conditions are met:
This last provision does not, however, apply if the resident person proves that the localization abroad
does not constitute an articial scheme aimed at achieving undue tax advantages.
The Italian CFC rules comply, to a large extent, with the minimum standard set by the ATAD. They
provide for a broader scope of application due to the expansive denition of control and the adoption
of the entity approach when taxing the CFC’s income.
[134]
the resident person controls, directly or indirectly, the non-resident entity; and–
the entity is resident in a jurisdiction that is deemed to have a privileged tax regime.–
[135]
a person holds, directly or indirectly, the majority of the votes at the shareholders’ meeting;–
a person holds, directly or indirectly, sucient votes to exert a decisive inuence at the
shareholders meeting; or
–
the entity is under the dominant inuence of another person due to a special contractual
relationship.
–
the non-resident entity predominantly carries on an actual industrial or commercial activity in
the market of the country where it is located. This condition cannot be met, however, if more
than 50% of the CFC’s proceeds consists of passive income, as dened for CFC purposes;
or
–
[136]
the participation in the non-resident entity does not result in income being localized in a
jurisdiction with a privileged tax regime.
–
the effective rate of taxation in the foreign jurisdiction is lower than 50% of the Italian taxation
that would have been applied to the CFC if it had been resident; and
–
more than 50% of the CFC’s proceeds consists of passive income for CFC purposes.–
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It should be noted that, with regard to the denition of a CFC, the ATAD refers to the actual corporate
tax paid in the foreign country and not to its nominal level of taxation, adopting a stricter approach.
The Italian CFC legislation, however, also makes reference to the effective taxation borne by the CFC
with regard to a controlled entity that mainly derives passive income. Therefore, the minimum standard
is, at least in part, satised.
5.6.Country report on the Netherlands
The Netherlands currently has no CFC legislation. Article 3.29a of the Income Tax Law 2001, in
conjunction with articles 8(1) and 13a of the CITL, are essentially revaluation provisions with a CFC-
type element.
The Netherlands has indicated that it intends to implement CFC rules, but only if this is done in an EU-
wide context. With this Directive, the main condition for the Netherlands to implement such
legislation has been fullled. Thus, legislation to implement CFC rules will, it appears, almost certainly
be introduced, but it is not known when.
5.7.Country report on Poland
The Polish CFC rules that were introduced with effect from 1 January 2015 apply to the non-
distributed income of an entity or a PE, provided the following three criteria are cumulatively met:
The level of holding to determine control is fairly low in comparison to the 50% holding envisaged by
the ATAD. The level of holding may be even lower than 25% if a CFC is located in a tax haven or a
jurisdiction that does not exchange information on tax matters with Poland. In such instances, the
criterion regarding the location of the foreign company is sucient to consider the foreign company as
being controlled. Furthermore, the Polish CFC regime applicable to companies does not foresee joint
shareholding criteria, allowing associated companies that each have a lower than 25% holding in a
foreign entity, but together have factual control over that entity, to be targeted.
As regards the denition of CFC income, the Polish rules are generally in line with the ATAD.
Certain sources of income are not, however, explicitly included, such as income from nancial leasing,
income from immovable property and income from services provided to the taxpayer or its associated
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the Polish taxpayer, a company or an individual, holds directly or indirectly at least 25% of the
share capital, 25% of the voting rights or a 25% share in the prots of the CFC for an
uninterrupted period of a minimum of 30 days in the relevant tax year;
–
50% or more of the CFC’s income is derived from passive sources, i.e. from dividends and other
participations in the prots of legal companies, capital gains, income from receivables, interest,
guarantees, intellectual property rights (copyrights, industrial design rights) and the alienation of
those rights, as well as rights from nancial instruments and the alienation of those rights; and
–
at least one of the categories of passive income derived by the CFC is subject to tax in the
country of residence of the CFC at a rate that is at least 25% lower than the Polish (nominal)
corporate tax rate of 19%, which means lower than 14.25%, or falls outside the scope of
corporate income tax or is exempt from tax in that country (as opposed to 50% of the effective
tax rate, as foreseen in the ATAD).
–
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companies.
In line with the ATAD, the Polish CFC regime does not apply if the CFC is subject to worldwide taxation
in an EU Member State or a third country that is a party to the European Economic Area Agreement
(1992) and carries on in that Member State or third country a “genuine economic activity”.
Contrary to the ATAD, there is no exclusion for nancial undertakings resident in an EU Member State
or a third country that is a party to the EEA Agreement. Additionally, Polish CFC rules provide for a de
minimis exemption threshold: where the annual gross income of the CFC does not exceed the
equivalent of EUR 250,000, the CFC rules are not triggered. The threshold also applies to CFCs located
in tax havens or jurisdictions that do not exchange information on tax matters with Poland.
If the three conditions are cumulatively met, the Polish taxpayer will be taxed on the attributed CFC
income, in proportion to the holding period and share in the CFC’s prots. This covers all income
earned by the CFC, including passive income, as well as income derived from business activities
(“entity approach”). If a CFC is located in a tax haven, the shareholders have to pay the tax on the whole
amount of the income earned by the CFC irrespective of its actual share in the income. In line with the
ATAD, the tax base may be decreased by dividends received from the CFC and proceeds from the
alienation of shares in the CFC. Any amounts that cannot be deducted in a given tax year may be
carried forward and deducted in the following ve years. Polish national law does not permit either the
inclusion of CFC losses in the tax base of the taxpayer (as foreseen in the ATAD) or the option to
carry forward CFC losses.
5.8.Country report on Spain
In general terms, the Spanish CFC rules, which were updated in 2015 in response to the OECD BEPS
initiative, seem to t most of the provisions, as they share the following main features:
One major departure under Spanish legislation from the CFC rules proposed by the ATAD is the
inclusion of several exceptions. In this sense, the Spanish rule is considerably more detailed. In
addition, regarding the inclusion of prots subject to a low effective corporate tax rate, the percentage
is stricter in Spain, i.e. up to 75% in article 100(1)(b) of the LIS, instead of the more generous 50%
proposed by the ATAD.
6.Article 9: Hybrid Mismatches
6.1.General introduction
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a 50% rule for the inclusion of non-distributed income in the taxpayer’s tax base (participation,
voting rights, prots);
–
a foreign corporate tax rate threshold;–
the inclusion of more than 50% of income accruing from certain categories (interest derived
from nancial assets, income from nancial leasing, etc.); and
–
the use of resident country rules in the computation of CFC income.–
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The objective of the provision on hybrid mismatches stipulated in article 9 of the ATAD is to neutralize
the tax effects of hybrid mismatch arrangements that exploit differences in the tax treatment of an
entity or instrument under the laws of two or more Member States to achieve a deduction in both
states or a deduction of the income in one state without inclusion in the tax base of the other. The
rule contained in article 9 is similar to the recommendations contained in the nal report on Action 2 of
the OECD’s BEPS project. The scope of the Directive’s provision is, however, limited to intra-EU
scenarios. A new legislative proposal was presented by the Commission on 25 October 2016 with
further rules on hybrid mismatches also covering scenarios involving third countries.
6.2.Country report on Belgium
In September 2016, Belgium started the process of implementing the hybrid provision of the Parent-
Subsidiary Directive (2011/96). Consequently, the 95% deduction in dividends received under
Belgian domestic law will not be granted if those dividends were deducted by the distributed company
or PE. The scope of the Belgian provision is, however, broader than the rule of the Parent-
Subsidiary Directive because it also applies to dividends received from third counties outside the
European Union. In addition, Belgian tax law follows the classication of the source state when it
comes to classifying foreign entities as transparent or non-transparent entities for Belgian law
purposes, but does not provide for any further rules on double deduction or deduction and non-
inclusion of income. Belgium, thus, needs to implement rules in accordance with article 9 of the ATAD.
6.3.Country report on France
Article 145-6 b) of the French Tax Code codies the anti-hybrid provision contained in the Parent-
Subsidiary Directive (2011/96), which obliges the Member State of the parent company to tax
distributed prots “to the extent that such prots are deductible by the subsidiary”. Its application is
not geographically limited to prots distributed by EU subsidiaries.
A second provision, article 212-I b) of the French Tax Code, provides for a kind of anti-hybrid rule
targeting only nancial instruments. Its aim is broader than that of the ATAD since it does not target a
conict of legal qualication of an instrument. It applies to interest payments between related
companies, and to interest paid by a French company (subject to tax) to a French or a foreign
company that is, in respect of the current tax year, subject to corporate tax at a rate of less than
25% of the corporate income tax that would be due under general French tax rules.
When the lender is domiciled or established outside France, one should determine the tax liability that
the lender would have been subject to on the interest if it had been in France. According to the tax
authorities, one should only look at the statutory rate, i.e. the rate applicable to the gross product.
Implementation of the ATAD would, therefore, require several modications to the French Tax Code,
leading to the introduction of specic rules for hybrid entities.
6.4.Country report on Germany
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Back in 2013, Germany introduced an anti-hybrid rule similar to the amendments to the Parent-
Subsidiary Directive (2011/96) with regard to hybrid instruments, pursuant to which the participation
exemption for dividends is denied if the payment qualies as a tax-deductible expense at the level of
the payer. This provision works in the opposite way as that provided for in article 9(2) of the ATAD,
however, as that provision stipulates that the Member State of the payer should deny the deduction in
such a situation. As regards article 9 of the ATAD, Germany will need to implement substantial rules
dealing with hybrid mismatches, due to a lack of respective legislation. In 2014, a draft bill had
already been approved by the Federal Council (Bundesrat), but was not adopted by the lower house of
the parliament (Bundestag), that might be in the spotlight soon again. That draft bill provided for an
anti-hybrid rule for outbound payments covering situations of double deduction and of deduction and
non-inclusion.
6.5.Country report on Italy
Italian tax law provides for a 95% exclusion of foreign dividends from taxable income, subject to the
condition that they have not been fully or partially deducted in the foreign source country. Furthermore,
Italy fully implemented the amendments to the Parent-Subsidiary Directive (2011/96) with respect to
hybrid instruments and, subject to certain conditions, the 95% exclusion also applies to yields on
foreign securities and nancial instruments that are fully tied to the economic results of the issuer,
provided that they are not deductible in the hands of the issuer. Targeted anti-hybrid mismatch
rules need to be introduced, especially with regard to situations resulting in a double deduction.
6.6.Country report on the Netherlands
The only explicit anti-hybrid (instrument) mismatch rules that the Netherlands currently has are
contained in articles 13(17) and 13aa(7) of the CITL. These were introduced as part of the Tax
Plan 2016 and are applicable from 1 January 2016. These two provisions implement Directive
2014/86/EU into domestic law. The scope of articles 13 and 13aa of the CITL is not limited to
intra-EU situations, but also applies to payments between the Netherlands and third countries. There
are no rules in place regarding the characterization of hybrid entities. In a letter to the Lower
House of Parliament, the State Secretary indicated that article 9 of the Directive has limited
consequences for the Netherlands, as it has already implemented Directive 2014/86/EU. This being
said, Directive 2014/86/EU only addresses the treatment of the payment at the level of the recipient
(which depends on how the payment is treated at the level of the payer). The Netherlands does not
have any statutory rules in place that allocate or deny deductions from a source-state perspective in
line with those envisaged by article 9 of the Directive. Therefore, in order to comply with the Directive,
the Netherlands would have to implement such rules.
6.7.Country report on Poland
There are no provisions in Polish tax law targeting hybrid mismatches that result from different legal
characterizations of payments (nancial instruments) or entities. The only measure, erroneously called
an “anti-hybrid clause”, reects the implementation of the EU Directive 2014/86, which denies an
exemption from tax in respect of inbound dividends or other prot distributions to the extent they were
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included in the tax-deductible costs of the distributing company or in any way decreased the income,
tax base or tax of such a company. The government has not undertaken any actions so far with
regard to the introduction of the anti-hybrid clause as envisaged by the ATAD.
6.8.Country report on Spain
The Spanish hybrid rules contained in articles 15 and 21 of the LIS include three provisions denying the
deductibility or exemption of certain expenses:
In comparing these rules to article 9 of the ATAD, it is clear that there is a different approach towards
countering hybrid mismatches. Whereas Spanish legislation relies on denying exemptions or
deductions under rather specic scenarios, article 9 of the ATAD covers a broader range of situations
through more general rules. Therefore, Spanish legislation requires some amendments in order to
implement article 9 of the ATAD. Among others, a denition of the concept of “hybrid mismatch” that
includes the distinction between double deduction and deduction without inclusion is required.
7.Concluding Remarks
7.1.Findings of the comparative overview of domestic tax systems
The national reports presented above lead to the conclusion that the ATAD is likely to have a huge
impact on domestic tax systems. While all systems are not affected to the same extent (as some
systems clearly served as sources of inspiration for some articles), all of them will have to be reformed
in a rather signicant way. The following provides a brief summary of the essential ndings stemming
from the comparison of the current systems in light of the ATAD.
7.1.1.Interest limitation (article 4)
In Belgium, France, the Netherlands and Poland, article 4 of the ATAD has no technical equivalent.
These countries currently prefer thin capitalization rules (Belgium and Poland), other specic anti-
avoidance rules or a complex mix of both SAARs and general anti-avoidance provisions. The record in
terms of complexity seems to be held by France, but this is debatable. It is, therefore, clear that the
logic of the ATAD, namely a cap for deductibility purposes equal to 30% of EBITDA, has to be
introduced into these systems.
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Article 15(a)(A) of the LIS denies the deduction of expenses representing equity payments
(participating loans), irrespective of their consideration for accounting purposes.
–
Paragraph 6 of article 21(1)(b) of the LIS denies an exemption in respect of dividend or prot
participations when their distribution generates a deductible expense at the level of the paying
entity.
–
Article 15(j) of the LIS denies an exemption for expenses linked to transactions carried out with
related persons or entities that, as a consequence of being qualied differently, do not generate
income or generate income that is either exempt or subject to a nominal tax rate below 10%.
–
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But even those systems that are currently accustomed to the mechanism enshrined in article 4 will
have to adapt. The ATAD borrowed a lot from the German legislation, but the EUR 3 million safe
harbour under German Law and in the ATAD have different meanings from a technical point of view.
Italy is also familiar with the spirit of article 4 but signicant differences exist, in particular because no
safe harbour is granted under Italian law where exceeding borrowing costs are below EUR 3 million
and especially because the concept of EBITDA is signicantly different, with no specic exclusion for
tax-exempt income. Spain is in a comparable situation, with a system that is globally comparable to
the ATAD but technically different in many respects (especially regarding the group ratio rule and the
carry-forward for exceeding borrowing costs).
7.1.2.Exit taxation (article 5)
In the area of exit taxation, the ATAD introduces a real change for those countries that either do not
have an exit tax (Poland), or allow taxpayers to defer the payment of the tax until the actual realization
of the capital gain (see, in particular, Italy and the Netherlands). States that do have a concept of exit
taxation with regard to a transfer of corporate residence might not apply it to a transfer of assets and
will have to change their legislation in this respect (Italy, the Netherlands, Belgium). Lastly, even states
that are closest to the model designed in article 5 (to the extent that they oblige the taxpayer to pay an
exit tax even before realization in annual instalments) depart from it, as they do not necessarily charge
interest for late payment or require specic guarantees. The French rules regarding transfers of assets
are quite different from those laid down in article 5, even though the French system is close to the
ATAD overall. And lastly, the majority of countries do not explicitly (or even implicitly) provide for a
step-up in value where an entity or asset enters their tax jurisdiction.
7.1.3.GAAR (article 6)
As the wording of article 6 is very specic, no country among the seven studied seems to possess an
identical rule of such a general nature. Interestingly, the differences between article 6 and domestic
systems may be explained by the fact that tax policies pursued by Member States are different, and
sometimes even contradictory: while the German GAAR puts less emphasis on the taxpayer’s intention
than article 6 does, other GAARs require that the tax administration show that the tax objective
pursued by the taxpayer is “essential” (Italy) or even exclusive (France). Other types of GAARs insist on
the articial character of schemes that they cover (Poland, Spain).
To what extent should domestic GAARs be reformed in order to comply with the ATAD? This is a very
serious question. One might take the view that beyond the differences in wording, the concepts are
basically the same (which seems to be the approach of the Netherlands government) and reform is,
therefore, unnecessary (except, of course, for a country that does not have a GAAR). One might
wonder, however, whether the actual impact of the ATAD will be to create a two-level standard to ght
tax avoidance. In a country like France, where the GAAR is dened very narrowly but gives rise to a
specic penalty of a criminal nature, it may be alleged that a dual standard will exist in the future: a
“relaxed” GAAR with no connected penalty and a “stricter” one with specic penalties (as is already
applicable in the area of the Parent-Subsidiary Directive (2011/96)).
7.1.4.CFC rules (articles 7 and 8)
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The ATAD is certainly an important step for countries that, like the Netherlands and Belgium, have no
CFC rules in place and will have to choose between the two options provided by the Directive regarding
the denition of income attributed to the parent company. It is worth noting in this respect that option
(b) of article 7.2 (transactional approach based on the nding that there is a “non-genuine
arrangement”) seems at least partially to have been enacted precisely with a view to allowing states to
retain the possibility of taxing controlled foreign corporations on a case-by-case basis rather than on
the basis of a more general entity approach.
Other countries that are familiar with CFC rules will nd, in the ATAD, more or less signicant
differences in respect of holding percentage requirements (see notably Poland), the concept of control
(Italy), the denition of a low-tax jurisdiction (Italy), the functioning of the entity approach (Germany,
France), exemptions (Poland), the elimination of double taxation (France) or safe harbours with regard
to third-country CFCs (France, Germany).
7.1.5.Hybrid mismatches
Hybrid mismatches is an area where domestic legislation is still very underdeveloped (outside the
scope of the specic anti-avoidance rule laid down by the Parent-Subsidiary Directive (2011/96), which
has already generally been transposed). Among the seven countries surveyed above, only France and
Spain seem to have introduced interest deductibility restrictions with a view to avoiding deduction/non-
inclusion opportunities. Other countries still have to change their domestic legislation in order to
achieve this result and it seems that none of the seven states are equipped with specic rules on
double deduction schemes. Hybrid entities are also seldom subject to targeted anti-avoidance
legislation.
7.2.Observations on the transposition of the ATAD
7.2.1.Deadlines
According to article 11 of the ATAD, Member States must transpose the Directive before 31 December
2018 and apply its provisions from 1 January 2019. This principle contains, however, a few exceptions:
as far as exit taxation is concerned, the deadline is one year later (with a sub-exception for Estonia,
which benets from a specic treatment regarding exit taxation because of the unique features of its
tax system).
Also, article 11.6 stipulates that “by way of derogation from Article 4, Member States which have
national target rules for preventing BEPS risks at 8 August 2016, which are equally effective to the
interest limitation rule set out in this Directive, may apply these targeted rules until the end of the rst
full scal year following the date of publication of the agreement between the OECD members on the
ocial website on a minimum standard with regard to BEPS Action 4, but at the latest until 1 January
2024”.
The implementation of article 11.6 raises important concerns among practitioners because of the very
vague wording of this provision. If a domestic system currently departs from the logic of article 4 (and,
therefore, allows for an interest deduction even if it is higher than 30% of the EBITDA), is it, however,
possible to consider that, from a more general perspective, this system is “equally effective” in
preventing BEPS risks as long as other anti-avoidance rules (maybe even beyond corporate income tax
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rules) apply in the eld of interest limitation? The answer seems to be positive, but it is hard to predict
which criteria the European Commission (which is in charge of monitoring implementation of the
Directive) will apply in assessing the “equally effective” requirement.
7.2.2.Theory of the minimum level of protection
The ATAD does not aim to harmonize all the anti-avoidance rules of the Member States. On the
contrary, it offers the Member States a variety of options that will multiply the potential ways to
transpose the Directive – following (on a greater scale) the precedents of earlier tax directives, such as
the Parent-Subsidiary Directive (2011/96). This exibility offered by the text was certainly a condition
for reaching unanimity amongst the Member States.
When transposing the Directive, Member States will, however, have to comply with a fundamental
principle that is at the heart of the ATAD: no domestic system may be less protective of domestic tax
bases than what is required by the ATAD; this principle is stated – albeit using different wording – in
article 3, which provides that “this Directive shall not preclude the application of domestic or
agreement-based provisions aimed at safeguarding a higher level of protection for domestic corporate
tax bases”. In practice, this implies that where a domestic system is already protective enough, the
difference between the ATAD and the provisions of this system will not result in a need for reform in
that country. Conversely, if the system proves to be less protective than what the ATAD requires, reform
is required.
The implementation of this theory of a “minimum level of protection” raises numerous questions as to
how to assess whether a domestic system safeguards a suciently high level of protection of
domestic corporate tax bases. First of all, one may wonder whether this level of protection must be
assessed generally (i.e. by taking into account all the rules provided by the Directive) or on a “provision-
by-provision” basis. For instance, what consequences stem from article 3 if a system has a more
relaxed provision than the ATAD regarding CFCs but a stricter one regarding interest deductibility?
Assuming that a “provision-by-provision” approach is preferred, how should one assess the “protective”
character of a domestic provision? The domestic systems described herein have indeed displayed
numerous examples where a country may already have a rule in place regarding a specic item (for
instance interest limitation) but that rule is simultaneously more favourable to the taxpayer than the
ATAD (for instance because the EBITDA under domestic law is dened more favourably than under the
ATAD) and more favourable to the state than the ATAD (because some safe harbours provided by the
ATAD do not apply). The methodology for assessing the level of “protection” of such a rule needs to be
dened.
Another issue that is likely to arise is whether anti-avoidance rules provided by the ATAD are to replace
existing anti-avoidance rules in domestic systems or whether they add another layer of legislation. This
is particularly of concern in the eld of interest limitation. Should states that do not have an “article 4-
type” provision abolish their anti-avoidance rules and replace them with article 4? Should they instead
enact an “article 4-type” provision that will serve as an alternative minimum base-rule? The second
approach seems to be more in line with Recital 6 of the Directive, which states that “Member States
could in addition to the interest limitation rule provided by this Directive also use targeted rules against
intra-group nancing, in particular thin capitalisation rules”. Should this interpretation of article 3
prevail, it is feared that many differences will remain between Member States after transposition of the
ATAD, which is regrettable considering that the goal of the Directive is, at least in part, to achieve more
homogeneity (though not full harmonization) between the tax policies of the Member States.
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From a practical perspective, all of these questions are not purely speculative. One may indeed wonder
whether a taxpayer could complain before a Court that a Member State has wrongly implemented
article 3 by adopting an unnecessarily harsh rule that was not required under the theory of the
“minimum level of protection”.
Other interesting questions could also be raised in the future concerning the modalities of
transposition. For instance, one may notice that although article 4(4)(b) provides that Member States
may exclude from the scope of the interest limitation rule loans used to fund a long-term public
infrastructure project where the project operator, borrowing costs, assets and income are all in the
Union, Recital 8 subjects this possibility to compliance with State aid rules, thereby giving the European
Commission the possibility to challenge the exercise of this option in the name of primary EU Law.
Primary EU law might also lead to a reconsideration of some key elements of the Directive, such as the
GAAR provided by article 6. With the evolution of the wording of this provision during the negotiation
phase of the Directive, from the requirement of an “essential” tax purpose test to a “main purpose test”,
one may still wonder whether the outcome would pass the “ECJ test” of “wholly articial
arrangements” on the grounds of the freedom of establishment in a situation in which this freedom
would apply. The ECJ might soon shed some new light on this issue when it deals with two French
cases regarding the implementation of the anti-abuse provisions contained in the Parent-Subsidiary
Directive (2011/96) and the Merger Directive (2009/133), where these questions are being raised.
7.2.3.ATAD, ATAD 2, CCTB, etc.
A last set of observations regarding the future transposition of the ATAD relates to the interaction
between the ATAD and other EU instruments that will be debated in the weeks to come. We have seen
above (see section 1.1.) that the European Commission has very recently released another package of
Directive proposals that will affect the manner in which the ATAD is implemented by Member States.
One of the proposals published by the Commission directly aims to modify the ATAD. This comes as
no surprise, as it was announced, even before the ATAD was adopted, that the tax treatment of hybrid
mismatches will have to take account of the Proposal for a Directive regarding mismatches with third
countries.
Another proposal does not deal directly with the ATAD but will certainly ease some of the practical
problems created by the ATAD. This is the Proposal for a Council Directive on Double Taxation Dispute
Resolution Mechanisms in the European Union. One may recall for instance that under article 5 of
the ATAD, the Member State of destination (after a transfer of seat or assets) “shall accept the value
established by the Member State of the taxpayer or of the PE as the starting value of the assets for tax
purposes, unless this does not reect the market value”. Recital 10 of the Directive explains that “it is
[…] necessary to allow the receiving State to dispute the value of the transferred assets established by
the exit State when it does not reect such a market value. Member States could resort to this effect to
existing dispute resolution mechanisms”. It is hoped that the Directive on Double Taxation Resolution
Mechanisms will help solve this kind of dispute, which is likely to happen more and more often in
practice.
The proposal regarding the common corporate tax base is also likely to have an indirect impact on the
way the ATAD will be transposed. This is because the CCTB deals, among many other things, with
interest limitation (article 13), exit taxation (article 29), CFC rules (articles 59 and 60) and hybrid
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*
Professor at the Sorbonne Law School (Université Paris 1) and Partner at CMS Bureau
Francis Lefebvre, Neuilly-sur-Seine, France. Author of the introduction and concluding
remarks. The author can be contacted at daniel.gutmann@cms-b.com.
**
Principal Research Associate, IBFD. Author of the sections on Germany. The author can be
contacted at a.perdelwitz@ibfd.org.
***
Partner at PwC Société d’Avocats, Neuilly-sur-Seine, France. Author of the sections on
France. The author can be contacted at emmanuel.raingeard@pwcavocats.com.
****
Principal Research Associate, IBFD, Amsterdam. Author of the sections on Belgium. The
author can be contacted at r.offermanns@ibfd.org.
*****
Senior Research Associate, IBFD. Author of the sections on the Netherlands. The author can
be contacted at m.schellekens@ibfd.org.
******
mismatches (article 61). It also contains a general anti-abuse provision (article 58) that, interestingly
enough, shows that the European Commission still believes that the “essential purpose” test is more in
line with ECJ case law than the “main purpose” test.
The manner in which the CCTB Directive will interact with the ATAD is still widely undened. In theory,
one might argue that the CCTB has a different scope with regard to the ATAD, since it only deals with
the corporate income tax base that will have to apply to groups dened in article 2. It is, therefore,
conceivable, in theory, that a situation might arise in which a dual standard will apply within the
European Union: an “ATAD-standard” that will vary from Member State to Member State, considering
the exibility left by the ATAD in the transposition process (without prejudice to the “minimum level of
protection” theory) and a parallel “CCTB-standard” that will truly be harmonized at a European level in
order to achieve the key objective of the CCTB Proposal, namely to lay down a unique set of tax rules
for multinational companies operating throughout Europe. It is reasonable to assume, however, that
the Member States will try to avoid, as much as possible, the coexistence of two different standards,
both for simplicity’s sake and in order to avoid the tax planning opportunities created by the possibility
offered by the CCTB Proposal to smaller groups to elect to be subject to the CCTB.
In a certain sense, the ATAD, while already belonging to the past, foretells of the future of European
taxation.
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Senior Research Associate, IBFD. Author of the sections on Italy. The author can be
contacted at g.gallo@ibfd.org.
*******
Research Associate, IBFD. Author of the sections on Spain. The author can be contacted at
a.grant@ibfd.org.
********
Senior Research Associate, IBFD. Author of the sections on Poland. The author can be
contacted at m.olejnicka@ibfd.org.
1.
Council Directive 2016/1164 of 12 July 2016 Laying down Rules against Tax Avoidance
Practices that Directly Affect the Functioning of the Internal Market, OJ L 193/1 (2016), EU
Law IBFD.
2.
These two proposals are part of the package released by the Commission on 25 October
2016: Proposal for a Council Directive on a Common Corporate Tax Base (CCTB), COM (2016)
685 nal and Proposal for a Council Directive on a Common Consolidated Tax Base (CCCTB),
COM (2016) 683 nal, EU Law IBFD.
3.
Treaty on the Functioning of the European Union of 13 December 2007, OJ C115 (2008), EU
Law IBFD.
4.
A. Rigaut, Anti-Tax Avoidance Directive (2016/1164): New EU Policy Horizons, 56 Eur. Taxn. 11
(2016), Journals IBFD.
5.
The amount by which the deductible borrowing costs of a taxpayer exceed taxable interest
revenue and other economically equivalent taxable revenue that the taxpayer receives
according to national law; see art. 2(2) ATAD.
6.
Earnings before interest, tax, depreciation and amortization (EBITDA).
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7.
Art. 4(1) ATAD.
8.
Art. 4(3)(a) ATAD.
9.
Art. 4(3)(b) ATAD.
10.
Art. 4(5) ATAD.
11.
Art. 4(4) ATAD.
12.
Art. 4(6) ATAD.
13.
BE: Income Tax Code (ITC), art. 198(10), National Legislation IBFD.
14.
Art. 198(11) ITC.
15.
Arts. 49 and 55 ITC.
16.
Art. 54 ITC and DE: SC, 27 Sept. 1966, Finauxi, Journal pratique de droit scal et nancier 23
(1967) on excessive interest payments to a Luxembourg Holding Company.
17.
FR: Tax Code (FTC), National Legislation IBFD.
18.
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The interest limitation rule was implemented into German law by the 2008 corporate tax
reform of 14 Aug. 2007. For details of the 2008 corporate tax reform and the original version
of the limitation rule, see R.X. Resch, The German Tax Reform 2008 – Part 1, 48 Eur. Taxn. 3
(2008), Journals IBFD and R.X. Resch & A. Perdelwitz, The German Tax Reform 2008 – Part 2,
48 Eur. Taxn. 4 (2008), Journals IBFD.
19.
DE: Income Tax Act (Einkommensteuergesetz, EStG), sec. 4h, National Legislation IBFD, DE:
Corporate Income Tax Act (Körperschaftsteuergesetz, KStG), sec. 8a, National Legislation
IBFD.
20.
See C. Silvani, Italy – Corporate Taxation sec. 1., Country Analyses IBFD (accessed 18 Oct.
2016).
21.
See Á. de la Cueva González-Cotera & C. Morlán Burgasé, Spain – Corporate Taxation sec. 10.,
Country Analyses IBFD (accessed 18 Oct. 2016).
22.
See E. Furuseth, Norway – Corporate Taxation sec. 1., Country Analyses IBFD (accessed 18
Oct. 2016).
23.
Sec. 4h(2)(a) EStG.
24.
Sec. 4h(2)(b) EStG.
25.
Sec. 4h(3) EStG. A company is deemed to belong to a group if the company is or could be part
of the consolidated group’s accounts under German generally accepted accounting principles
or the nancial and business policy of the company can be determined uniformly with that of
one or several other companies.
26.
The exception will only apply to corporate entities if no more than 10% of the interest expense
exceeding interest income is directly or indirectly paid to a shareholder holding more than 25%
of the corporate entity’s nominal or stock capital. Sec. 8a(2) KStG.
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27.
Sec. 4h(2)(c) EStG.
28.
The exception will only apply to corporate entities if no more than 10% of the interest expense
exceeding interest income is directly or indirectly paid to a shareholder holding more than 25%
of the corporate entity’s nominal or stock capital. Sec. 8a(3) KStG.
29.
Sec. 4h(1) sentences 3-6 EStG.
30.
Bundesnanzhof, BFH.
31.
DE: BFH, 14 Oct. 2015, I R 20/15.
32.
Bundesverfassungsgericht, BverfG.
33.
The case concerned a German resident corporate entity that formed part of a domestic group
of companies engaged in the real estate sector. In the relevant tax year, the company was
subject to the interest deduction limitation rule. The non-deductible interest expense could not
be carried forward to subsequent tax years due to a corporate restructuring. The company
appealed the decision of the tax authorities to apply the interest deduction limitation rule, as
well as the subsequent decision (DE: FC of Munich, 6 Mar. 2015, Case 7 K 680/12) of the
Financial Court of Munich (Finanzgericht München). The case concerned a purely domestic
scenario, not involving any nancing from abroad. For this reason, the BFH doubted, inter alia,
whether the interest deduction limitation rule could be justied as an anti-abuse measure.
34.
For more details on the case, see S. Lampert, T. Meickmann & M. Reinert, Article 4 of the EU
Anti Tax Avoidance Directive in Light of the Questionable Constitutionality of the German
“Interest Barrier” Rule, 56 Eur. Taxn. 8 (2016), Journals IBFD.
35.
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Effective date on which Member States must implement the ATAD; see art. 11(1) ATAD.
36.
IT: Income Tax Consolidation Act (ITCA), 1986, art. 96, National Legislation IBFD.
37.
As dened in IT: Civil Code – Companies, 1942, art. 2425, National Legislation IBFD.
38.
See the options provided for in art. 4(3) ATAD.
39.
As a general rule, the classication of an instrument for tax purposes follows its classication
for civil law purposes. This rule does not, however, apply where there is deemed to be (a) a
sham loan (where a transaction is structured in such a way that it only has the appearance of
a loan while in actual fact the parties wished to provide equity); (b) a bottomless-pit loan (a
loan arrangement where, at the moment when it is granted, it is (almost) certain that the loan
will not be (fully) repaid due to substantial losses); or (c) a participation loan (a loan on which
the remuneration is entirely prot dependent, the loan is subordinate to claims of all creditors
and the loan has no term or is perpetual (i.e. the term exceeds 50 years). An informal capital
contribution may be dened as a benet granted by, for example, a parent company to its
subsidiary that increases the latter’s equity, but not in the form of a contribution to the share
capital (this is considered a formal capital contribution). The term informal capital
contribution solely exists for tax law purposes.
40.
Under the just levy rule (NL: General Tax Law (Algemene wet inzake rijksbelastingen), art. 31), a
legal transaction may be ignored for tax purposes, if (1) the legal act does not aim to change
the actual (factual) situation; or (2) if it may be assumed that omission of the legal act would
not have made the (future) levying of taxes impossible – in whole or in part. As invoking this
rule requires approval from the Minister of Finance, however, it has not been used since 1987.
41.
NL: Corporate Income Tax Law (Wet op de vennootschapsbelasting), 1969 (CITL), National
Legislation IBFD.
42.
PL: Corporate Income Tax Act (CITA) of 15 February 1992 (Ustawa o Podatku Dochodowym od
Osób Prawnych), art. 16(1) 60 and 61.
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43.
Art. 15c CITA.
44.
ES: Spanish Royal Law-Decree 12/2012 of 30 March for Introducing Several Administrative
and Fiscal Measures Aimed at Reducing Public Decit.
45.
ES: Spanish Law 27/2014 of 27 Sep. on the corporate income tax (Ley del Impuesto de
Sociedades, LIS), National Legislation IBFD.
46.
ES: Spanish Royal Legislative Decree 4/2004 of 27 September on the Approval of the
Corporate Income Tax Law (Ley del Impuesto de Sociedades).
47.
J. Salto Guglieri, La subcapitalización: la necesidad de una reforma legal, 19 Cuadernos de
Formación collab. 10 (2010), Instituto de Estudios Fiscales. In his article, J. Salto Guglieri
describes the main problems of the former sub-capitalization rule, calling for a reform that
was to happen in 2012.
48.
As proposed in sec. 5 of the Explanatory Memorandum to the ATAD.
49.
OECD, Limiting Base Erosion Involving Interest Deductions and Other Financial Payments –
Action 4: 2015 Final Report, paras. 164-165 (OECD 2015), International Organizations’
Documentation IBFD [hereinafter OECD BEPS Action Plan 4]. OECD BEPS Action Plan 4 argues
in favour of a time limitation to carry forward borrowing costs.
50.
KPMG, OECD BEPS Action Plan Moving from Talk to Action in the European Region pp. 32-33
(KPMG, Sept. 2016).
51.
See Rigaut, supra n. 4.
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52.
NL: ECJ, 29 Nov. 2011, Case C-371/10, National Grid Indus BV v. Inspecteur van de
Belastingdienst Rijnmond/kantoor Rotterdam, ECJ Case Law IBFD.
53.
DE: ECJ, 23 Jan. 2014, Case C-164/12, DMC Beteiligungsgesellschaft mbH v. Finanzamt
Hamburg-Mitte, ECJ Case Law IBFD.
54.
DE: ECJ, 21 May 2015, Case C-657/13, VerderLabTec GmbH & Co. KG v. Finanzamt Hilden, ECJ
Case Law IBFD.
55.
Arts. 44 and 210 ITC.
56.
Arts. 214bis and 229(4) ITC.
57.
Council Directive 2009/133/EC of 19 October 2009 on the Common System of Taxation
Applicable to Mergers, Divisions, Partial Divisions, Transfers of Assets and Exchanges of
Shares Concerning Companies of Different Member States and to the Transfer of the
Registered Oce of an SE or SCE between Member States (Codied Version), OJ L310 (2009),
EU Law IBFD.
58.
BE: Bill No. 54 2052/001 of 27 September 2016. The bill was adopted by parliament on 18
Nov. 2016 and the measure will be implemented by art. 413/1 ITC.
59.
National Grid Indus BV (C-371/10).
60.
See French interpretative guideline, BOI-IS-CESS-30 no. 120. This guideline applies in respect
of a transfer of seat and a transfer of a PE together with a transfer of assets.
61.
Secs. 12(1) and (3) KStG and sec. 4(1) sentences 3-5 EStG.
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62.
VerderLabTec (C-657/13).
63.
Council Directive 2010/24/EU of 16 March 2010 Concerning Mutual Assistance for the
Recovery of Claims Relating to Taxes, Duties and Other Measures, OJ L84 (2010), EU Law
IBFD.
64.
See the options provided for in art. 5(3) ATAD.
65.
Art. 166 ITCA.
66.
Recovery Directive (2010/24), supra n. 63.
67.
Ministerial Decree of 2 July 2014.
68.
Protocol No. 2014/92134 of 10 July 2014.
69.
Supra n. 67.
70.
IT: Legislative Decree No. 147, 2015, art. 11, National Legislation IBFD.
71.
National Grid Indus (C-371/10). In this case, the ECJ held that the freedom of establishment
precludes legislation of a Member State providing for the immediate recovery, at the time of
transfer, of tax on unrealized capital gains relating to the assets of a company transferring its
place of effective management to another Member State.
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72.
Upon request of the taxpayer, the tax may also be paid in ten (annual) instalments. In addition,
the taxpayer has to pay interest on the outstanding, deferred amount. For any deferral, a
guarantee must be provided to the tax authorities, for example in the form of a bank guarantee
(or even a mortgage).
73.
ES: Spanish Law 22/2013, of 23 Dec. 2013, which approves the 2014 General Budget (Ley
Presupuestos Generales del Estado 2014).
74.
ES: ECJ, 25 Apr. 2013, Case C-64/11, European Commission v. Kingdom of Spain, ECJ Case
Law IBFD.
75.
ES: Spanish Royal Legislative Decree 5/2004 of 27 September on the approval of the Law on
Income Tax on Non-Residents (Ley del Impuesto sobre la Renta de No Residentes, LIRNR),
National Legislation IBFD.
76.
This reasoning is supported in A. Ribes Ribes, La Cláusula Exit Taxation en la Propuesta de
Directiva Europea para Luchar contra la Evasión Fiscal, Crónica Tributaria 159, p. 177 (2016),
Instituto de Estudios Fiscales.
77.
Art. 6(1) ATAD.
78.
Recital 11 ATAD.
79.
Art. 344(1) ITC.
80.
Circular Ci. RH.81/616.207 of 4 May 2012.
81.
FR: Tax Procedure Code, National Legislation IBFD.
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82.
Author’s translation of art. L64 of the LPF, which reads as follows in French: “An d'en restituer
le véritable caractère, l'administration est en droit d'écarter, comme ne lui étant pas opposables,
les actes constitutifs d'un abus de droit, soit que ces actes ont un caractère ctif, soit que,
recherchant le bénéce d'une application littérale des textes ou de décisions à l'encontre des
objectifs poursuivis par leurs auteurs, ils n'ont pu être inspirés par aucun autre motif que celui
d'éluder ou d'atténuer les charges scales que l'intéressé, si ces actes n'avaient pas été passés
ou réalisés, aurait normalement supportées eu égard à sa situation ou à ses activités réelles”.
83.
The Conseil d’Etat (FR: CE, 18 May 2005, Case no. 267087, Société Sagal), exploring the
compatibility of the French abuse of law concept with EU primary law, has already noted that
the objectives of art. L64 of the LPF consist specically in excluding from the benet of the
tax advantage a “purely articial arrangement whose sole objective is to circumvent French
tax law”. Whether the ATAD targets only those situations or goes further than the ECJ case
law may be questioned.
84.
Finance Bill for 2014.
85.
Assemblée Nationale, report no. 1243, Rapport d’information déposé en application de l’article
145 du règlement par la commission des nances, de l’économie générale et du contrôle
budgétaire en conclusion des travaux d’une mission d’information sur l’optimisation scale des
entreprises dans un contexte international (2013), available at http://www.assemblee-
nationale.fr/14/pdf/rap-info/i1243.pdf, pp. 82-83 (accessed 23 Oct. 2016).
86.
FR: Cons. const., 29 Dec. 2013, no. 2013-685 DC, Loi de nances pour 2014, paras. 112-119.
87.
In the Garnier-Choiseul case (FR: CE, 17 July 2013, no. 356523, SARL Garnier Choiseul Holding),
the Conseil d’Etat disregarded the taxpayer’s argument stating that the company obtained a
nancial advantage that was minimal compared to the tax advantage.
88.
Council Directive (EU) 2015/121 of 27 January 2015 Amending Directive 2011/96/EU on the
Common System of Taxation Applicable in the Case of Parent Companies and Subsidiaries of
Different Member States, OJ L21 (2015), EU Law IBFD.
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89.
FR: Cons. const., 29 Dec. 2015, n. 2015-726 DC, Loi de nances recticative pour 2015, paras.
2-14.
90.
Sec. 42(1) of the AO reads as follows: “It shall not be possible to circumvent tax legislation by
abusing legal options for tax planning schemes. Where the element of an individual tax law’s
provision to prevent circumventions of tax has been fullled, the legal consequences shall be
determined pursuant to that provision. Where this is not the case, the tax claim shall in the
event of an abuse within the meaning of paragraph 2 below arise in the same manner as it
arises through the use of legal options appropriate to the economic transactions concerned”.
91.
See A. Linn, Germany, in Tax Treaties and Tax Avoidance: Application of Anti-Avoidance
Provisions (IFA Cahiers vol. 95A, 2010), Online Books IBFD.
92.
Id.
93.
IT: Law No. 212 of 27 July 2000 on taxpayers’ bill of rights, art. 10-bis.
94.
IT: Legislative Decree No. 128, 2015, art. 1, National Legislation IBFD.
95.
EU Directive (2015/121), which amends the Parent-Subsidiary Directive (2011/96) through the
inclusion of a minimum anti-abuse rule to tackle an arrangement or a series of arrangements
that are not genuine, that is, which do not reect economic reality.
96.
See supra n. 40.
97.
The “decisive reason” means that the arrangement is motivated exclusively or predominantly
according to the tax consequences of that arrangement.
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98.
NL: Kamerstukken II 34 418, 2015-16, No. A – Letter from the State Secretary of Finance of 29
Apr. 2016 to the Lower House of Parliament answering questions regarding EU Anti-Tax
Avoidance Package.
99.
PL: Tax Code of 29 August 1997 (Ordynacjapodatkowa), art. 119 (a) to (zf).
100.
ES: Spanish Law 58/2003 of 17 December on General Taxation (Ley General Tributaria, LGT),
National Legislation IBFD.
101.
The rule was altered in 2015 through ES: Spanish Law 34/2015 of 21 September on the
Modication of the General Tax Law.
102.
Under the Spanish GAAR rules, the go-to concept would be “customary acts or dealings”.
103.
Fundación IC, Cláusula General Antiabuso Tributaria en España: Propuestas para una Mayor
Seguridad Jurídica, p. 98 (Fundación IC, June 2015).
104.
Recital 12 ATAD.
105.
Recital 12 ATAD.
106.
Art. 7(2) ATAD.
107.
UK: ECJ, 12 Sept. 2006, Case C-196/04, Cadbury Schweppes plc, Cadbury Schweppes Overseas
Ltd v. Commissioners of Inland Revenue, ECJ Case Law IBFD.
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108.
FR: DGFiP, BOI-IS-BASE-60-10-20120912 et seq.; B. Gouthière, Les impôts dans les affaires
internationales, para. 73100 (10th ed., Francis Lefebvre 2014); D. Gutmann, Droit scal des
affaires, para. 812 et seq. (5th ed., Lextenso 2014); and J. Benamran, France – Corporate
Taxation sec. 10.4., Country Analyses IBFD (accessed 23 Oct. 2016).
109.
In other words, art. 7(2) a) ATAD.
110.
The ATAD targets a list of particular types of income.
111.
Before 2005, prots of aliates were taxed in the hands of the French resident shareholders.
In 2005, new French CFC rules were introduced following the Schneider decision (FR: CE, 28
June 2002, Case no. 232276, Société Schneider Electric) where the Conseil d’Etat ruled that the
former rules were incompatible with tax treaties. Prots of the foreign entity are now deemed
to be distributed.
112.
See, for instance, FR: CE, 9e et 10e ss-sect., 2 Feb. 2012, Case no. 351600, Sté Sonepar, Dr.
sc. 10, comm. 180 (2012); RJF 5 (2012), no.505; RJF 4 (2012). C. Raquin, p. 299; BDCF 5
(2012), no. 63, concl. P. Collin). For a recent example from the Constitutional Council, see FR:
CC, 20Jan. 2015, Case no.2014-437 QPC, Assoc. français des entreprises privées (AFEP) et
al., Dr. sc. 12, comm. 223 (2015), note P. Kouraleva-Cazals; RJF 4 (2015), no. 346.
113.
The possibility of there being such a difference in treatment between EU and third-country
situations has been questioned (see, for instance, IFA Madrid, Seminar D, 27 Sept. 2016, slide
27 presented by R. Danon & E. Raingeard de la Blétière).
114.
DE: Foreign Tax Law (Aussensteuergesetz, AStG) of 8 Sept. 1972, BGBl. I 1972 at 1713,
National Legislation IBFD.
115.
Secs. 7(1) and (2) AStG.
116.
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For further details on the German CFC rules, see also A. Perdelwitz, Germany – Corporate
Taxation sec. 10., Country Analyses IBFD (accessed 14 Oct. 2016).
117.
Secs. 7(6) and (6a) AStG.
118.
Art. 7(1)(b) ATAD
119.
Sec. 8(3) AStG.
120.
Recital 12 ATAD reads as follows: “In order to ensure a higher level of protection, Member
States could reduce the control threshold, or employ a higher threshold in comparing the
actual corporate tax paid with the corporate tax that would have been charged in the Member
State of the taxpayer”.
121.
The rate was established in 2001 when the corporate tax rate was also lowered to 25%.
122.
The corporate tax rate is currently 15% (sec. 23(1) KStG).
123.
The high rate of 25% to dene low taxation has been heavily criticized, as many countries have
recently lowered their corporate tax rates with the result that most countries qualify as “low
tax jurisdictions” under the current rule.
124.
Sec. 8(1) AStG, National Legislation IBFD.
125.
For example, sec. 8(1) No. 1 AStG lists income from a trade activity as active income (basic
rule). If the trade is carried out with German resident shareholders and related persons,
however, income from the same activity is deemed to be passive income (exception to the
rule). If the CFC provides proof that it maintains a commercial operation for such transactions,
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is involved in the general economy and completes the activities for the preparation, conclusion
and execution of transactions without the involvement of the taxpayer or related person, the
trade activities still qualify as active income (exception to the exception).
126.
Sec. 8(1) No. 3 AStG reads: “the operation of credit institutions or insurance companies
maintaining a commercial operation for the purpose of operating their business, unless the
business is mainly (i.e. more than 50%) conducted with resident taxpayers holding an interest
(more than 50%) in the intermediary company or related persons of such taxpayers within the
meaning of section 1(2) of the AStG”.
127.
Sec. 8b KStG.
128.
See art. 8(1) ATAD.
129.
The German carve-out requires, in addition to the substantial business activity, that the Mutual
Assistance Directive (2011/16) or a similar agreement be applicable between Germany and
the respective EU/EEA Member State.
130.
For CFCs with mixed income, another carve-out might apply. Sec. 9 of the AStG provides that
the CFC rules do not apply if the deemed passive income of a CFC does not exceed 10% of the
total gross income of the CFC and the deemed passive income also does not exceed the
amount of EUR 80,000.
131.
It is not likely that the German legislator will extend the scope of the carve-out to third
countries.
132.
See sec. 10 AStG
133.
Sec. 10(2) AStG.
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134.
Art. 167 ITCA.
135.
Supra n. 37, at art. 2359.
136.
Specically, it includes proceeds deriving from the management of, holding of or investment in
securities, shares or other nancial assets, the transfer or licensing of patents or copyrights
and the supply of intra-group services, including nancial services.
137.
NL: Income Tax Law 2001, National Legislation IBFD.
138.
Both these articles provide for an annual revaluation of certain shareholdings not covered by
the participation exemption, which means that any resulting gains (or losses) are added to (or
subtracted from) taxable income. If a taxpayer, either by itself or together with a related entity,
holds a 25% participation as an investment in another entity, and that other entity (i) is not
subject to a tax on prots that is “realistic” (i.e. at least a 10% rate) compared to the
Netherlands standards; and (ii) (almost) only (i.e. at least 90%) has low-taxed investment
assets, the participation must be valued at fair market value. This means that gains and
losses on that shareholding ow through to the prot and loss statement and are added to or
subtracted from taxable income on that statement.
139.
See supra n. 2, at 13-14.
140.
Given the complexity inherent in CFC legislation, it is quite possible that a public consultation
will take place before a draft proposal is submitted to parliament.
141.
Art. 24a CITA.
142.
See art. 7(1)(a) ATAD
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143.
See art. 7(2)(a) ATAD.
144.
Agreement on the European Economic Area, 2 May 1992, EU Law IBFD.
145.
See art. 8(1) ATAD.
146.
M.M. Benites et al., Unilateral Anti-BEPS Measures Promulgated or Proposed by Host Country
since July 2013, 36 Tax Management Intl. Forum 3, p. 60 (Sept. 2015).
147.
These exceptions are listed in arts. 100(4) to 100(11) LIS.
148.
Rigaut, supra n. 4.
149.
OECD, Neutralising the Effects of Hybrid Mismatch Arrangements – Action 2: 2015 Final Report,
OECD/G20 Base Erosion and Prot Shifting Project (5 Oct. 2015), International Organizations’
Documentation IBFD.
150.
For details, see https://ec.europa.eu/taxation_customs/business/company-tax/corporate-tax-
reform-package_en_en.
151.
Proposed art. 203(1)(6) ITC. The provision was adopted by parliament on 18 Nov. 2016.
152.
Under Belgian domestic law, the denition of equity has a limited scope while the denition of
debts is very broad. Consequently, situations where the 95% deduction for received dividends
applies in circumstances in which those distributions were deductible at the level of the
distributing company or PE should be very rare.
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153.
The denition of related companies is given in arts. 39-12 of the FTC, which refers to 50% of
the capital of the company and “de facto” control.
154.
Although it’s theoretically possible, it would be dicult to nd cases where such a rule would
apply in a domestic situation.
155.
Special rules apply to transparent companies.
156.
The compatibility of this provision with EU primary law might be questioned. Indeed, the rule
would apply in the “vast majority of cases” to cross-border situations (see DE: ECJ, 26 Oct.
1999, Case C-294/97, Eurowings Luftverkehrs AG v. Finanzamt Dortmund-Unna, ECJ Case Law
IBFD; and HU: ECJ, 5 Feb. 2014, Case C-385/12, Hervis Sport- és Divatkereskedelmi Kft. v.
Nemzeti Adó- és Vámhivatal Közép-dunántúli Regionális Adó Főigazgatósága, ECJ Case Law
IBFD).
157.
FR: DGFiP, BOI-IS-BASE-35-50-20140805, para. 40.
158.
Sec. 8b(1) KStG.
159.
Currently, a joint working group with members from the Federal Ministry of Finance and
members of the Finance Ministries of the Federal States is preparing draft legislation for the
implementation of the recommendations of the Final Report on BEPS Action 2, which shall be
implemented in the course of 2017.
160.
The draft stipulated that payments should not be deductible as business expenses if such
payments are not included in the tax base of the direct or indirect recipient or subject to an
exemption at the level of recipient due to a qualication mismatch between the legal system
of the state of residence of the payer and the recipient. Payments shall only be deductible as
business expenses in Germany, provided they are not deductible from the tax base of the
payer in another jurisdiction.
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161.
IT: Law No. 122 of 7 July 2016, i.e. the European Law 2015-2016.
162.
Art. 89 ITCA.
163.
There are, however, rules that limit the deductibility of payments that are considered equity
payments. For more details on this, see sec. 2.6.
164.
Council Directive 2014/86/EU of 8 July 2014 Amending Directive 2011/96/EU on the Common
System of Taxation Applicable in the Case of Parent Companies and Subsidiaries of Different
Member States, OJ L 219 (2014), EU Law IBFD.
165.
The Netherlands, by way of an annex to Decree No. CPP2009/519 of 11 December 2009,
publishes a “classication of foreign entities list” in which the tax authorities state how they
view (transparent or non-transparent) a large number of foreign – in some instances hybrid –
entities. This list does not, however, follow the “source state” classication of the Directive.
166.
Art. 20(16) CITA.
167.
The wording of art. 15(j) of the LIS, in its original Spanish version, may lead to doubts as to
whether or not the exemption is denied in respect of transactions related to hybrid entities and
instruments, or only hybrid entities. It should be understood, however, that both entities and
instruments are covered by this rule, as suggested in D.J. Jiménez-Valladolid de L’Hotellerie-
Fallois, Doble (no) Imposición e Híbridos Financieros: Tendencias Internacionales y Reforma del
impuesto sobre Sociedades, Document no. 10/2015 (2010), Instituto de Estudios Fiscales.
168.
FR: ECJ, Pending Case C-6/16, Holcim France and Société Enka; FR: ECJ, Pending Case C-
14/16, Euro Park Service (C-14/16); see FR: Opinion of Advocate General Wathelet, 26 Oct.
2016, Pending Case C-14/16, Euro Park Service.
169.
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Proposal for a Council Directive Amending Directive (EU) 2016/1164 as Regards Hybrid
Mismatches with Third Countries, COM (2016) 687 nal (25 Oct. 2016), EU Law IBFD.
170.
Proposal for a Council Directive on Double Taxation Dispute Resolution Mechanisms in the
European Union, COM (2016) 686 nal (15 Oct. 2016), EU Law IBFD.
D. Gutmann et al., The Impact of the ATAD on Domestic Systems: A Comparative Survey, 57 Eur. Taxn. 1 (2017), Journals IBFD
Exported / Printed on 1 May 2019 by IBFD.
