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EU Introducing Next Raft Of Anti-BEPS Measures

Tuesday, December 31, 2019

The provisions of the EU's second Anti Tax Avoidance Directive (ATAD 2) will become effective in all member states from January 1, 2020.

ATAD 2 includes provisions to ensure that hybrid mismatches of all types cannot be used to avoid tax in the EU, even where the arrangements involve third countries. The Directive addresses hybrid mismatches with regard to non-EU countries, given that intra-EU disparities are already covered by the first ATAD, adopted in July 2016 and implemented across the EU from January 1, 2019.

Anti-hybrid rules are designed to prevent multinationals from accessing unfair advantages by using hybrid mismatch arrangements to exploit differences in the tax treatment of an entity or financial instrument under the income tax laws of two or more countries.

The EU is also introducing a new exit tax from January 1, 2020, which is intended to eliminate tax advantages for companies that develop intangible assets in the EU but move them to low or no tax territories before they generate taxable income. The new exit tax is intended to enable that member state to tax the value of the product before the intellectual property is shifted elsewhere. It was included in the first ATAD but member states were allowed until January 1, 2020, to introduce it.

Under the exit tax, a taxpayer shall be subject to tax at an amount equal to the market value of the transferred assets, at the time of exit of the assets, less their value for tax purposes, in any of the following circumstances:

  • a taxpayer transfers assets from its head office to its permanent establishment in another member state or in a third country in so far as the member state of the head office no longer has the right to tax the transferred assets due to the transfer;
  • a taxpayer transfers assets from its permanent establishment in a member state to its head office or another permanent establishment in another member state or in a third country in so far as the member state of the permanent establishment no longer has the right to tax the transferred assets due to the transfer;
  • a taxpayer transfers its tax residence to another member state or to a third country, except for those assets which remain effectively connected with a permanent establishment in the first member state;
  • a taxpayer transfers the business carried on by its permanent establishment from a member state to another member state or to a third country in so far as the member state of the permanent establishment no longer has the right to tax the transferred assets due to the transfer.