UK and International Tax news

EU Directive On Corporate Tax Anti Avoidance Measures Effective January 2019

Friday 4th January 2019

The European Commission has issued a reminder that new rules to combat the most common corporate tax avoidance practices came into effect on 1 January 2019.

All Member States shall now apply new legally binding anti-abuse measures that target the main forms of tax avoidance practiced by large multinationals.

The new rules build on global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting and should help to prevent profits being siphoned out of the EU where they go untaxed.

The Anti Tax Avoidance Directive sets out five key anti-avoidance measures, which all Member States should apply, to counteract some of the most common types of aggressive tax planning, as identified in the discussions at the OECD, in Council discussions on tax avoidance and by the EC itself.  Three of the agreed measures come into force on 1 January 2019 and are:

  • All Member States will now tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules);
  • To discourage companies from using excessive interest payments to minimise taxes, Member States will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules);
  • Member States will be able to tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied (general anti-abuse rule).

Further rules governing hybrid mismatches to prevent companies from exploiting mismatches in the tax laws of two different EU countries in order to avoid taxation, as well as measures to ensure that gains on assets such as intellectual property moved from a Member State’s territory become taxable in that country (exit taxation rules) will come into effect from 1 January 2020.

First proposed by the EC in 2016, the legally binding rules, known as ATAD (Anti-Tax Avoidance Directive) were agreed to spur global efforts to clamp down on aggressive tax planning, and followed the agreement among OECD countries on recommendations to limit tax base erosion and profit shifting.

If you would like further information on the above, please contact Keith Rushen on 0207 486 2378.

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