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(BRUSSELS) – New EU rules to eliminate the main loopholes used in corporate tax avoidance came into force on 1 January 2019, with legally binding anti-abuse measures targeting tax practises of some large multinationals.
The rules build on global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting (BEPS) and are designed to help prevent profits being siphoned out of the EU where they go untaxed.
Entry into force of the new rules was welcomed by the European Commission. “The Commission has fought consistently and for a long time against aggressive tax planning,” said Economic Affairs Commissioner Pierre Moscovici: “The battle is not yet won, but this marks a very important step in our fight against those who try to take advantage of loopholes in the tax systems of our Member States to avoid billions of euros in tax.”
In detail:
- All Member States will now tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules)
- To discourage companies from using excessive interest payments to minimise taxes, Member States will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules)
- Member States will be able to tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied (general anti-abuse rule).
Further rules governing hybrid mismatches to prevent companies from exploiting mismatches in the tax laws of two different EU countries in order to avoid taxation, as well as measures to ensure that gains on assets such as intellectual property moved from a Member State’s territory become taxable in that country (exit taxation rules) will come into force as of 1 January 2020.
Anti-Tax Avoidance Directive entry into force - background guide
