EU – Baltic States, Financial Services, Modern EU, Taxation

First proposed by the Commission in 2016, the legally binding rules, known as ATAD (Anti-Tax Avoidance Directive) were agreed swiftly to spur global efforts to clamp down on aggressive tax planning. The agreement followed the previous agreement among OECD countries on recommendations to limit tax base erosion and profit shifting (BEPS), and made the EU a global leader in terms of the political and economic approach to corporate taxation.

The European Commission since 2015 has been at the forefront of global efforts to tackle tax avoidance and tax evasion. New transparency rules have gradually been coming into force to make sure that the EU states have the information they need to crack down on companies that are not paying their fair share of tax.

The EU is also acting to ensure that its international partners implement global anti-tax avoidance standards through its ongoing work on a list of non-cooperative tax jurisdictions. Finally, the Commission has also proposed far-reaching corporate tax reforms which would overhaul how multinationals are taxed in the EU while ensuring a business environment which makes life easier for companies doing business across borders.

New system in action

From January 2019, all EU states shall apply new legally binding anti-abuse measures that target the main forms of tax avoidance practiced by large multinationals.

The Commission has fought consistently for a long time against aggressive tax planning. The present step marks a very important step in the EU’s efforts to combat tax evasion. The measures are aimed at those who try to take advantage of loopholes in the member states’ tax systems, the avoidance that is calculated in billions of euros in tax.

The EU rules are built according to global standards developed by the OECD in 2015 on Base Erosion and Profit Shifting (BEPS) and should help to prevent profits being excluded from the EU member states’ tax profit.  

That means that all EU states will now have to tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules). The states have to discourage companies from using excessive interest payments to minimize taxes and they will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules).

The EU 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 EU state's territory become taxable in that country (exit taxation rules) will come into force as of 1 January 2020.

More information in the following web links: 

- Proposal on anti-tax avoidance measures Anti-Tax Avoidance Package; 

- Study on Structures of Aggressive Tax Planning and Indicators Action Plan for Fair and Efficient Corporate Taxation in the EU.