Despite the failure of the 6 December ECOFIN Council to reach agreement on the second re-working of the anti-tax avoidance directive (ATAD 2), the Slovak Presidency did not remain inactive, but attempted a final draft compromise before handing over to the Maltese delegation on 31 December 2016.
In November, the European Commission unveiled a proposal to deal with hybrid situations involving a member state and a non-EU country. These arrangements take advantage of the different definitions for a product or body and lead to double non-taxation.
The first reworking of the directive, which member states agreed upon in May, dealt with hybrid arrangements that can arise between two member states. The Commission then added to the rules by proposing to also cover situations involving non-EU countries. The member states felt that its proposal was too far-removed from what is foreseen by the OECD and substantially revised the text.
In December, the ECOFIN Council did not manage to reach agreement because there are concerns about some exemptions for the financial sector and the date when the legislation would come into force. There were also some parliamentary reservations (EUROPE 11683).
The United Kingdom demanded a number of exemptions for the financial sector. At the ECOFIN Council, Luxembourg said it feared that some of these exemptions, as formulated, could impact on the financial sector’s prudential rules. The draft Slovak Presidency compromise of 9 December clearly establishes that in order to avoid unintended consequences in terms of the directive’s interaction with bank capital requirements, the member states would be allowed to exclude from the directive intra-group instruments issued solely to comply with capital requirements.
All tax issues require the unanimous go-ahead from all member states. The Netherlands is calling for a derogation so as to not apply the new rules until 2024 (see EUROPE 11678). Last November, the European Parliament’s Greens group accused the Dutch of aligning itself with the position of the US Chamber of Commerce, which has written to the Dutch secretary of state, warning about these new amendments’ negative impact on investment in the Netherlands. The Commission fails to appreciate the fact that foreign investment plays an important role in the economies of small member states, explained Wouter Paardekooper, chair of AmCham in the Netherlands. The member states seem little inclined to grant this derogation to the Dutch and it is not included in the last draft compromise. (Original version in French by Élodie Lamer)