Recent Tax Developments in Europe

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Despite COVID-19, the international tax environment continues to transform.
Has your organization updated its method of operation to comply with the new requirements?

The EU Anti-Tax Avoidance Directive (“ATAD”) contains five legally binding anti-abuse measures implemented by most Member States against common forms of aggressive tax planning. Member States that have applied such measures shall provide a minimum level of protection against corporate tax avoidance throughout the EU, whilst at the same time ensuring a fairer and more stable environment for businesses.

1.Interest limitation

In order to discourage the artificial shifting of debt arrangements designed to minimize taxes. “ATAD” requires member states to implement measures limiting the tax deductibility of interest on debt, using a fixed percentage.

2.Controlled foreign company (“CFC”) rule

The aim is to discourage multinational companies from shifting profits from their high taxed country to controlled subsidiaries in low-no tax countries to help reduce their groups’ tax liability. The “CFC” rule will allow the EU member state to tax certain profits that the company shifts to a country that imposes low-no tax.

3.Exit taxation

To prevent companies from avoiding tax when relocating assets, activities or residence out of the country in which economic value has been created.

4.Hybrid mismatches

To prevent companies from exploiting national mismatches in order to avoid taxation. A hybrid mismatch results in a double deduction that should be given only to the Member State where such payment is sourced.

5.General anti-abuse (“GAAR”) rule

The “ATAD” requires the introduction of a corporate general anti-abuse rule to counteract aggressive tax planning where other rules do not apply.

6.Ultimate beneficial owner (‘’UBO’’) Register

EU Members states are obliged to transpose the modified regulations into national law therefore addressing the need for increased transparency in business, especially in relation to ownership and tax requirements.
7.Multilateral Instrument (‘’MLI’’)

The MLI constitutes a major change to international taxation and will enable international tax authorities around the world to challenge transactions and structures on a new basis. By November 5th, 2020, 94 jurisdictions have committed to participate in the MLI.

8.Base erosion and profit shifting (‘’BEPS’’)

Undermining the fairness and integrity of tax systems; BEPS refers to tax planning strategies that exploit mismatches in tax rules of artificial shifting profits to low-no tax countries with little to no economic activity. Businesses operating across borders can use BEPS to gain a competitive advantage.

We advise all corporates and multinationals holding structures in the EU, or doing business with the EU, to get in touch with our Tax Advisory Team for advice, in terms of these changes, in consideration of future transactions or restructuring.

For further information please contact Ms Claudia Ioannou, Tax Assistant, at claudia.ioannou@eurofast.eu

Eurofast is a regional business advisory organisation employing local advisors in over 23 cities in South East Europe & Middle East . The Organisation is uniquely positioned as one stop shop for investors and companies looking for professional services in South East Europe & Middle East.