It is reported that on 17 June 2016 the EU finance ministers reached preliminary agreement on a modified version of the European Commission’s proposals on countering tax avoidance originally released at the beginning of 2016.

Original proposal

The European Commission’s proposed Anti Tax Avoidance Directive aimed to facilitate the implementation by EU member states of important aspects of the OECD/G20 reports on base erosion and profit shifting (BEPS). The issues covered by the proposed Directive include limitation of the tax deduction for interest; exit tax; controlled foreign companies (CFC) rules; a hybrid mismatch rule and a general anti-abuse rule

Currently many countries exempt from tax the foreign dividends received by companies in the home country if they have been subject to tax in the jurisdiction from which they were paid. The proposed Directive included a “switch-over” rule providing that income of a permanent establishment or dividends distributed from a low tax jurisdiction would be taxable in the home country, with a credit for any foreign tax paid.

Amendments agreed

The deadline for implementation of rules on limitation of the tax deduction for interest payments has reportedly been postponed to 2024, rather than 2019 as originally suggested. Full agreement on the implementation deadline has not yet been reached. Some member states want to ensure that the new interest limitation rules only become effective after the OECD has reached agreement on rules at an international level.

It is also reported that the “switch-over” provision has been dropped owing to concerns about the possibility of double taxation in some cases.