On December 6, 2016 EU Member States failed to reach agreement on amendments to the hybrid mismatch rules contained in the Anti-Tax Avoidance Directive (Council Directive (EU) 2016/1164 of July 12, 2016, ’ATAD 1’).

According to the compromise text issued on December 2, 2016, the proposed amendments (that would take the form of a directive (‘ATAD 2’) to amend ATAD 1) would have extended the scope of the rules to hybrid mismatches between EU Member States and third countries, as well as some mismatches that were not fully covered, such as certain types of hybrid permanent establishments and financial instrument mismatches. A new provision on reverse hybrid entities was also included. In addition, ATAD 2 was intended to bring the rules into line with the rules recommended by the OECD in the 2015 Final BEPS Report on Action 2.

From comments made during the debate of EU finance ministers on the proposals it appears that a number of last minute changes were made to the draft text of ATAD 2, including changes regarding the carve-out provisions. A number of Member States indicated that they were not in a position to approve the revised text, and needed more time to consider, including in some cases approval from their national parliaments. The proposed text provided that Member States should implement ATAD 2 by December 31, 2018 and apply the provisions as from January 1, 2019. The Netherlands considered that this timing should be deferred.

As a separate agenda item, the EU Code of Conduct group on business taxation presented its regular report for endorsement by the ECOFIN meeting. This included guidelines on the issuance of tax rulings by Member States. The guidelines cover the process of granting a ruling, the term of a ruling and subsequent audit/checking procedure, and also publication of rulings that are of general application to the affairs of other taxpayers in similar circumstances.

Commentary by Meijburg & Co

The adoption of ATAD 2 would have been an important milestone in the European Commission’s policy against aggressive tax planning. From a Netherlands perspective the most relevant provision concerns the reverse hybrid mismatch rule. The proposed solutions provided for by ATAD 2 would typically impact current CV/BV situations. Further discussion on the proposals will now be deferred until Malta takes over the EU Presidency in the first half of 2017.

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