EU ATAD

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ATAD

On 28 January 2016, the Commission presented its proposal for an Anti-Tax Avoidance Directive (ATAD) as part of its Anti-Tax Avoidance Package

The EU Council adopted the ATAD (Directive (EU) 2016/1164) on 20 June 2016 which provides for five specific anti-avoidance measures to be transposed into the national laws of each Member State within the timelines set out by the Directive

The five ATAD measures

ATAD contains five specific measures:

1. Interest limitation rule
2. Controlled foreign company (CFC) rule
3. Hybrid mismatches (anti-hybrid rules)
4. Exit taxation
5. General anti-abuse rule (GAAR)

The first three measures stem from recommendations in the OECD/G20 Base Erosion and Profit Shifting (BEPS) 2015 Final Reports. The purpose of the ATAD is to ensure the consistent application of these BEPS recommendations across all EU Members States. The latter two are additional measures pursued by the Commission.

On 29 May 2017, the EU Council adopted a Directive to amend the hybrid mismatch measures in the ATAD. This Directive, known as ATAD 2, extends the scope of ATAD to hybrid mismatches involving third countries (i.e. non-EU countries).

ATAD timeline

Most of the ATAD measures were required to be enacted into domestic legislation by 1 January 2019.

However, Member States could derogate on the adoption of two measures;

Member States could opt to defer the introduction of the exit taxation rules until 1 January 2020.
Member States that have targeted rules which are “equally effective to the interest limitation rule set out in the Directive” could continue to use these rules until 1 January 2024.

Member States had until 1 January 2020 to enact the hybrid mismatch measures in ATAD2 into their domestic legislation and 1 January 2022 for the implementation of the rules relating to reverse hybrid mismatches.

Implementation of the ATAD in Ireland

On 2 September 2016, the Irish Government decided to commission a review of Ireland’s corporation tax code by an independent expert, Mr Seamus Coffey. Mr Coffey delivered his Review of the Irish Corporation Tax Code to the Minister for Finance and Public Expenditure and Reform on 30 June 2017. In his Review, Mr Coffey recommended the Irish Government to consult on several matters, including implementation of the ATAD in Ireland.

A public consultation was held from 10 October 2017 to 30 January 2018 on the recommendations contained in Mr Coffey’s Review. The Institute responded to the consultation, making recommendations on Controlled Foreign Company legislation and moving to a territorial regime; transfer pricing, the GAAR, exit tax and anti-hybrid rules.

In September 2018, the Department of Finance published Ireland’s Corporation Tax Roadmap which sets out the programme for the implementation of ATAD in Ireland together with other key measures such as mandatory disclosure rules and the Dispute Resolution Mechanism Directive. An update to Ireland’s Corporation Tax Roadmap was published in January 2021.

General anti-abuse rule (GAAR)
Ireland has had a GAAR since 1989. Following a review of the existing provisions, the Government confirmed that no amendments are needed to make the existing GAAR compliant with the ATAD provision.

Controlled Foreign Company (CFC) rules

A CFC Feedback Statement was published by the Department of Finance in September 2018 and the Institute responded to the Feedback Statement.

CFC rules were introduced in Finance Act 2018 and are effective from 1 January 2019. The rules target undistributed income of a CFC, arising from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage and attribute that income to its parent company.

Exit Tax

New exit tax rules were introduced in Finance Act 2018. These rules were further extended in Finance Act 2019 to bring the rules fully in line with Article 5 ATAD.

Anti-hybrid rules

A public consultation on the ATAD implementation of anti-hybrid rules and the interest limitation rule was held from 14 November 2018 to 18 January 2019 and the Institute responded to the public consultation. The Department of Finance published an Anti-Hybrid Rules Feedback Statement in July 2019. The Institute responded to the Feedback Statement in September 2019.

Anti-hybrid rules were introduced in Finance Act 2019.

In July 2021, the Department of Finance published an Anti-Reverse Hybrids Feedback Statement. The Institute responded to this Feedback Statement in August 2021. Anti-Reverse Hybrids were introduced into Irish law in Finance Act 2021.

Interest Limitation Rule

The Department of Finance published a Feedback Statement on the ATAD Interest Limitation Rule in December 2020 and a further Feedback Statement was published in July 2021. The Institute responded to both Feedback Statements.

An ATAD compliant Interest Limitation Rule was introduced into Irish law in Finance Act 2021 and applies for accounting periods commencing on or after 1 January 2022.

ATAD 3

On 22 December 2021, the European Commission adopted a proposal for a Directive (also known as ‘ATAD 3′) on preventing the misuse of shell entities for tax purposes. The proposed Directive sets out certain criteria (referred to as ‘gateway’ criteria and substance requirements) which will allow tax administrations to designate an entity as a shell.

Under the proposals, an entity that is presumed to be a ‘shell’ will not be able to access tax relief and the benefits of the tax treaty network of a Member State and/or qualify for the treatment under the Parent-Subsidiary and Interest and Royalties Directives.

To facilitate the implementation of these consequences, the Member State of residence of the company will either deny the shell company a tax residence certificate or the certificate will specify that the company is a shell. Entities that do not meet all substance indicators will have the opportunity to rebut the presumption of being a shell.

The Commission called for feedback on the proposed Directive. The Institute responded to the call for feedback on 6 April 2022. Feedback received will be summarised and presented to the European Parliament and EU Council to input into the legislative debate.