On 28 January 2016, the European Commission published a draft Anti Tax Avoidance Package in order to ensure increased tax transparency and effective taxation within, and outside of, the EU. The package includes a proposed Directive on tax avoidance practices (discussed further below), amendments to the Directive on automatic information exchange in order to gather and share information on Multinational Enterprise Groups to ensure they pay their fair share of tax where profits are made, a recommendation paper on how Member States should reinforce their tax treaties against abuse by aggressive tax planners, a communication on external strategy for effective taxation in countries outside of the EU and a study on effective taxation. The draft Directive may be considered by the Economic and Financial Affairs Council of the European Union (ECOFIN) as soon as this month (February 2016). However, the Directive would require unanimous consent by all Member States, since it is a taxation measure, and would then need to be implemented into the domestic law of each individual Member State.

The proposed Directive on tax avoidance focuses on some of the proposals set out in the Base Erosion and Profit Shifting (BEPS) project. This is to ensure that these proposed measures are enacted uniformly across the EU in order to strengthen its collective stance on tax avoidance. The measures include:

  • limiting interest deductions to 30% EBITDA or €1 million (whichever is higher) in order to mitigate the bias against equity financing
  • introducing an exit tax on capital gains on assets transferred out of a Member State whether or not the gain is realised
  • introducing a “switch over” clause, meaning that foreign income received from a “low tax” jurisdiction (which imposes tax at below 40% of the recipient Member State’s tax rate) will be taxable, with a credit for any foreign tax paid
  • a general anti-abuse rule (GAAR) to tackle artificial tax arrangements
  • controlled foreign company (CFC) rules in relation to foreign entities subject to corporate tax at below 40% of the Member State’s tax rate
  • hybrid mismatch rules to prevent taxpayers benefitting from a double deduction or a deduction with no corresponding inclusion in taxable profit

The measures above are intended to operate alongside the EU’s Common Consolidated Corporate Tax Base (CCCTB) project, on which further draft legislation is expected in Autumn 2016. Whilst the Commission has not set out a specific timeframe for finalizing the above measures, it is clear that this project will be pursued with some urgency.

All of the documentation published by the EU on the Anti Tax Avoidance Package can be found here.

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Photo of Robert E. Gaut Robert E. Gaut

Robert Gaut is a tax partner and head of our UK tax practice in London.

Robert provides advice on a full range of UK and international tax issues relating to fund formation, private equity deals, finance transactions and private equity real estate matters…

Robert Gaut is a tax partner and head of our UK tax practice in London.

Robert provides advice on a full range of UK and international tax issues relating to fund formation, private equity deals, finance transactions and private equity real estate matters, including experience with non-traditional equity transactions, such as debt-like preferred equity and co-investments for private credit investors.

Robert is highly-regarded for his ability to provide sophisticated tax advice to many of the world’s preeminent multinational companies, sovereign wealth funds, investment banks and private equity and credit funds. Clients have commented to legal directories that Robert is “really technical and knows his stuff,” and “has a very strong knowledge of the various tax laws, but also presents more innovative techniques and strategies.”

He is consistently recognized by Chambers UK and The Legal 500 United Kingdom, and has been recognized by Chambers Global as a leading individual in tax. The Legal 500 comments that Robert has “vast experience in a range of matters, including corporate tax structuring, real estate tax and fund formation.”