European Union: Evaluation of the Anti-Tax Avoidance Directive In Progress

The European Commission is obliged to evaluate the Anti-Tax Avoidance Directive (ATAD), which establishes minimum standard rules to combat common aggressive tax planning and tax avoidance practices that impact the internal market's functionality.

As stipulated in Article 10 of the ATAD, the Commission is required to assess the implementation of the Directive and subsequently report its findings to the Council. This evaluation aims to ensure that the ATAD's measures are effectively addressing tax avoidance and contributing to a coherent tax system across the EU.

FEEDBACK PERIOD

31 July 2024 - 28 August 2024 (midnight Brussels time)

POLITICAL CONTEXT

Council Directive (EU) 2016/1164 of 12 July 2016, amended by Council Directive (EU) 2017/952 of 29 May 2017, known as the Anti-Tax Avoidance Directive (ATAD), sets minimum standards for addressing common aggressive tax planning and avoidance practices that impact the functioning of the internal market. 

This Directive mandates EU Member States to incorporate specific measures into their corporate income tax frameworks to protect their tax bases and ensure a coordinated approach to preventing tax avoidance across the EU.

ATAD aligns with best practices and recommendations from the Organisation for Economic Co-operation and Development (OECD) and the G20's Base Erosion and Profit Shifting (BEPS) project. The Directive covers five key areas: the interest limitation rule, exit taxation, the controlled foreign company (CFC) rule, the hybrid mismatches rule, and the general anti-abuse rule (GAAR).

Article 10 of the Directive requires the Commission to evaluate its implementation, explicitly focusing on Article 4, which addresses the interest limitation rule, and report to the Council. This evaluation is not only a legal obligation but also takes into account the effects of subsequent EU legislation and current economic factors. An interim report was prepared by the Commission in August 2020 (COM(2020) 383 final), offering a preliminary overview of Member States’ implementation, particularly for measures transposed by 1 January 2020. This interim report highlighted policy choices made by Member States and the status of infringement cases but did not cover reverse hybrid mismatches, which were introduced on 1 January 2022. The interim report concluded that a comprehensive evaluation report would be necessary.

PURPOSE AND SCOPE

The evaluation aims to provide evidence on the implementation and effectiveness of ATAD, assess whether its objectives have been achieved, and determine if any amendments are needed. It will cover the period from 1 January 2020, the date the measures first came into effect, through to the completion of the evaluation. This will include an assessment of ATAD’s application across all EU Member States.

The evaluation will address three main themes:

1. Implementation: Assessing how Member States have applied ATAD, including the policy choices made where the Directive allowed flexibility.

2. Functioning: Evaluating the effectiveness of ATAD’s measures as a minimum standard in combating aggressive tax planning and how these measures compare to what Member States could have achieved independently. This includes both qualitative and quantitative assessments of their impact.

3. Future-Proofing: Considering the measures' continued relevance and effectiveness, especially in light of the Council Directive EU 2022/2523 on a global minimum level of taxation, which was introduced on 14 December 2022.

The evaluation will be based on five criteria:

1. Effectiveness: Evaluating whether ATAD has met its objectives and the benefits and challenges of its measures.

2. Efficiency: Measuring the additional national revenue generated and the administrative costs for stakeholders.

3. Relevance: Assessing the current and future relevance of the ATAD measures.

4. Coherence: Analyzing how ATAD aligns with other EU legislation.

5. EU Added Value: Determining the added value of ATAD’s results compared to individual Member States' efforts.

CONSULTATION STRATEGY

The consultation strategy aims to gather evidence and insights from a broad range of stakeholders to understand the effectiveness and impact of ATAD. This will include a targeted consultation and interviews with relevant parties. The Call for Evidence will be published in all 24 official EU languages for 8 weeks on the “Have your say” portal, at the below link:

• EU Login (europa.eu)

The consultation seeks to:

1. Identify the topics and issues covered by the evaluation.

2. Collect information and experiences on ATAD's implementation.

3. Gather stakeholders' views on the Directive’s effectiveness and relevance.

TARGET AUDIENCE

The consultation will target Member State tax authorities, multinational companies, large corporations, tax advisors, accountants, NGOs, and national/EU business representative bodies. It will be designed to ensure a diverse range of perspectives from different Member States.

DATA COLLECTION AND METHODOLOGY

The evaluation will be supported by an external study, drawing on official information from Member States and feedback from business stakeholders. This will include quantitative data to assess ATAD’s impact and cost-saving benefits. Stakeholders, particularly tax administrations, are encouraged to provide data to help identify administrative burdens and evaluate the Directive’s objectives.

The evaluation will adhere to the Commission's 'Better Regulation' requirements, ensuring a comprehensive and evidence-based assessment of ATAD's implementation and impact.

SOURCE/ RECOMMENDED READ: 

• Anti-tax Avoidance Directive (ATAD) – evaluation (europa.eu)

• Directive - 2016/1164 - EN - EUR-Lex (europa.eu)