EU Anti-avoidance Tax Directive (2016/1164(EU)) - Critical Analysis

International
Taxation

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Present foreign tax policy goals highlight the requirement for tax collections in the fields of
income and interest. It is therefore imperative that confidence in taxation structures is restored
and that governments use the fiscal authority efficiently (Cédelle, 2016). This study involves a
comprehensive essay on Anti-avoidance Tax Directive (2016/1164(EU) with aim to conduct
critical analysis of multiple key aspects of this directive.
MAIN BODY
“The EU Anti-avoidance Tax Directive (2016/1164(EU)”
COUNCIL DIRECTIVE (EU) 2016/1164 of 12 Jul, 2016 lays down regulations against the tax-
avoidance practices which specifically affect internal market functionality. On 28 Jan, 2016, as
component of Anti-Tax Avoidance Program, Commission proposed its plan for Anti-Tax
Avoidance Directive. Whereby, Council approved Directive (EU) 2016/1164 on 20th Jun,
2016. Commission submitted its proposals on 25 Oct, 2016 to supplement the current law
concerning hybrid mismatches in attempt to allow for a robust system of anti-abuse initiatives
(Baldvinsson, 2017). The hybrid mismatches law attempts at stopping companies from
leveraging regional mismatches in order to escape taxes. The Commission has also released their
Staff Working Document alongside that proposal. The Anti-Tax-avoidance Directive includes
five legally enforceable anti-abuse measures that should be enforced by all Member countries
toward specific ways of aggressive fiscal planning. With effect from 1 Jan. 2019, Member States
will implement such measures. It provides a minimal level of coverage regarding corporate tax
evasion across the EU, whilst also maintaining an equitable and more secure business climate.
In Anti-Tax Avoidance Directive certain anti-avoidance steps apart from hybrid mismatches
rules are: (1) Controlled foreign company (CFC) rule, (2) Exit taxation, (3) Switchover rule, (4)
General anti-abuse rule and (5) Interest limitation (Van Os, 2016).
Here as per controller foreign company rule, A taxpayer's Member State should classify an
entity, or permanent establishment whose profits or surplus are not taxable or exempted from
taxation in that Member country, like a controlled foreign corporation where prescribed criteria
are fulfilled. Prescribed condition involve; In case of entity, either directly or indirectly, taxpayer
retains greater than 50-percent of entire voting rights or explicitly or implicitly controls greater
than 50-percent of entire capital or is allowed to claim greater than 50% of such an entity's