Ecofin has not yet reached an agreement on the proposed amendment of the ATAD regarding Hybrid Mismatches with third countries

Ecofin has not yet reached an agreement on the proposed amendment of the ATAD regarding Hybrid Mismatches with third countries

On 6 December 2016, the Ecofin did not come to an agreement on the proposed amendment to the Anti-Tax Avoidance Directive (“ATAD”) which should neutralize the effects of hybrid mismatches between EU members states and third countries (like for example CV/BV structures with the US).

On 25 October 2016, the European Commission proposed an amendment to the ATAD as adopted on 12 July 2016 (“ATAD 2”). The proposed ATAD 2 contemplates that the hybrid mismatches provisions of the ATAD would be extended to hybrid mismatches between EU members states and third countries and to cover hybrid mismatches not yet addressed by the ATAD (i.e. permanent establishments and financial instruments). In ATAD 2, the responsibility to neutralise undesired effects of hybrid mismatches is placed on the EU Members States if there is a hybrid mismatch with a third country. This entails that EU Member States have to deny the deduction of payments or have to include income that would not be taxed in the third country.

In the Ecofin Meeting on December 6, 2016, the draft text of ATAD 2 has been changed whereby several Members States indicated that they need more time to consider the amended ATAD 2 proposal, or need approval from the parliament.

The proposed ATAD 2 requires Member States to implement ATAD 2 by 31 December 2018 and apply the rules as from 1 January 2019. The Netherland already suggested to postpone the effective date to 1 January 2024, in order to give third countries, like the US, sufficient time to amend their legislation in order to neutralise the effects of a hybrid mismatch in the country of the recipient of the payment.

The discussion on ATAD 2 will be continued in the first half of 2017, under Maltese presidency of the EU Council.