How the EU anti-tax avoidance (ATA) package may affect your business

The worldwide discussion on the measures against tax evasion, as a consequence of the OECD-plan ‘Base Erosion and Profit Shifting’ (BEPS), has reached a new milestone in Europe. On 28 January 2016 the European Commission released an EU anti-tax avoidance package, representing a significant set of developments that, when adopted, will have significant impact on businesses operating in both the European Union and abroad.

It would be too exhaustive to discuss all measures proposed in the ATA-package, so this blog will be limited to elaborating on the most prominent topics from a SME (small- and medium-sized enterprises) perspective: exit-taxation and hybrid mismatches.

Exit-taxation on the transfer of assets between (member) states

Under the proposed ATA-measures taxpayers will face an exit-taxation when moving assets from one member state to the other in both intra-EU and extra-EU situations. When assets are being moved in connection with company migration or a transfer of assets from a head office to a PE or on a transfer of assets out from a PE, the taxpayer shall be subject to an exit-tax at an amount equal to the market value of the transferred assets at the time of exit. The receiving member state shall permit a step-up meaning that the taxpayer can value the assets against market value at the time of exit. This step-up prevents double taxation of the surplus value of the assets in different member states. I refer to the infographic given by the European Commission:

taxation rules

Source: European Commission

The payment of the exit-tax can be deferred to five year installments in intra-EU-situations. When the assets are being moved from a member state to a state outside the European Union (third-countries), the exit-tax is due immediately upon exit.

No longer a tax-advantage on hybrid loans

When a Dutch parent company provides a loan to a foreign subsidiary which loan is for Dutch tax purposes requalified from a receivable into subsidiary value (participating loans), but in the subsidiary’s resident state qualified as a loan, we enter into a phenomenon referred to as ‘hybrid mismatches’. As the interest payments from the receiving state are for Dutch tax purposes tax-exempt (participation exemption) on the one hand and in the source-country deductible as interest-payments on the other hand, double non-taxation arises. Under the proposed measures the receiving member state shall follow the qualification of the source state. This means in our example the receiving state shall qualify the interest payments as taxed interest income instead of tax-exempt dividends. Anticipating on earlier EU-guidelines the application of the participation exemption on participating loans is no longer allowed as per January 1, 2016 when the source country can deduct the interest payments from its tax base.

How to proceed

Although still in the proposal phase, the importance and rapidity of these developments should not be underestimated and must be taken into account in the decision process where international aspects are involved. The international team of Visser & Visser closely follows these developments and gladly thinks along with you in todays complex fiscal world.