EU adopts directive halting multinational tax avoidance through hybrid mismatches with third countries

by Davide Anghileri

Today the Council of the European Union adopted a directive amending EU directive 2016/1164 as regards hybrid mismatches with third countries (also known as ATAD 2).

“Our aim here is to tackle one of the main practices that multinational companies have devised to reduce their tax bills,” said Edward Scicluna, minister for finance of Malta, which currently holds the Council presidency.

Today’s agreement completes the Anti Tax Avoidance Directive (ATAD 1) which ensures that binding and robust anti-abuse measures are applied throughout the single market.

The directive is designed to contribute to the implementation of 2015 OECD recommendations addressing corporate tax base erosion and profit shifting (BEPS) to restore trust in the fairness of tax systems and to allow governments to effectively exercise their tax sovereignty. It also aims to offer common and flexible solutions to prevent corporate tax avoidance in a way that is consistent with and no less effective than Action 2 of the BEPS project.

In particular, the directive aligns the “hybrid mismatch” definition with the outcome of BEPS and gives a more comprehensive definition of “associated enterprise” compared to the one provided by ATAD 1.

Moreover, ATAD 2 extends the territorial scope of the operative rules to address hybrid mismatches with non-EU countries.

The directive also affects hybrid transfers, imported mismatches, and addresses the full range of double deduction outcomes. It introduces rules on reverse hybrid mismatches and on tax residency mismatches. Even hybrid permanent establishment mismatches are tackled to avoid a double deduction or a deduction without inclusion.

The new rules, which were endorsed by EU ministers in February and subsequently by the European Parliament, will come into force on 1 January 2020, with a longer phasing-in period of 2022 for one provision (Art. 9a for the rule targeting reverse hybrid mismatches).

The EU Commission also welcomed the adoption of new rules to block tax avoidance.

“[The directive] is another victory for fair taxation and another blow against those companies that try to escape paying their fair share,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.

Davide Anghileri

Davide Anghileri is a PhD candidate at the University of Lausanne, where he is writing his thesis on the attribution of profits to PEs. He researches transfer pricing issues and lectures for the Master of Advanced Studies in International Taxation and Executive Program on Transfer Pricing.

Anghileri, a Contributing Editor at MNE Tax, previously worked as a policy advisor to the Swiss government on BEPS issues. He can be reached at

Davide Anghileri

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