EU: Directive on hybrid mismatches with third countries

EU: Directive on hybrid mismatches with third countries

The EU Member States on 21 February 2017 reached an agreement on a directive that will amend the Anti-Tax Avoidance Directive (Council Directive (EU) 2016/1164 of 12 July 2016—“ATAD 1”).

1000

Related content

The new directive (“ATAD 2”) amends Article 9 of ATAD 1 (concerning certain hybrid mismatches between EU Member States). The scope of Article 9 is extended to include hybrid mismatches between EU Member States and third countries. ATAD 2 provides for rules consistent with the rules recommended by the OECD in the 2015 base erosion and profit shifting (BEPS) final report on BEPS Action 2. 

Overview

According to the Preamble to ATAD 2, the EU Member States are to use the BEPS Action 2 final report as a source of illustration and interpretation to the extent the rules are consistent with the provisions of ATAD 2 and EU law.

ATAD 2 only covers:

  • Mismatches between (1) associated enterprises, (2) between head offices and permanent establishments (PEs), (3) PEs of the same entity or 
  • Mismatches under a structured arrangement

The term “associated” is defined in the directive. Generally, it covers direct and indirect interests of 25% or more, but for certain types of mismatches, the percentage is increased to 50%. In addition, in certain situations, the directive deems that the parties involved are associated. ATAD 2 covers a number of (hybrid) mismatches—especially financial instrument mismatches; hybrid entity mismatches; reverse hybrid mismatches; permanent establishment mismatches; tax residency mismatches and imported mismatches. 

Effective dates

EU Member States are to implement Article 9 of ATAD 1 and the rules proposed by ATAD 2 by 31 December 2019 and apply the provisions as from 1 January 2020. However, Article 9A (which deals with so-called “reverse hybrids” will only have to be implemented by 31 December 2021 and be applied as from 1 January 2022. It is not  clear whether EU Member States may or must apply Article 9 to reverse hybrids in the period between 1 January 2020 and 1 January 2022.

 

Read a February 2017 report prepared by the KPMG member firm in the Netherlands

© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.