ATAD - "Anti Tax Avoidance Directive"

Council Directive (EU) 2016/1164 of July 12, 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD 1), amended by Directive (EU) 2017/952 of May 29, 2017 (ATAD 2), has obliged EU member states to introduce measures to combat tax avoidance or adapt them to the European standard with effect from January 1, 2020. In Germany, however, only a corresponding draft bill has been published to date.

According to the EU Directive, the following areas must be regulated by national legislation:

• Limiting the deductibility of interest payments 
• Transfer of assets and exit taxation 
• Regulation for controlled foreign companies (CFC rules)
• Calculation of a CFC’s income (transfer pricing)
• Hybrid structures
• Reverse hybrid entities
• Mismatches in tax residency

Germany fulfilled its obligations under the EU Directive with the ATAD Implementation Act (ATAD-UmsG) of June 25, 2021. Some of the regulations take retroactive effect from January 1, 2020.

The ATAD Directive and the ATAD Implementation Act regulate the tax treatment of various cross-border issues. Our advisory services in these newly regulated areas include the following in particular:

• Initial assessment regarding
  • the deductibility of payments in hybrid structures, reverse hybrid entities and tax residency mismatches
  • the applicability of CFC rules
  • the compatibility of transfer pricing structures and documentation with the changed requirements
• Identifying necessary changes to existing structures
• Support in the design and implementation of necessary changes