Draft legislation in implementation of ATAD2
The Junior Finance Minister has submitted the Bill in implementation of ATAD2, the European Council’s second Anti Tax Avoidance Directive, to the Lower House of the Dutch Parliament. The draft legislation has been designed with the aim of putting a stop to tax avoidance enabled by structures that are geared to discrepancies between the tax regimes of individual Member States. Examples of such “hybrid mismatches” include the possibility that a particular outgoing payment may be eligible for tax relief in a particular Member State whereas no tax at all is levied anywhere in the EU on the corresponding incoming payment, or that a single outgoing payment can be used more than once to obtain tax relief. The various measures as per the Bill – the effective date of which has been fixed at the first of January 2020, also in other Member States – are to be bolted on to the Netherlands Corporation Tax Act.
No more tax relief where incoming payment remains untaxed
The draft legislation provides for the denial of tax relief for payments made to recipient trading partners whose collection of the amounts in question remains untaxed throughout the EU. Outgoing payments made by non-EU resident entities are to involve tax being levied at the level of the (EU-resident) recipient entity.
Double tax relief adjustment
“Double tax relief” is where tax relief is granted in the Member State where the paying entity is established while being denied in the other Member State involved in the transaction. If the tax relief inadvertently slips through the net in the latter Member State, the former Member State can resort to denying the tax relief it had granted.
Double tax relief adjustment
The draft legislation by no means intends to open the door to double taxation. The Directive contains instructions as to the basic order of implementation of the adjustment measures, which moreover will be strictly confined to hybrid mismatch scenarios.
The scope of the measures is to remain confined to mismatches involving associated trading partners and to mismatches in a structured arrangement context. The latter would be the case as soon as the tax advantage from the mismatch were an intrinsic consequence of the arrangement in question, or where the arrangement had been specifically designed in such a manner as to produce a hybrid mismatch.
The measures as per the draft legislation have been specifically designed for no purpose other than that of foiling hybrid mismatches owing to use being made of discrepancies in the fiscal qualification of entities, instruments, permanent establishments or places of residence from one Member State’s tax regime to another in order to achieve a tax advantage.
Read more: Crack-down on tax avoidance, tax evasion
Dutch version: Wetsvoorstel implementatie ATAD2