Hybrid Entities in Tax Treaty Law

S. 5801. From ATAD I to ATAD II

1.1. The “original approach” proposed by the European Commission

On 28 January 2016, the European Commission presented the “anti-tax avoidance package”, the third set of measures proposed by the European Union to address corporate tax avoidance and aggressive tax planning.

In this package is also reflected the work exploited by the Organization for Economic Co-operation and Development (hereinafter OECD)/G20 in the final reports of the Base Erosion and Profit Shifting action plan (hereinafter “BEPS”) of 2015.

The Anti-Tax Avoidance Directive (hereinafter “ATAD”), first adopted by the European Council (hereinafter “the Council”) on 12 July 2016, was introduced as part of the “anti-tax avoidance package”, and it focuses on the treatment of hybrid entities and hybrid financial instrument mismatches within the European Union but not covering hybrid mismatches with third countries.

On 25 October 2016, the European Commission, following a request of the European Council, presented a proposal for amending Directive (EU) 2016/1164 (hereinafter “ATAD I”) expanding the provisions regarding hybrid mismatches between Member States to also third countries. In fact, as it is...