Limiting Base Erosion

S. 2941. Introduction

In the months preceding the writing of this contribution, a significant level of activity was observed with respect to controlled foreign company (CFC) rules both globally and within the EU. Following the proposals of the OECD/G-20 Base Erosion and Profit Shifting (BEPS) Project Action 3: Designing Effective Controlled Foreign Company Rules, published on 5 October 2015, the EU Commission initiated its own supranational legislative procedure, known as the Anti-Tax Avoidance (ATA) Directive, which seeks to give legally binding effect to a selection of OECD BEPS recommendations within the European Union. After some modifications, the original CFC rules proposed in a draft directive appeared in the final ATA Directive, formally adopted by the EU Council on 12 July 2016. This contribution examines the provisions of the final ATA Directive only.

The ATA Directive obliges Member States to uniformly introduce measures, including CFC rules, that would ensure “effective taxation” and achieve a “level playing field” and a “minimum standard of protection” of the Union against BEPS schemes identified and discussed within the framework of the OECD initiative. Thus, Member States ar...