Today, the Commission decided to refer Luxembourg to the Court of Justice of the European Union for failing to correctly transpose the Anti-Tax Avoidance Directive (Directive (EU) 2016/1164).
The Anti-Tax Avoidance Directive (ATAD1) provides for a derogation from the measure limiting the deductibility of interest payments from the corporate tax base applicable to financial undertakings. The Directive contains an exhaustive list of entities considered as financial undertakings for this purpose. However, Luxembourg grants the derogation also to securitisation entities, which are not considered as financial undertakings by ATAD1.
In May 2020, the Commission sent a letter of formal notice to Luxembourg, followed by a reasoned opinion on 2 December 2021, requesting them to amend their legislation within two months. As Luxembourg's reply to the Commission's reasoned opinion was not satisfactory, the Commission has now decided to refer Luxembourg to the Court of Justice of the European Union.
Background
On 28 January 2016 the Commission presented its proposal for an Anti-Tax Avoidance Directive as part of the Anti-Tax Avoidance Package. The Anti-Tax Avoidance Directive (Directive (EU) 2016/1164), as amended, contains five legally binding anti-abuse measures, which all Member States should apply against common forms of aggressive tax planning.
The five anti-abuse measures are: the controlled foreign company (CFC) rule, to deter profit shifting to a low/no tax country; the switchover rule, to prevent double non-taxation of certain income; the exit taxation rule, to prevent companies from avoiding tax when re-locating assets; the interest limitation rule, to discourage artificial debt arrangements designed to minimise taxes; and the general anti-abuse rule, to counteract aggressive tax planning when other rules do not apply.
They aim to create a minimum level of protection against corporate tax avoidance throughout the EU, while ensuring a fairer and more stable environment for businesses.
ATAD 1 entered into force on 1 January 2019. Member States had to adopt and publish the laws, regulations and administrative provisions necessary to comply with the Directive by 31 December 2018.
