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EU: Directive addressing corporate tax avoidance effective beginning 2019

EU: Directive addressing corporate tax avoidance

The European Commission issued a reminder that new rules to eliminate the most common corporate tax avoidance practices were effective 1 January 2019. Beginning in 2019, all EU Member States are to apply new legally binding anti-abuse measures that target the main forms of tax avoidance used by certain large multinational entities.


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The EU rules build on global standards developed by the OECD under the base erosion and profit shifting (BEPS) project. As noted in the EC release:

  • All EU Member States will now tax profits moved to low-tax countries where the company does not have any genuine economic activity—the controlled foreign company (CFC) rules.
  • To discourage companies from using excessive interest payments to minimise taxes, EU Member States will limit the amount of net interest expenses that a company can deduct from its taxable income—interest limitation rules.
  • EU Member States will be able to address tax avoidance schemes in cases when other anti-avoidance provisions cannot be applied—the general anti-abuse rule.

Further rules governing hybrid mismatches to prevent companies from exploiting mismatches in the tax laws of two different EU countries in order to avoid taxation, as well as measures about gains on assets such as intellectual property moved from an EU Member State's territory become taxable in that country (exit taxation rules) will be effective beginning 1 January 2020.

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