International Tax Update: Draft Law on the Implementation of the Anti-Tax Avoidance Directive (ATAD)

On December 10, 2019, the German Federal Ministry of Finance (BMF) sent the "Draft Law on the Implementation of the Anti-Tax Avoidance Directive (ATAD)" to the associations for comment. Already on 18.12.2019, the Federal Cabinet is to decide on the draft law. The draft law includes far-reaching changes to the regulations on international tax law. In addition to the changes provided for in the EU directives in the areas of de-stratification and exit taxation, addition taxation and regulations on hybrid arrangements, far-reaching changes to the transfer pricing regulations are also planned. The International Tax Update provides you with an overview of the changes envisaged in the ATAD Implementation Act as well as an initial assessment of the impact on practice.

Probably quite surprisingly for most tax practitioners, the BMF published on 10.12.2019 the "Draft law on the implementation of the Anti-Tax Avoidance Directive (ATAD)." (ATAD Implementation Act) was sent to the associations for comment. The German cabinet is expected to decide on the ATAD Implementation Act as early as December 18, 2019. The reason for the initiated legislative procedure is the implementation of the "Council Directive (EU) 2016/1164 of 12 July 2016 laying down provisions to combat tax avoidance practices directly affecting the functioning of the internal market" (ATAD I). With the ATAD, the EU aims to set a European minimum standard of measures to combat tax avoidance. The directive includes the following regulations:

• Limitation of deductibility of interest (Article 4)

• Transfer of assets and exit taxation (Article 5)

• General rules for the prevention of abuse (Article 6)

• Rules for Controlled Foreign Enterprises (Article 7) and Calculation of Income of a Controlled Foreign Enterprise (Article 8); and

• Hybrid designs (Article 9).

As a result, the German regulations on international tax law are replaced by the ATAD Implementation Act tightened. Thus, the Federal Ministry of Finance calculates - after offsetting with tax relief - annual additional tax revenues of around EUR 235 million to be generated by the planned measures. This additional revenue is expected to result primarily from the introduction of the regulations on hybrid structures.

At International Tax Update the individual subsections and planned amendments of the ATAD Implementation Act are briefly presented and their effects on practice are analyzed.