ATAD

At CSB Group we understand that things can become rather complex when dealing with International Tax regulations and different Jurisdictions. Our team of professionals, can guide you with the best taxation approach in order to achieve a comprehensible tax optimisation scenario.

International Tax – ATAD 

Tax avoidance has changed the international tax environment as we know it, predominantly due to the finalisation of the OECD's Base Erosion and Profit Shifting (BEPS) Project. The BEPS Project led to a domino effect across all countries to modify their tax laws and curb tax avoidance. In this respect, the EU introduced the Anti-Tax Avoidance Package, which is the European Commission's ambitious agenda for fairer, simpler and more effective corporate taxation in the EU. An imperative part of this package is the Anti-Tax Avoidance Directive (ATAD), laying down rules against tax avoidance practices that directly affect the functioning of the internal market.

The ATAD was transposed into Maltese law by virtue of Subsidiary Legislation 123.187 – European Union Anti-Tax Avoidance Directives Implementation Regulations, which lays down five important instruments to minimise tax avoidance:

1. Interest Deduction Limitation (effective from 1 January 2019) To prevent companies from artificially eroding their tax base through excessive interest payments, the interest limitation rule caps the deductibility of net borrowing costs at 30% of a taxpayer's earnings before interest, taxes, depreciation and amortisation (EBITDA). Amounts exceeding this threshold may in certain circumstances be carried forward to future periods.
2. Exit Taxation (effective from 1 January 2020) The exit taxation rules are designed to ensure that unrealised capital gains accumulated within a jurisdiction are taxed before a taxpayer transfers assets, tax residence, or a permanent establishment out of that jurisdiction. This prevents the erosion of the domestic tax base through the migration of value prior to realisation.
3. Controlled Foreign Company (CFC) Rules (effective from 1 January 2019) CFC rules target the artificial diversion of profits to low-taxed subsidiaries in other jurisdictions. Where a parent company controls a foreign entity that is subject to little or no taxation and whose income is not genuinely connected to substantive economic activity, the undistributed income of that entity may be attributed back to and taxed in the hands of the parent in its jurisdiction of residence.
4. General Anti-Avoidance Rule (GAAR) (effective from 1 January 2019) The GAAR provides tax authorities with a broad tool to counteract arrangements that, while technically lawful, are not genuine and have been put in place primarily for the purpose of obtaining a tax advantage that defeats the object or purpose of the applicable tax law. Where the GAAR applies, the arrangement is disregarded and tax is assessed on the basis of its economic substance.
5. Anti-Hybrid Mismatch Rules (effective from 1 January 2020) Hybrid mismatches arise where differences in the tax treatment of an instrument, entity, or payment between two jurisdictions result in double deductions or a deduction without corresponding inclusion in taxable income. The anti-hybrid rules neutralise these mismatches by either denying the deduction or requiring the inclusion of income, depending on the nature of the mismatch, and apply to arrangements involving both EU Member States and third countries.

We understand that tax compliance with European and international tax rules may be an arduous task. CSB's Tax Advisory Team is composed of highly skilled professionals and EU and international tax experts, including lawyers and accountants, who are able to advise you in the best possible way in order to optimise your tax affairs in full compliance with the ATAD and Maltese tax regulations.