Financial Services Ireland

Tax Alert – ECOFIN reaches political agreement on anti-tax avoidance directive (ATAD)

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Tax Alert – ECOFIN reaches political agreement on anti-tax avoidance directive (ATAD)

There has been a recent development in the EU tax law, the EU anti-tax avoidance directive (“ATAD”).  While the development is likely to have some implications for aircraft leasing operations establishing in the EU, at the moment the extent of the impact is uncertain and therefore it is one to add to the watch list.

In an unexpected and hurried approach, a directive has been formally approved by the EU Commission and is due to come into effect in a couple of years, possibly as early as 1 January 2019.  Please note that all existing debt arrangements in place at 17 June 2016 should be grandfathered provided they are not amended after this date.

It is important to note that the ATAD is a European initiative and so any changes driven by the Directive will impact across the EU, and are not targeted specifically at Ireland. In addition the Directive will need to be incorporated into Irish law.  Directives are drafted as that, as directives, more a general statement than prescriptive legislation.  It is up to the local country to implement, in their own statutory formats.  As you can imagine a directive is not totally suitable language for a taxing statute and was not developed to deal with tax, which is a further difficulty.

We expect that there will be significant discussion here with the Irish Government and the Irish tax authorities as to how the Directive will be incorporated into our tax law to ensure it does not have any unintended anti-competiveness bias.

ATAD

The EU Commission have concerns that the optionality contained within certain BEPS action points could lead to mismatches in treatment between EU Member States and so a distortion of the common market. They sought a more harmonised approach in respect of certain key BEPS action points, which is provided for under the ATAD.

There are five areas covered under the ATAD, specifically;

  • Interest limitation
  • Exit taxation
  • GAAR
  • CFC Rules
  • Hybrid rules

The acceleration of the process to reach agreement on the ATAD has resulted in the final directive being published with no guidance and limited commentary. Any analysis at this stage is therefore preliminary in nature.

We would anticipate a period of consultation with the Irish government and industry bodies to produce guidance, commentary and clarification on how the rules will be implemented in an Irish context.  No doubt the aviation sector will be heavily represented in this process.

The key point is that there is no immediate change of law and grandfathering of existing lending arrangements is expected.  It is important that existing arrangements are not amended without consultation to determine the impact.

See attached our tax alert with more general detail on the above.

John Hannigan

Aviation Finance, Sector Leader
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