Legal Alerts/28 Feb 2017

Legal Alert – New Rules on Taxation of Hybrid Instruments

The European Commission has made the fight against corporate tax avoidance a priority. Most recently, the Council of the EU agreed on 21 February 2017 its position on rules regarding hybrid mismatches with the tax systems of third countries. This is another step in targeting to restrict international double non-taxation in accordance with EU and OECD measures.


On 21 June 2016, the EU Member States established an amendment of the ATAD. The aim of the directive is to tackle aggressive tax planning in accordance with the BEPS recommendations that seek to clamp down base erosion and profit shifting. The directive includes five legally binding anti-abuse measures, of which the fifth applies to hybrid mismatch situations between Member States. Along with the ATAD adopted in July 2016, the intra-EU disparities are already covered.

Amendments to the ATAD

The ATAD is proposed to be amended so that the provisions of the hybrid mismatch situations would apply as regards hybrid mismatches with third countries as well.

Further, the Council reached a compromise on the following issues:

  • for hybrid regulatory capital, a carve-out from the rules is established for the banking sector. The carve-out will be limited in time, and the Commission will be asked to present a report assessing the consequences;
  • for financial traders, a delimited approach is followed in line with that followed by the OECD; and
  • as regards implementation, a longer timeline is foreseen than that set for the July 2016 directive. Implementation is set for 1 January 2020 (one year later), and for 1 January 2022 as concerns one specific provision.

Next Steps

The Member States have to implement the draft by 1 January 2020, one year later than was previously agreed. The implementation of the provisions concerning reverse hybrids can be postponed until 1 January 2022. The directive only sets the minimum standards for Member States, and the Member States may apply additional or more stringent provisions.

This alert was drafted on the basis of a press release published by the Council of the EU on 21 February 2017. Please see the full release for further information.

Borenius’ lawyers are available to assist in addressing any questions you may have regarding this legal alert. Please feel free to contact any of the Borenius attorneys listed in this alert or those with whom you usually work.

Share on LinkedInTweet about this on TwitterShare on Facebook


Additional information

Heikki Wahlroos