ATAD II

On 29 May 2017, the EU’s Council formally adopted the new Directive amending Directive (EU) 2016/1164 as regards to hybrid mismatches with third countries (ATAD II) without further discussion.

ATAD II has a broader scope than ATAD I as it also covers hybrid mismatches with third countries and more categories of mismatches. The Directive adds rules that apply to all taxpayers subject to corporate tax in one or more Member States, including permanent establishments in one or more Member States of entities resident for tax purposes in a third country. Rules reverse hybrid mismatches also apply to entities treated as transparent for tax purposes by a Member State.

Member States had to transpose the provisions of ATAD II by 31 December 2019 to take effect from the first day of the first accounting period starting on or after 1 January 2020. This applies to both mismatches between Member States and between Member States and third countries. By way of derogation, the reverse hybrid entity rule had to be transposed by 31 December 2021 and applied as from tax year 2022. Payments to reverse hybrid were however not deductible anymore from 1 January 2020.