Proposal for a COUNCIL DIRECTIVE laying down rules against tax avoidance practices that directly affect the functioning of the internal market
Date: 2016-01-28
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: European tax cooperation, approximation of laws, corporation tax, single market, tax avoidance, tax evasion, tax harmonisation, tax law

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   EUROPEAN COMMISSION  Brussels, 28.1.2016  COM(2016) 26 final 2016/0011 (CNS)   Proposal for a COUNCIL DIRECTIVE laying down rules against tax avoidance practices that directly affect the functioning of the internal market  
 
 
TABLE OF CONTENTS 

EXPLANATORY MEMORANDUM ....................................................................................... 3 

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2. 

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3. 

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5. 

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CONTEXT OF THE PROPOSAL ............................................................................... 3 

Reasons for and objectives of the proposal .................................................................. 3 

Consistency with existing policy provisions in the policy area ................................... 3 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY ............................... 4 

Legal basis .................................................................................................................... 4 

Subsidiarity (for non-exclusive competence) ............................................................... 4 

Proportionality.............................................................................................................. 5 

Choice of the instrument .............................................................................................. 5 

RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS 
AND IMPACT ASSESSMENTS ................................................................................ 5 

Stakeholder consultations............................................................................................. 5 

Impact assessment ........................................................................................................ 6 

BUDGETARY IMPLICATIONS ................................................................................ 6 

OTHER ELEMENTS................................................................................................... 6 

Detailed explanation of the specific provisions of the proposal .................................. 6 

COUNCIL DIRECTIVE laying down rules against tax avoidance practices that directly affect 
the functioning of the internal market ...................................................................................... 10 

CHAPTER I  GENERAL PROVISIONS ................................................................................ 14 

CHAPTER II  MEASURES AGAINST TAX AVOIDANCE ................................................ 16 

CHAPTER III  FINAL PROVISIONS .................................................................................... 21 

LEGISLATIVE FINANCIAL STATEMENT ......................................................................... 23 

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FRAMEWORK OF THE PROPOSAL/INITIATIVE ............................................... 23 

MANAGEMENT MEASURES ................................................................................ 23 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE ............ 23 

FRAMEWORK OF THE PROPOSAL/INITIATIVE ............................................... 24 

MANAGEMENT MEASURES ................................................................................ 27 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE ............ 28 

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EXPLANATORY MEMORANDUM 

1. 

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CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

The  European  Council  Conclusions  of  18  December  2014  cite  "an  urgent  need  to  advance 
efforts in the fight against tax avoidance and aggressive tax planning, both at the global and 
European Union (EU) levels". Since December 2014, the Commission has quickly launched 
the  first  steps  towards  an  EU  approach.  Meanwhile,  the  Organisation  for  Economic 
Cooperation  and  Development  (OECD)  finalised  its  work  on  defining  the  global  rules  and 
standards to these ends. 

This  Directive,  which  is  often  referred  to  as  the  Anti-  Tax  Avoidance  Directive,  lays  down 
rules against tax avoidance practices that directly affect the functioning of the internal market. 
It  is  one  of  the  constituent  parts  of  the  Commission's  Anti-  Tax  Avoidance  Package,  which 
addresses  a  number  of  important  new  developments  and  political  priorities  in  corporate 
taxation  that  require  quick  reaction  at  the  level  of  the  EU.  In  particular,  it  responds  to  the 
finalisation of the project against Base Erosion and Profit Shifting (BEPS) by the G20 and the 
OECD  as  well  as  to  demands  from  the  European  Parliament,  several  Member  States, 
businesses  and  civil  society,  and  certain  international  partners  for  a  stronger  and  more 
coherent EU approach against corporate tax abuse.  

The  schemes  targeted  by  this  Directive  involve  situations  where  taxpayers  act  against  the 
actual  purpose  of  the  law,  taking  advantage  of  disparities  between  national  tax  systems,  to 
reduce their tax bill. Taxpayers may benefit from low tax rates or double deductions or ensure 
that their income remains untaxed by making it deductible in one jurisdiction whilst this is not 
included  in  the  tax  base  across  the  border  either.  The  outcome  of  such  situations  distorts 
business decisions in the internal market and unless it is effectively tackled, could create an 
environment of unfair tax competition. Having the aim of combating tax avoidance practices 
which directly affect the functioning of the internal market, this Directive lays down anti- tax 
avoidance  rules  in  six  specific  fields:  deductibility  of  interest;  exit  taxation;  a  switch-over 
clause;  a  general  anti-abuse  rule  (GAAR);  controlled  foreign  company  (CFC)  rules;  and  a 
framework to tackle hybrid mismatches. 

• 

Consistency with existing policy provisions in the policy area 

This Directive builds on the Action Plan for Fair and Efficient Corporate Taxation, presented 
by the Commission on 17 June 2015. It sets out legally binding rules to enable Member States 
to  effectively  tackle  corporate  tax  avoidance  in  a  way  which  preserves  their  collective 
competitiveness  and  respects  the  Single  Market,  Treaty  Freedoms,  the  EU  Charter  of 
Fundamental  Rights  and  EU  law  in  general.  In  this  respect,  it  draws  on  two  major  areas  of 
work at EU and international level. 

First, in the context of the OECD BEPS, most Member States have committed to implement 
the measures contained in the BEPS Final Reports, which were published on 5 October 2015 
and  endorsed  by  G20  leaders  in  November  2015.  However,  the  unilateral  and  divergent 
implementation of BEPS by each Member State could fragment the Single Market by creating 
national  policy  clashes, distortions  and  tax  obstacles  for  businesses  in  the  EU.  It  could  also 
create new loopholes and mismatches that could be exploited by companies seeking to avoid 
taxation, thereby undermining Member States' efforts to prevent such practices. It is therefore 
essential for the good functioning of the Single Market that Member States – as a minimum - 

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transpose the OECD BEPS measures into their national systems in a coherent and coordinated 
fashion. 

Second,  the  Commission  announced  in  the  June  2015  Action  Plan  that  it  will  re-launch  its 
Proposal for a Common Consolidated Corporate Tax Base (CCCTB), as a holistic solution to 
creating fairer and more efficient taxation. It also called on Member States to continue work 
on some international aspects of the common base, linked to the OECD BEPS project, while 
the revised CCCTB proposal was being prepared. This Directive takes account of the outcome 
of Member States' discussions on these issues in Council. 

This Directive aims to achieve a balance between the need for a certain degree of uniformity 
in implementing the BEPS outputs across the EU and Member States' needs to accommodate 
the  special  features  of  their  tax  systems  within  these  new  rules.  The  text  thus  lays  down 
principle-based rules and leaves the details of their implementation to Member States, on the 
understanding that they are better placed to shape the precise elements of the rules in a way 
that best fits their corporate tax systems. As such, the Directive should create a level-playing 
field of minimum protection for all Member States' corporate tax systems. 

The  Directive  is  broadly  inclusive  and  aims  to  capture  all  taxpayers  which  are  subject  to 
corporate tax in a Member State. Its scope also embraces permanent establishments, situated 
in the Union, of corporate taxpayers which are not themselves subject to the Directive. 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Direct tax legislation falls within the ambit of Article 115 of the Treaty on the Functioning of 
the EU (TFEU). The clause stipulates that legal measures of approximation under that article 
shall be vested the legal form of a Directive. 

• 

Subsidiarity (for non-exclusive competence)  

This proposal complies with the principle of subsidiarity. The nature of the subject requires a 
common initiative across the internal market. 

The rules of this Directive aim to  tackle cross-border tax avoidance practices  and provide a 
common framework for implementing the outputs of BEPS into Member States' national laws 
in a coordinated manner. Such aims cannot be sufficiently achieved through action undertaken 
by each Member State while acting on its own. Such an approach would in fact only replicate 
and  possibly  worsen  the  existing  fragmentation  in  the  internal  market  and  perpetuate  the 
present inefficiencies and distortions in the interaction of a patchwork of distinct measures. If 
the  objective  is  to  adopt  solutions  that  function  for  the  internal  market  as  whole  (e.g. 
elimination of mismatches as a result of disparities in national tax systems) and improve its 
(internal and external) resilience against aggressive tax planning, the appropriate way forward 
involves coordinated initiatives at the level of the EU.  

Furthermore, an EU initiative would add value, as compared to what a multitude of national 
implementation  methods  can  attain.  Given  that  the  envisaged  anti-abuse  rules  have  a  cross-
border  dimension,  it  is  imperative  that  any  proposals  balance  divergent  interests  within  the 
internal  market  and  consider  the  full  picture,  to  identify  common  objectives  and  solutions. 
This  can  only  be  achieved  if  legislation  is  designed  centrally.  Finally,  if  the  measures  to 
implement BEPS are enacted according to the acquis, taxpayers can have the legal certainty 
that they comply with EU law. 

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Such  an  approach  is  therefore  in  accordance  with  the  principle  of  subsidiarity,  as  set  out  in 
Article 5 of the Treaty on the European Union. 

• 

Proportionality 

The  envisaged  measures  do  not  go  beyond  ensuring  the  minimum  necessary  level  of 
protection  for  the  internal  market.  The  Directive  does  not  therefore  prescribe  full 
harmonisation  but  only  a  minimum  protection  for  Member  States'  corporate  tax  systems. 
Thus,  the  Directive  ensures  the  essential  degree  of  coordination  within  the  Union  for  the 
purpose  of  materialising  its  aims.  In  this  light,  the  proposal  does  not  go  beyond  what  is 
necessary  to  achieve  its  objectives  and  is  therefore  compliant  with  the  principle  of 
proportionality. 

• 

Choice of the instrument 

The proposal is for a Directive, which is the only available instrument under the legal base of 
Article 115 TFEU. 

3. 

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RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

The  topics  dealt  with  in  this  Directive  have  been  discussed  with  stakeholders  in  the 
framework of the proposed Directive for a CCCTB over a number of years. Member States' 
delegates have regularly contributed their observations at the technical Working Party on Tax 
Questions in Council. Since March 2011 that the College adopted the CCCTB Proposal, the 
Working  Party  has  met  several  times  during  each  Presidency,  to  go  through  technical  and 
policy  questions  in  detail.  In  addition,  the  Commission  Services  have  liaised  with  all  major 
business stakeholders and heard their views on various topics of the Proposal. Similarly, many 
- primarily technical – themes of the Directive were debated in academic conferences where 
the Commission Services have participated.  

Most Member States are members of the OECD and have participated in lengthy and detailed 
discussions on the anti-BEPS Actions, including on the elaboration of technicalities, between 
2013  and  2015.  The  OECD  organised  extensive  public  consultations  with  stakeholders  on 
each of the anti-BEPS Actions. Furthermore, the Commission has debated internally and with 
OECD  experts  several  BEPS  topics  (e.g.  CFC  legislation),  in  particular  where  the 
Commission has had doubts about the compatibility of certain ideas and/or proposed solutions 
with EU law. 

In the second half of 2014, the Italian Presidency of the Council launched the idea of an 'EU - 
BEPS Roadmap'. The Council discussed the CCCTB proposal and specifically focused on its 
international  and  BEPS-related  elements.  In  this  context,  the  Presidency  encouraged 
consistency  with  parallel  OECD  initiatives,  while  respecting  EU  law.  This  approach  was 
endorsed  by  the  High  Level  Working  Party  on  Taxation  and  pursued  by  the  subsequent 
Presidencies. Discussions on the EU - BEPS Roadmap continued into 2015. The aim was to 
contribute  to  the  OECD  debate  and  pave  the  way  towards  a  smooth  implementation  of  the 
future OECD Recommendations, whilst taking account of EU specificities. 

The  elements  of  this  proposal  for  a  Directive  were  presented  in  broad  terms  and  discussed 
with  Member  States'  delegations,  business  and  non-governmental  organisations' 
representatives at a meeting of the Platform for Tax Good Governance on 30 November 2015. 

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• 

Impact assessment 

After its report on Addressing Base Erosion and Profit Shifting was published in early 2013 
and the so-called Action Plan on BEPS was endorsed by the G20 Leaders in September 2013, 
the  OECD  embarked  on  a  2-year  period  of  intensive  work  which  led  to  the  delivery  of  13 
reports, in November 2015. These reports lay down new or reinforced international standards 
as well as concrete measures to help countries tackle BEPS. In this framework, OECD/G20 
members are committed to this comprehensive package and to its consistent implementation. 

Many Member States, in their capacity as OECD Members, have undertaken to transpose the 
output of the BEPS project into their national laws, and to do so urgently. Considering this, it 
is critical to make fast progress on agreeing rules for coordinating the implementation of the 
conclusions on BEPS in the EU. In  the light of a great risk of fragmentation of the internal 
market, which would possibly result from uncoordinated unilateral actions by Member States, 
the  Commission  is  putting  forward,  in  this  proposal,  common  minimum  solutions  for 
implementation.  The  Commission  has  made  every  effort  to  respond  simultaneously  to  both 
the urgency to act, and the imperative need to avoid that the functioning of the internal market 
is  compromised  either  by  unilateral  measures  adopted  by  Member  States  (whether  OECD 
members or not) acting on their own, or lack of action by other Member States altogether. The 
possibility  of  proposing  soft  law  was  also  considered  as  an  option  but  was  discarded  as 
inappropriate for securing a coordinated approach. 

To  provide  up-to-date  analysis  and  evidence,  a  separate  Staff  Working  Document  (SWD) 
accompanying the draft Directive gives an extensive overview of existing academic work and 
economic  evidence  in  the  field  of  base  erosion  and  profit  shifting.  This  is  based  on  recent 
studies, amongst others, by the OECD, the European Commission and European Parliament. 
The SWD highlights the drivers and most common identified mechanisms which, according 
to the OECD reports, are linked to aggressive tax planning. It summarises the conclusions of 
an in-depth review of key mechanisms for aggressive tax planning on a basis of analysis per 
Member State, as carried out on behalf of the Commission in 2015. The SWD outlines how 
the  Directive  is  complementary  to  other  initiatives  aimed  to  implement  the  output  of  the 
OECD  BEPS  reports  in  the  EU  and  contribute  towards  a  common  minimum  level  of 
protection against tax avoidance.  

Against  this  background,  no  impact  assessment  was  carried  out  for  this  proposal  on  the 
following  grounds:  there  is  a  strong  link  to  the  OECD  BEPS  work;  the  SWD  supplies  a 
significant  body  of  evidence  and  analysis;  stakeholders  were  extensively  involved  in 
consultations  on  the  technical  elements  of  the  proposed  rules  at  a  previous  stage;  and,  in 
particular, there is an urgent current demand for coordinated action in the EU on this matter of 
international political priority. 

4. 

BUDGETARY IMPLICATIONS 

This proposal for a Directive does not have any budgetary implications for the EU. 

5. 

• 

OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

The  Directive  is  broadly  inclusive  and  aims  to  capture  all  taxpayers  which  are  subject  to 
corporate tax in a Member State. Its scope also embraces permanent establishments, situated 
in the Union, of corporate taxpayers which are not themselves subject to the Directive. 

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The  schemes  targeted  by  this  Directive  involve  situations  where  taxpayers  act  against  the 
actual  purpose  of  the  law,  taking  advantage  of  disparities  between  national  tax  systems,  to 
reduce their tax bill. Taxpayers may benefit from low tax rates or double deductions or ensure 
that their income remains untaxed by making it deductible in one jurisdiction whilst this is not 
included  in  the  tax  base  across  the  border  either.  The  outcome  of  such  situations  distorts 
business decisions in the internal market and unless it is effectively tackled, could create an 
environment of unfair tax competition. Having the aim of combating tax avoidance practices 
which directly affect the functioning of the internal market, this Directive lays down anti- tax 
avoidance  rules  in  six  specific  fields:  deductibility  of  interest;  exit  taxation;  a  switch-over 
clause;  a  general  anti-abuse  rule  (GAAR);  controlled  foreign  company  (CFC)  rules;  and  a 
framework to tackle hybrid mismatches. 

• 

The deductibility of interest 

Multinational  groups  often  finance  group  entities  in  high-tax  jurisdictions  through  debt  and 
arrange  that  these  companies  pay  back  'inflated'  interest  to  subsidiaries  resident  in  low-tax 
jurisdictions. In this way, the tax base of the group (or more precisely, of the entities paying 
out 'inflated' interest) decreases in the high-tax jurisdictions whilst it increases in the low-tax 
State where the interest payment is received. Overall, the outcome is a reduced tax base for 
the multinational group as a whole. 

The  aim  of  the  proposed  rule  is  to  discourage  the  above  practice  by  limiting  the  amount  of 
interest that the taxpayer is entitled to deduct in a tax year. In this way, it is also expected to 
mitigate the bias against equity financing. For this purpose, net interest expenses will only be 
deductible up to  a  fixed ratio based on the taxpayer's gross operating profit. Given that  this 
Directive fixes a minimum level of protection for the internal market, it is envisaged setting 
the  rate  for  deductibility  at  the  top  of  the  scale  (10  to  30%)  recommended  by  the  OECD. 
Member States may then introduce stricter rules. 

Although  it  is  generally  accepted  that  financial  undertakings,  i.e.  financial  institutions  and 
insurance undertakings, should also be subject to limitations to the deductibility of interest, it 
is equally acknowledged that these two sectors present special features which call for a more 
customised  approach.  This  is  chiefly  because,  contrary  to  other  sectors  of  the  economy, 
financial  costs  and  revenues  are  incurred  by,  or  accrue  to,  financial  undertakings  as  part  of 
their core trade. Given that the discussions in this field are not yet sufficiently conclusive in 
the international and Union context, it has not yet been possible to provide for specific rules in 
the  financial  and  insurance  sectors.  It  is  however  necessary  to  clarify  that  despite  the 
temporary exclusion of these financial undertakings, the intention is to ultimately conclude an 
interest limitation rule of broad scope which is not subject to exceptions. 

• 

Exit taxation 

Taxpayers  may  try  to  reduce  their  tax  bill  by  moving  their  tax  residence  and/or  assets  to  a 
low-tax jurisdiction. Such practices distort the market because they erode the tax base of the 
State  of  departure  and  shift  future  profits  to  be  subject  to  tax  in  the  low-tax  jurisdiction  of 
destination.  If  taxpayers  move  their  tax  residence  out  of  a  certain  Member  State,  this  State 
will be deprived of its future right to tax revenues of these taxpayers, which may have already 
been  created  but  not  yet  realised.  The  same  complication  arises  where  taxpayers  transfer 
assets  (without  disposing  of  them)  out  of  a  Member  State  and  those  assets  incorporate 
unrealised profits.  

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Exit  taxation  serves  the  purpose  of  preventing  tax  base  erosion  in  the  State  of  origin  when 
assets  which  incorporate  unrealised  underlying  gains  are  transferred,  without  a  change  of 
ownership,  out  of  the  taxing  jurisdiction  of  that  State.  As  the  application  of  exit  taxation 
within the Union shall be in line with the fundamental freedoms and in line with the case law 
of the Court of Justice of the European Union (CJEU), this Directive also addresses the EU 
law  angle  of  exit  taxation  by  giving  taxpayers  the  option  for  deferring  the  payment  of  the 
amount of tax over a certain number of years and settling through staggered payments. 

• 

A switch-over clause 

Given  the  inherent  difficulties  in  giving  credit  relief  for  taxes  paid  abroad,  States  tend  to 
increasingly  exempt  foreign  income  from  taxation.  The  unintended  negative  effect  of  this 
approach is that it may encourage untaxed or low-taxed income to enter the internal market 
and  then,  circulate  –  in  many  cases,  untaxed  -  within  the  Union,  making  use  of  available 
instruments within the Union law.  

Switch-over  clauses  are  commonly  used  against  such  practices.  Namely,  the  taxpayer  is 
subjected to taxation (instead of being exempt) and given a credit for tax paid abroad. In this 
way,  companies  are  discouraged  from  shifting  profits  out  of  high-tax  jurisdictions  towards 
low-tax territories, unless there is sufficient business justification for these transfers. 

The threshold of low taxation 

In its proposal for a Directive on a CCCTB, the Commission introduced a switch-over clause 
to capture situations where the income flowing into the internal market from a third country 
had been subject to a tax on profits in the third country at a statutory corporate tax rate lower 
than 40 percent of the average of statutory corporate tax rates in the Union. This rule would 
ensure  that  income  of  a  third-country  origin  enters  the  Union  after  having  been  taxed  at  a 
level  which  at  least  equals  the  lowest  level  of  taxation  that  this  payment  would  have  been 
subject to had it originated in a Member State. For this purpose, the proposal for a CCCTB 
refers, as a comparator, to the average of statutory corporate tax rates in the Union.  

Considering that this Directive does not establish a standalone corporate tax system, neither 
does  it  include  a  mechanism  for  consolidating  the  tax  bases  of  group  companies  across  the 
Union  in  such  a  way  as  under  the  proposal  for  a  CCCTB,  it  would  be  logical  to  use,  as  a 
reference, the statutory corporate tax rate in the Member State of the taxpayer receiving the 
foreign income – at least, until the plans to re-launch the CCCTB materialise, as announced 
by the Commission.  

The proposed scheme takes into account the fact that there is no harmonisation of corporate 
tax rates in the Union. In order to target tax avoidance practices, the threshold should, in any 
event, be set to capture situations where taxation is at a level below 50 percent as compared to 
the  State  of  the  recipient  taxpayer.  Yet,  neither  should  the  threshold  be  fixed  so  low  as  to 
deprive the measure of any meaning by capturing only the most aggressive tax jurisdictions. 
In this light, a test whereby the statutory corporate tax rate in the entity’s country of residence 
or the country in which the permanent establishment is situated is lower than 40 percent of the 
statutory  corporate  tax  rate  in  the  Member  State  of  the  taxpayer  would  strike  a  balance 
between recognising the scope for fair tax competition and the need to prevent tax avoidance 
practices.  

Furthermore, by applying the switch-over clause, income of a third-country origin that flows 
into  the  Union  would  be  taxed  by  the  Member  State  of  the  taxpayer  at  the  same  level  as 

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income of a domestic origin, which would ensure equal treatment between Union and third-
country  origin  payments.  In  this  way,  Member  States  would  remain  compliant  with  their 
undertaken obligations under both European and international law. 

• 

A general anti-abuse rule (GAAR) 

Tax  planning  schemes  are  very  elaborate  and  tax  legislation  does  not  usually  evolve  fast 
enough in order to include all necessary specific defences to tackle such schemes. This is why 
a GAAR is useful in a tax system; it thus allows abusive tax practices to be captured despite 
the absence of a specific anti- tax avoidance rule. 

The GAAR is  designed to  cover  gaps that  may exist in  a country's  specific  anti-abuse  rules 
against tax avoidance. It would allow authorities the power to deny taxpayers the benefit of 
abusive tax arrangements. In compliance with the acquis, the proposed GAAR is designed to 
reflect the artificiality tests of the CJEU where this is applied within the Union. 

• 

Controlled foreign company (CFC) rules 

Taxpayers  with  controlled  subsidiaries  in  low-tax  jurisdictions  may  engage  in  tax  planning 
practices whereby they shift large amounts of profits out of the (highly-taxed) parent company 
towards subsidiaries which are subject to low taxation. The effect is to reduce the overall tax 
liability of the group. The analysis above about the threshold of low taxation is also valid for 
CFC rules. 

The  income  shifted  to  the  subsidiary  is  usually  mobile  passive  income.  For  example,  a 
common  scheme  would  consist  of  first  transferring,  within  a  group,  the  ownership  of 
intangible assets (e.g. IP) to the CFC and as a second step, shifting large amounts of income 
in  the  form  of  royalty  payments  in  consideration  for  the  right  to  use  the  assets  owned  and 
managed  by  the  CFC.  The  functioning  of  the  internal  market  is  clearly  affected  by  such 
practices of profit shifting, primarily where the income is shifted out of the EU towards low-
tax third countries.  

CFC  rules  re-attribute  the  income  of  a  low-taxed  controlled  foreign  subsidiary  to  its  parent 
company. As a result of this, the parent company is charged to tax on this income in its State 
of residence – usually, this is a high-tax State. CFC legislation, therefore, aims to eradicate the 
incentive of shifting income, so that this is taxed at a low rate in another jurisdiction. 

• 

A framework to tackle hybrid mismatches 

Hybrid  mismatches  are  the  consequence  of  differences  in  the  legal  characterisation  of 
payments  (financial  instruments)  or  entities  when  two  legal  systems  interact.  Such 
mismatches may often lead to double deductions (i.e. deduction on both sides of the border) 
or a deduction of the income on one side of the border without its inclusion on the other side. 
Taxpayers, especially those engaged in cross-border structures, often take advantage of such 
disparities amongst national tax systems and reduce their overall tax liability in the Union. 

This  problem  has  been  explored  by  both  the  Group  of  the  Code  of  Conduct  on  Business 
Taxation and the OECD. In order to ensure that Member States introduce rules to effectively 
combat  against  these  mismatches,  this  Directive  prescribes  that  the  legal  characterisation 
given to a hybrid instrument or entity by the Member State where a payment, expense or loss, 
as the case may be, originates shall be followed by the other Member State which is involved 
in the mismatch.. 

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2016/0011 (CNS) 

Proposal for a 

COUNCIL DIRECTIVE 

laying down rules against tax avoidance practices that directly affect the functioning of 
the internal market 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 115 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national Parliaments, 
Having regard to the opinion of the European Parliament1,  
Having regard to the opinion of the European Economic and Social Committee2,  

Acting in accordance with a special legislative procedure, 

Whereas: 

(1) 

The current political priorities in international taxation highlight the need for ensuring 
that tax is paid where profits and value are generated.  It is thus imperative to restore 
trust in the fairness of tax systems and allow governments to effectively exercise their 
tax  sovereignty.  These  new  political  objectives  have  been  translated  into  concrete 
action recommendations in the context of the initiative against Base Erosion and Profit 
Shifting  (BEPS)  by  the  Organisation  for  Economic  Cooperation  and  Development 
(OECD).  In  response  to  the  need  for  fairer  taxation,  the  Commission,  in  its 
Communication  of  17  June  2015  sets  out  an  Action  Plan  for  Fair  and  Efficient 
Corporate Taxation in the European Union3 (the Action Plan). 

(2)  Most  Member  States,  in  their  capacity  as  OECD  members,  have  committed  to 
implement the output of the 15 Action Items against base erosion and profit shifting, 
released  to  the  public  on  5  October  2015.  It  is  therefore  essential  for  the  good 
functioning of the internal market that, as a minimum, Member States implement their 
commitments under BEPS and more broadly, take action to discourage tax avoidance 
practices and ensure fair and effective taxation in the Union in a sufficiently coherent 
and coordinated fashion. In  a market of highly integrated economies, there is  a need 
for common strategic approaches and coordinated action, to improve the functioning 
of the internal market and maximise the positive effects of the initiative against BEPS. 
Furthermore, only a common framework could prevent a fragmentation of the market 
and  put  an  end  to  currently  existing  mismatches  and  market  distortions.  Finally, 
national implementing measures which follow a common line across the Union would 

1 
2 
3 

OJ C , , p. . 
OJ C , , p. . 
Communication  from  the  Commission  to  the  European  Parliament  and  the  Council  on  a  Fair  and 
Efficient Corporate Tax System in the European Union: 5 Key Areas for Action COM(2015) 302 final 
of 17 June 2015. 

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(3) 

(4) 

(5) 

(6) 

provide  taxpayers  with  legal  certainty  in  that  those  measures  would  be  compatible 
with Union law. 

It is necessary to lay down rules in order to strengthen the average level of protection 
against aggressive tax planning in the internal market. As these rules would have to fit 
in 28 separate corporate tax systems, they should be limited to general provisions and 
leave  the  implementation  to  Member  States  as  they  are  better  placed  to  shape  the 
specific elements of those rules in a way that fits best their corporate tax systems. This 
objective  could  be  achieved  by  creating  a  minimum  level  of  protection  for  national 
corporate  tax  systems  across  the  Union.  It  is  therefore  necessary  to  coordinate  the 
responses  of  Member  States  in  implementing  the  outputs  of  the  15  Action  Items 
against  base  erosion  and  profit  shifting  with  the  aim  to  improve  the  effectiveness  of 
the  internal  market  as  a  whole  in  tackling  tax  avoidance  practices.  It  is  therefore 
necessary  to  set  a  common  minimum  level  of  protection  for  the  internal  market  in 
specific fields. 

It is necessary to establish rules applicable to all taxpayers that are subject to corporate 
tax in a Member State. Those rules should also apply to permanent establishments of 
those corporate taxpayers which may be situated in other Member State(s). Corporate 
taxpayers may be resident for tax purposes in a Member State or be established under 
the  laws  of  a  Member  State.  Permanent  establishments  of  entities  resident  for  tax 
purposes in a third country should also be covered by those rules if they are situated in 
one or more Member State. 

It is necessary to lay down rules against the erosion of tax bases in the internal market 
and the shifting of profits out of the internal market. Rules in the following areas are 
necessary  in  order  to  contribute  to  achieving  that  objective:  limitations  to  the 
deductibility of interest, exit taxation, a switch-over clause, a general anti-abuse rule, 
controlled  foreign  company  rules  and  a  framework  to  tackle  hybrid  mismatches. 
Where  the  application  of  those  rules  gives  rise  to  double  taxation,  taxpayers  should 
receive  relief  through  a  deduction  for  the  tax  paid  in  another  Member  State  or  third 
country,  as  the  case  may  be.  Thus,  the  rules  should  not  only  aim  to  counter  tax 
avoidance  practices  but  also  avoid  creating  other  obstacles  to  the  market,  such  as 
double taxation.  

In an effort to reduce their global tax liability, cross-border groups of companies have 
increasingly engaged in shifting profits, often through inflated interest payments, out 
of high tax jurisdictions into countries with lower tax regimes. The interest limitation 
rule  is  necessary  to  discourage  such  practices  by  limiting  the  deductibility  of 
taxpayers’  net  financial  costs  (i.e.  the  amount  by  which  financial  expenses  exceed 
financial revenues). It is therefore necessary to fix a ratio for deductibility which refers 
to a taxpayer’s earnings before interest, tax, depreciation and amortisation (EBITDA). 
Tax exempt financial revenues should not be set off against financial expenses. This is 
because  only taxable income should be taken into  account in  determining up to how 
much  of  interest  may  be  deducted.  To  facilitate  taxpayers  which  run  reduced  risks 
related to base erosion and profit shifting, net interest should always be deductible up 
to a fixed maximum amount, which is triggered where it leads to a higher deduction 
than  the  EBITDA-based  ratio.  Where  the  taxpayer  is  part  of  a  group  which  files 
statutory  consolidated  accounts,  the  indebtedness  of  the  overall  group  should  be 
considered for the purpose of granting taxpayers entitlement to deduct higher amounts 
of  net  financial  costs.  The  interest  limitation  rule  should  apply  in  relation  to  a 
taxpayer's net financial costs without distinction of whether the costs originate in debt 
taken out nationally, cross-border within the Union or with a third country. Although it 

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(7) 

(8) 

(9) 

is  generally  accepted  that  financial  undertakings,  i.e.  financial  institutions  and 
insurance  undertakings,  should  also  be  subject  to  limitations  to  the  deductibility  of 
interest,  it  is  equally  acknowledged  that  these  two  sectors  present  special  features 
which call for a more customised approach. As the discussions in this field are not yet 
sufficiently conclusive in the international and Union context, it is not yet possible to 
provide specific rules in the financial and insurance sectors. 

Exit taxes have the function of ensuring that where a taxpayer moves assets or its tax 
residence out of the tax jurisdiction of a State, that State taxes the economic value of 
any capital gain created in its territory even if this gain has not yet been realised at the 
time  of  the  exit.  It  is  therefore  necessary  to  specify  cases  in  which  taxpayers  are 
subject to exit tax rules and taxed on unrealised capital gains which have been built in 
their transferred assets. In order to compute the amounts, it is critical to fix a market 
value for the transferred assets based on the arm's length principle. Within the Union, 
it is necessary to address the application of exit taxation and illustrate the conditions 
for  being  compliant  with  Union  law.  In  those  situations,  taxpayers  should  have  the 
right to either immediately pay the amount of exit tax assessed or defer payment of the 
amount of tax, possibly together with interest and a guarantee, over a certain number 
of years and to settle their tax liability through staggered payments. Exit tax should not 
be  charged  where  the  transfer  of  assets  is  of  a  temporary  nature  and  as  long  as  the 
assets are intended to revert to the Member State of the transferor, where the transfer 
takes  place  in  order  to  meet  prudential  requirements  or  for  the  purpose  of  liquidity 
management or when it comes to securities' financing transactions or assets posted as 
collateral. 

Given the inherent difficulties in giving credit relief for taxes paid abroad, States tend 
to  increasingly  exempt  from  taxation  foreign  income  in  the  State  of  residence.  The 
unintended  negative  effect  of  this  approach  is  however  that  it  encourages  situations 
whereby untaxed or low-taxed income enters the internal market and then, circulates – 
in many cases, untaxed - within the Union, making use of available instruments within 
the  Union  law.  Switch-over  clauses  are  commonly  used  against  such  practices.  It  is 
therefore necessary to provide for a switch-over clause which is targeted against some 
types of foreign income, for example, profit distributions, proceeds from the disposal 
of shares and permanent establishment profits which are tax exempt in the Union and 
originate in third countries. This income should be taxable in the Union, if it has been 
taxed  below  a  certain  level  in  the  third  country.  Considering  that  the  switch-over 
clause  does  not  require  control  over  the  low-taxed  entity  and  therefore  access  to 
statutory accounts of the entity may be unavailable, the computation of the effective 
tax rate  can be  a  very complicated exercise. Member States  should therefore use  the 
statutory tax rate when applying the switch-over clause. Member States that apply the 
switch-over  clause  should  give  a  credit  for  the  tax  paid  abroad,  in  order  to  prevent 
double taxation. 

General  anti-abuse  rules  (GAARs)  feature  in  tax  systems  to  tackle  abusive  tax 
practices  that  have  not  yet  been  dealt  with  through  specifically  targeted  provisions. 
GAARs  have  therefore  a  function  aimed  to  fill  in  gaps,  which  should  not  affect  the 
applicability of specific anti-abuse rules. Within the Union, the application of GAARs 
should be limited to arrangements that are ‘wholly artificial’ (non-genuine); otherwise, 
the  taxpayer  should  have  the  right  to  choose  the  most  tax  efficient  structure  for  its 
commercial  affairs.  It  is  furthermore  important  to  ensure  that  the  GAARs  apply  in 
domestic  situations,  within  the  Union  and  vis-à-vis  third  countries  in  a  uniform 

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manner,  so  that  their  scope  and  results  of  application  in  domestic  and  cross-border 
situations do not differ. 

(10)  Controlled Foreign Company (CFC) rules have the effect of re-attributing the income 
of a low-taxed controlled subsidiary to its parent company. Then, the parent company 
becomes  taxable  to  this  attributed  income  in  the  State  where  it  is  resident  for  tax 
purposes.  Depending  on  the  policy  priorities  of  that  State,  CFC  rules  may  target  an 
entire low-taxed subsidiary or be limited to income which has artificially been diverted 
to the subsidiary. It is desirable to address situations both in third-countries and in the 
Union. To comply with the fundamental freedoms, the impact of the rules within the 
Union  should  be  limited  to  arrangements  which  result  in  the  artificial  shifting  of 
profits out of the Member State of the parent company towards the CFC. In this case, 
the  amounts  of  income  attributed  to  the  parent  company  should  be  adjusted  by 
reference  to  the arm’s  length  principle,  so  that the  State  of  the  parent  company  only 
taxes amounts of CFC income to the extent that they do not comply with this principle. 
CFC rules should exclude financial undertakings from their scope where those are tax 
resident  in  the  Union,  including  permanent  establishments  of  such  undertakings 
situated  in  the  Union.  This  is  because  the  scope  for  a  legitimate  application  of  CFC 
rules  within  the  Union  should  be  limited  to  artificial  situations  without  economic 
substance,  which  would  imply  that  the  heavily  regulated  financial  and  insurance 
sectors would be unlikely to be captured by those rules.  

(11)  Hybrid mismatches are the consequence of differences in the legal characterisation of 
payments  (financial  instruments)  or  entities  and  those  differences  surface  in  the 
interaction  between  the  legal  systems  of  two  jurisdictions.  The  effect  of  such 
mismatches is often a double deduction (i.e. deduction in both states) or a deduction of 
the income in one state without inclusion in the tax base of the other. To prevent such 
an outcome, it is necessary to lay down rules whereby one of the two jurisdictions in a 
mismatch  should  give  a  legal  characterisation  to  the  hybrid  instrument  or  entity  and 
the other jurisdiction should accept it. Although Member States have agreed guidance, 
in the framework of the Group of the Code of Conduct on Business Taxation, on the 
tax  treatment  of  hybrid  entities4  and  hybrid  permanent  establishments5  within  the 
Union  as  well  as  on  the  tax  treatment  of  hybrid  entities  in  relations  with  third 
countries, it is still necessary to enact binding rules. Finally, it is necessary to limit the 
scope  of  these  rules  to  hybrid  mismatches  between  Member  States.  Hybrid 
mismatches  between  Member  States  and  third  countries  still  need  to  be  further 
examined. 

(12) 

It  is  necessary  to  clarify  that  the  implementation  of  the  rules  against  tax  avoidance 
provided  in  this  Directive  should  not  affect  the  taxpayers'  obligation  to  comply  with 
the arm's length principle or the Member State's right to adjust a tax liability upwards 
in accordance with the arm's length principle, where applicable. 

(13)  The  European  Data  Protection  Supervisor  was  consulted  in  accordance  with  Article 
28(2) of Regulation (EC) No 45/2001 of the European Parliament and of the Council6. 
The  right  to  protection  of  personal  data  according  to  Article  8  of  the  EU  Charter  of 
fundamental rights as well as Directive 95/46/EC of the European Parliament and of 

4 
5 
6 

Code of Conduct (Business Taxation) – Report to Council, 16553/14, FISC 225, 11.12.2014. 
Code of Conduct (Business Taxation) – Report to Council, 9620/15, FISC 60, 11.6.2015. 
Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on 
the  protection  of  individuals  with  regard  to  the  processing  of  personal  data  by  the  Community 
institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1). 

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13 

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the  Council7  applies  to  the  processing  of  personal  data  carried  out  within  the 
framework of this Directive. 

(14)  Considering  that  a  key  objective  of  this  Directive  is  to  improve  the  resilience  of  the 
internal market as a whole against cross-border tax avoidance practices, this cannot be 
sufficiently achieved by the Member States acting individually. National corporate tax 
systems are disparate and independent action by Member States would only replicate 
the existing fragmentation of the internal market in direct taxation. It would thus allow 
inefficiencies and distortions to persist in the interaction of distinct national measures. 
The  result  would  be  lack  of  coordination.  Rather,  by  reason  of  the  fact  that  much 
inefficiency in  the internal market primarily gives  rise to  problems of  a cross-border 
nature, remedial measures should be adopted at Union level. It is therefore critical to 
adopt solutions that function for the internal market as a whole and this can be better 
achieved at Union level. Thus, the Union may adopt measures, in accordance with the 
principle  of  subsidiarity  as  set  out  in  Article  5  of  the  Treaty  on  European  Union.  In 
accordance  with  the  principle  of  proportionality,  as  set  out  in  that  Article,  this 
Directive does not go beyond what is necessary in order to achieve that objective. By 
setting a minimum level of protection for the internal market, this Directive only aims 
to  achieve  the  essential  minimum  degree  of  coordination  within  the  Union  for  the 
purpose of materialising its objectives. 

(15)  The Commission should evaluate the implementation of this Directive three years after 
its  entry  into  force  and  report  to  the  Council  thereon.  Member  States  should 
communicate to the Commission all information necessary for this evaluation, 

HAS ADOPTED THIS DIRECTIVE: 

CHAPTER I 

GENERAL PROVISIONS 

Article 1 
Scope 

This Directive applies to all taxpayers that are subject to corporate tax in one or more Member 
State,  including  permanent  establishments  in  one  or  more  Member  State  of  entities  resident 
for tax purposes in a third country. 

For the purposes of this Directive, the following definitions apply: 

Article 2 
Definitions 

(1) 

7 

'borrowing costs' means interest expenses and other equivalent costs that a taxpayer 
incurs in connection with the borrowing of funds, including any difference between 
the  borrowed  funds  and  the  maturity  amount,  the  interest  element  in  a  leasing 
contract where the economic owner is entitled to deduct such interest and expenses 
incurred in connection with the raising of finance; 

Directive 95/46/EC of the European Parliament and the Council of 24 October 1995 on the protection 
of individuals with regard to the processing of personal data and on the free movement of such data (OJ 
L 281, 23.11.1995, p. 31). 

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14 

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(2) 

(3) 

'exceeding  borrowing  costs'  means  the  amount  by  which  the  borrowing  costs  of  a 
taxpayer  exceed  interest  revenues  and  other  equivalent  taxable  revenues  from 
financial assets that the taxpayer receives; 

'financial asset' means a financial instrument as defined in point (15) of Article 4(1) 
of Directive 2014/65/EU of the European Parliament and of the Council8 and deposit 
and structural deposits, loan claims and insurance-based investment products; 

(4) 

'financial undertaking' means any of the following entities: 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

a credit institution or an investment firm as defined in point (1) of Article 4(1) 
of Directive 2004/39/EC of the European Parliament and of the Council9; 

an  insurance  undertaking  as  defined  in  point  (1)  of  Article  13  of  Directive 
2009/138/EC of the European Parliament and of the Council10; 

a  reinsurance  undertaking  as  defined  in  point  (4)  of  Article  13  of  Directive 
2009/138/EC; 

an institution for occupational retirement provision falling within the scope of 
Directive 2003/41/EC of the European Parliament and of the Council 11, unless 
a  Member  State  has  chosen  not  to  apply  that  Directive in  whole  or  in  part  to 
that institution in accordance with Article 5 of that Directive or the delegate of 
an  institution  for  occupational  retirement  provision  as  referred  to  in  Article 
19(1) of Directive 2003/41/EC; 

an  alternative  investment  fund  managed  by  an  alternative  investment  fund 
manager as defined in point (b) of Article 4(1) of Directive 2011/61/EU of the 
European Parliament and of the Council12; 

undertakings for collective investment in transferable securities (UCITS) in the 
meaning  of  Article  1(2)  of  Directive  2009/65/EC  of  the  European  Parliament 
and of the Council13; 

(g) 

a central  counterparty as  defined in point (1) of Article 2 of Regulation (EU) 
No 648/201214; 

8 

9 

10 

11 

12 

13 

14 

Directive 2014/65/EU  of  the European Parliament  and of  the  Council of 15  May 2014 on  markets  in 
financial  instruments  and  amending  Directive  2002/92/EC  and  Directive  2011/61/EU  (OJ  L  173, 
12.6.2014, p. 349). 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial  instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive 
2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC 
(OJ L 145, 30.4.2004, p. 1). 
Directive  2009/138/EC  of  the  European  Parliament  and  of  the  Council  of  25  November  2009  on  the 
taking-up  and  pursuit  of  the  business  of  Insurance  and  Reinsurance  (Solvency  II)  (OJ  L  335, 
17.12.2009, p. 1). 
Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities 
and supervision of institutions for occupational retirement provision (OJ L 235, 23.9.2003, p. 10). 
Directive  2011/61/EU  of  the  European  Parliament  and  of  the  Council  of  8  June  2011  on  Alternative 
Investment  Fund  Managers  and  amending  Directives  2003/41/EC  and  2009/65/EC  and  Regulations 
(EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1). 
Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective 
investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32). 
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 
derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1). 

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(5) 

(6) 

(7) 

(h) 

a  central  securities  depository  as  defined  in  point  (1)  of  Article  2(1)  of 
Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the 
Council15. 

'transfer of assets' means an operation whereby the right to tax the transferred assets 
passes to another Member State or third country, whilst the assets remain under the 
beneficial  ownership  of  the  same  taxpayer,  excluding  transfers  of  assets  of  a 
temporary nature as long as the assets are intended to revert to the Member State of 
the transferor;  

'transfer  of  tax  residence'  means  an  operation  whereby  a  taxpayer  ceases  to  be 
resident for tax purposes in a Member State, whilst acquiring tax residence in another 
Member State or third country; 

'transfer of permanent establishment' means an operation whereby a taxpayer ceases 
to have taxable presence in a Member State whilst acquiring such presence in another 
Member  State  or  third  country  without  becoming  resident  for  tax  purposes  in  that 
Member State or third country. 

Article 3 
Minimum level of protection 

This Directive shall not preclude the application of domestic or agreement-based provisions 
aimed at safeguarding a higher level of protection for domestic corporate tax bases. 

CHAPTER II 

MEASURES AGAINST TAX AVOIDANCE 

1. 

2. 

3. 

15 

Article 4 
Interest limitation rule 

Borrowing  costs  shall  always  be  deducted  to  the  extent  that  the  taxpayer  receives 
interest or other taxable revenues from financial assets. 

Exceeding  borrowing  costs  shall  be  deductible  in  the  tax  year  in  which  they  are 
incurred  only  up  to  30  percent  of  the  taxpayer's  earnings  before  interest,  tax, 
depreciation  and  amortisation  (EBITDA)  or  up  to  an  amount  of  EUR  1  000  000, 
whichever  is  higher.  The  EBITDA  shall  be  calculated  by  adding  back  to  taxable 
income the tax-adjusted amounts for net interest expenses and other costs equivalent 
to interest as well as the tax-adjusted amounts for depreciation and amortisation.  

By derogation from paragraph 2, the taxpayer may be given the right to fully deduct 
exceeding borrowing costs if the taxpayer can demonstrate that the ratio of its equity 
over its total assets is equal to or higher than the equivalent ratio of the group.  

The first subparagraph shall apply subject to the following conditions: 

Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council  of  23  July  2014  on 
improving  securities  settlement  in  the  European  Union  and  on  central  securities  depositories  and 
amending  Directives  98/26/EC  and  2014/65/EU  and  Regulation  (EU)  No  236/2012  (OJ  L  257, 
28.8.2014, p. 1). 

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16 

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(a) 

(b) 

(c) 

(d) 

the ratio of the taxpayer’s equity over its total assets is considered to be equal 
to the equivalent ratio of the group if the ratio of the taxpayer’s equity over its 
total assets is lower by up to 2 percentage points; 

the  group  consists  of  all  entities  which  are  included  in  audited  consolidated 
financial  statements  drawn  up  in  accordance  with  the  International  Financial 
Reporting  Standards  or  the  national  financial  reporting  system  of  a  Member 
State  or  the  Generally  Accepted  Accounting  Principles  of  the  United  States 
(GAAP); 

all  assets  and  liabilities  are  valued  using  the  same  method  as  in  the 
consolidated financial statements; 

the taxpayer’s equity and total assets are reduced by contributions made in the 
six  months  preceding  the  relevant  balance  sheet  date  insofar  as  these 
contributions  are  matched  by  withdrawals  or  distributions  during  the  six 
months that follow the relevant balance sheet date; 

(e)  payments  to  associated  enterprises  do  not  exceed  10  percent  of  the  group’s 

total net interest expense. 

4. 

5. 

The  EBITDA  of  a  tax  year  which  is  not  fully  absorbed  by  the  borrowing  costs 
incurred  by  the  taxpayer  in  that  or  previous  tax  years  may  be  carried  forward  for 
future tax years. 

Borrowing costs which cannot be deducted in the current tax year under paragraph 2 
shall be deductible up to the 30 percent of the EBITDA in subsequent tax years in the 
same way as the borrowing costs for those years. 

6. 

Paragraphs 2 to 5 shall not apply to financial undertakings.  

Article 5 
Exit taxation 

1. 

A  taxpayer  shall  be  subject  to  tax  at  an  amount  equal  to  the  market  value  of  the 
transferred assets, at the time of exit, less their value for tax purposes, in any of the 
following circumstances: 

(a) 

(b) 

(c) 

a taxpayer transfers assets from its head office to its permanent establishment 
in another Member State or in a third country; 

a taxpayer transfers assets from its permanent establishment in a Member State 
to its head office or another permanent establishment in another Member State 
or in a third country;  

a  taxpayer  transfers  its  tax  residence  to  another  Member  State  or  to  a  third 
country,  except  for  those  assets  which  remain  effectively  connected  with  a 
permanent establishment in the first Member State;  

(d) 

a taxpayer transfers its permanent establishment out of a Member State. 

For the purposes of point (c) of the first subparagraph, any subsequent transfer to a 
third  country  of  assets  out  of  the  permanent  establishment  which  is  situated  in  the 
first  Member  State  and  which  the  assets  are  effectively  connected  with  shall  be 
deemed to be a disposal at market value. 

2. 

A  taxpayer  may  defer  the  payment  of  an  exit  tax  referred  to  in  paragraph  1,  by 
paying it in instalments over at least 5 years, in any of the following circumstances: 

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(a) 

(b) 

(c) 

(d) 

a taxpayer transfers assets from its head office to its permanent establishment 
in  another  Member  State  or  in  a  third  country  that  is  party  to  the  European 
Economic Area Agreement (EEA Agreement); 

a taxpayer transfers assets from its permanent establishment in a Member State 
to its head office or another permanent establishment in another Member State 
or a third country that is party to the EEA Agreement;  

a  taxpayer  transfers  its  tax  residence  to  another  Member  State  or  to  a  third 
country that is party to the EEA Agreement;  

a taxpayer transfers its permanent establishment to another Member State or a 
third country that is party to the EEA Agreement. 

3. 

If  a  taxpayer  defers  the  payment  in  accordance  with  paragraph  2,  interest  may  be 
charged in accordance with the legislation of the Member State of the taxpayer or of 
the permanent establishment, as the case may be, to the extent necessary to preserve 
the value of the assessed tax liability.  

If  there  is  a  demonstrable  and  actual  risk  of  non-recovery,  taxpayers  may  also  be 
required  to  provide  a  guarantee  as  a  condition  for  deferring  the  payment  in 
accordance with paragraph 2.  

The second subparagraph shall not apply where the legislation in the Member State 
of  the  taxpayer  or  of  the  permanent  establishment  provides  for  the  possibility  of 
recovery  of  the  tax  debt  through  another  taxpayer  which  is  member  of  the  same 
group and is resident for tax purposes in that Member State. 

4. 

The  deferral  of  payment  in  accordance  with  paragraph  2  shall  be  immediately 
discontinued and the tax debt becomes recoverable in the following cases: 

(a) 

(b) 

(c) 

the transferred assets are disposed of; 

the transferred assets are subsequently transferred to a third country; 

the  taxpayer's  tax  residence  or  its  permanent  establishment  is  subsequently 
transferred to a third country; 

(d) 

the taxpayer goes bankrupt or is wound up. 

Where the transfer of assets, tax residence or permanent establishment is to another 
Member  State,  that  Member  State  shall  accept  the  market  value  established  by  the 
Member State of the taxpayer or of the permanent establishment as the starting value 
of the assets for tax purposes. 

For the purposes of paragraphs 1 to 5, 'market value' is the amount for which an asset 
can  be  exchanged  or  mutual  obligations  can  be  settled  between  willing  unrelated 
buyers and sellers in a direct transaction.  

This article shall not apply to asset transfers of a temporary nature where the assets 
are intended to revert to the Member State of the transferor. 

Article 6 
Switch-over clause 

Member  States  shall  not  exempt  a  taxpayer  from  tax  on  foreign  income  which  the 
taxpayer  received  as  a  profit  distribution  from  an  entity  in  a  third  country  or  as 
proceeds from the disposal of shares held in an entity in a third country or as income 

5. 

6. 

7. 

1. 

EN 

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from  a  permanent  establishment  situated  in  a  third  country  where  the  entity  or  the 
permanent establishment is subject, in the entity’s country of residence or the country 
in  which  the  permanent  establishment  is  situated,  to  a  tax  on  profits  at  a  statutory 
corporate tax rate lower than 40 percent of the statutory tax rate that would have been 
charged  under  the  applicable  corporate  tax  system  in  the  Member  State  of  the 
taxpayer. In those circumstances, the taxpayer shall be subject to tax on the foreign 
income with a deduction of the tax paid in the third country from its tax liability in its 
state of residence for tax purposes. The deduction shall not exceed the amount of tax, 
as  computed  before  the  deduction,  which  is  attributable  to  the  income  that  may  be 
taxed. 

2. 

Paragraph 1 shall not apply to the following types of losses: 

(a) 

(b) 

losses incurred by the permanent establishment of a resident taxpayer situated 
in a third country; 

losses from the disposal of shares in an entity which is tax resident in a third 
country. 

Article 7 
General anti-abuse rule 

1. 

2. 

3. 

Non-genuine arrangements or a series thereof carried out for the essential purpose of 
obtaining  a  tax  advantage  that  defeats  the  object  or  purpose  of  the  otherwise 
applicable  tax  provisions  shall  be  ignored  for  the  purposes  of  calculating  the 
corporate tax liability. An arrangement may comprise more than one step or part. 

For the purposes of paragraph 1, an arrangement or a series thereof shall be regarded 
as  non-genuine  to  the  extent  that  they  are  not  put  into  place  for  valid  commercial 
reasons which reflect economic reality. 

Where arrangements or a series thereof are ignored in accordance with paragraph 1, 
the tax liability shall be calculated by reference to economic substance in accordance 
with national law. 

Article 8 
Controlled foreign company legislation 

1. 

The  tax  base  of  a  taxpayer  shall  include  the  non-distributed  income  of  an  entity 
where the following conditions are met: 

(a) 

the  taxpayer  by  itself,  or  together  with  its  associated  enterprises,  as  defined 
under  the  applicable  corporate  tax  system,  holds  a  direct  or  indirect 
participation of more than 50 percent of the voting rights, or owns more than 
50 percent of capital or is entitled to receive more than 50 percent of the profits 
of that entity; 

(b)  under the general regime in the country of the entity, profits are subject to an 
effective corporate tax rate lower than 40 percent of the effective tax rate that 
would  have  been  charged  under  the  applicable  corporate  tax  system  in  the 
Member State of the taxpayer; 

(c)  more than 50 percent of the income  accruing to the entity  falls  within any of 

the following categories:  

(i) 

interest or any other income generated by financial assets; 

EN 

19 

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2. 

(ii) 

royalties  or  any  other  income  generated  from  intellectual  property  or 
tradable permits; 

(iii)  dividends and income from the disposal of shares; 

(iv) 

income from financial leasing; 

(v) 

income  from  immovable  property,  unless  the  Member  State  of  the 
taxpayer  would  not  have  been  entitled  to  tax  the  income  under  an 
agreement concluded with a third country; 

(vi) 

income from insurance, banking and other financial activities; 

(vii)  income  from  services  rendered  to  the  taxpayer  or  its  associated 

enterprises; 

(d) 

the entity is not a company whose principal class of shares is regularly traded 
on one or more recognised stock exchanges. 

Point (c) of the first subparagraph shall apply to financial undertakings only if more 
than  50  percent  of  the  entity’s  income  in  these  categories  comes  from  transactions 
with the taxpayer or its associated enterprises. 

Member  States  shall  not  apply  paragraph  1  where  an  entity  is  tax  resident  in  a 
Member State or in a third country that is party to the EEA Agreement or in respect 
of a permanent establishment of a third country entity which is situated in a Member 
State, unless the establishment of the entity is wholly artificial or to the extent that 
the entity engages, in the course of its activity, in non-genuine arrangements which 
have been put in place for the essential purpose of obtaining a tax advantage.  

Paragraph  1  shall  not  apply  to  financial  undertakings  which  are  tax  resident  in  a 
Member State or in a third country that is party to the EEA Agreement or in respect 
of their permanent establishments in one or more Member State. 

For the purposes of the first subparagraph, an arrangement or a series thereof shall be 
regarded  as  non-genuine  to  the  extent  that  the  entity  would  not  own  the  assets  or 
would  not  have  undertaken  the  risks  which  generate  all,  or  part  of,  its  income  if  it 
were  not  controlled  by  a  company  where  the  significant  people’s  functions,  which 
are  relevant  to  those  assets  and  risks,  are  carried  out  and  are  instrumental  in 
generating the controlled company's income. 

Where the entity engages in non-genuine arrangements, the income to be included in 
the  tax  base  of  the  controlling  company  shall  be  limited  to  amounts  generated 
through assets and risks which are linked to significant people's functions carried out 
by  the  controlling  company.  The  attribution  of  controlled  foreign  company  income 
shall be calculated in accordance with the arm's length principle. 

Article 9 
Computation of controlled foreign company income 

1. 

2. 

The income to be included in the tax base shall be calculated in accordance with the 
rules of the corporate tax law of the Member State where the taxpayer is resident for 
tax purposes. Losses of the entity shall not be included in the tax base but shall be 
carried  forward  and  taken  into  account  when  applying  Article  8  in  subsequent  tax 
years. 

The  income  to  be  included  in  the  tax  base  shall  be  calculated  in  proportion  to  the 
entitlement of the taxpayer to receive profits of the entity. 

EN 

20 

   EN 

 
3. 

4. 

5. 

The income shall be included in the tax year in which the tax year of the entity ends. 

Where the entity distributes profits to the taxpayer, the amounts of income previously 
included  in  the  tax  base  pursuant  to  Article  8  shall  be  deducted  from  the  tax  base 
when calculating the amount of tax due on the distributed profits, in order to ensure 
there is no double taxation. 

Where the taxpayer disposes of its participation in the entity, the part of the proceeds 
from the disposal previously included in the tax base pursuant to Article 8 which has 
not  yet  been  distributed  shall  be  deducted  from  the  tax  base  when  calculating  the 
amount of tax due on those proceeds, in order to ensure there is no double taxation. 

Article 10 
Hybrid mismatches 

Where two Member States give a different legal characterisation to the same taxpayer 
(hybrid entity), including its permanent establishments in one or more Member State, 
and this leads to either a situation where a deduction of the same payment, expenses or 
losses  occurs  both  in  the  Member  State  in  which  the  payment  has  its  source,  the 
expenses  are  incurred  or  the  losses  are  suffered  and  in  another  Member  State  or  a 
situation  where  there is  a  deduction of  a  payment  in  the  Member  State  in  which the 
payment has its source without a corresponding inclusion of the same payment in the 
other  Member  State,  the  legal  characterisation  given  to  the  hybrid  entity  by  the 
Member  State  in  which the  payment  has  its  source,  the  expenses  are  incurred  or  the 
losses are suffered shall be followed by the other Member State.  

Where two Member States give a different legal characterisation to the same payment 
(hybrid  instrument)  and  this  leads  to  a  situation  where  there  is  a  deduction  in  the 
Member State in which the payment has its source without a corresponding inclusion 
of the same payment in the other Member State, the legal characterisation given to the 
hybrid instrument by the Member State in which the payment has its source shall be 
followed by the other Member State. 

CHAPTER III 

FINAL PROVISIONS 

Article 11 
Review 

1. 

2. 

The Commission shall evaluate the implementation of this Directive three years after 
its entry into force and report to the Council thereon. 

Member States shall communicate to the Commission all information necessary for 
evaluating the implementation of this Directive.  

EN 

21 

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Article 12 
Transposition 

1. 

Member States shall adopt and publish, by […] at the latest, the laws, regulations and 
administrative  provisions  necessary  to  comply  with  this  Directive.  They  shall 
forthwith communicate to the Commission the text of those provisions. 

They shall apply those provisions from […]. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 13 
Entry into force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

This Directive is addressed to the Member States. 

Article 14 
Addressees 

Done at Brussels, 

For the Council 
The President 

EN 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE  

1.1.  Title of the proposal/initiative  

1.2.  Policy area(s) concerned in the ABM/ABB structure 

1.3.  Nature of the proposal/initiative  

1.4.  Objective(s)  

1.5.  Grounds for the proposal/initiative  

1.6.  Duration and financial impact  

1.7.  Management mode(s) planned  

2. 

MANAGEMENT MEASURES  

2.1.  Monitoring and reporting rules  

2.2.  Management and control system  

2.3.  Measures to prevent fraud and irregularities  

3. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

3.1.  Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget 
line(s) affected  

3.2.  Estimated impact on expenditure  

3.2.1. Summary of estimated impact on expenditure  

3.2.2. Estimated impact on operational appropriations  

3.2.3. Estimated impact on appropriations of an administrative nature 

3.2.4. Compatibility with the current multiannual financial framework 

3.2.5. Third-party contributions  

3.3.  Estimated impact on revenue 

EN 

23 

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LEGISLATIVE FINANCIAL STATEMENT 

1. 

FRAMEWORK OF THE PROPOSAL/INITIATIVE 

1.1. 

Title of the proposal/initiative 

Proposal  for  a  Council  Directive  laying  down  rules  against  tax  aviodance  practices 
that directly affect the functioning of the internal market 
Policy area(s) concerned in the ABM/ABB structure16  

1.2. 

14 

14.03 

1.3. 

Nature of the proposal/initiative  

 The proposal/initiative relates to a new action  

  The  proposal/initiative 
project/preparatory action17  

relates 

to  a  new  action 

following  a  pilot 

 The proposal/initiative relates to the extension of an existing action  

 The proposal/initiative relates to an action redirected towards a new action  

1.4. 

Objective(s) 

1.4.1.  The  Commission's  multiannual 

strategic  objective(s) 

targeted  by 

the 

proposal/initiative  

The Commission work programme for 2015 lists among its priorities that of A Fairer 
Approach  to  Taxation.  Following  up  on  this,  one  key  area  for  action  in  the 
Commission  work  programme  for  2016  is  to  improve  the  legal  framework  for  the 
taxation  of  company  profits  by  proposing  measures  against  unacceptable  tax 
planning, profit shifting and base erosion. 

1.4.2. 

Specific objective(s) and ABM/ABB activity(ies) concerned  

Specific objective  

To  establish,  through  coordinated  measures,  a  minimum  level  of  protection  for  the 
internal market against the most relevant tax planning strategies which directly affect 
the functioning of the market. 

ABM/ABB activity(ies) concerned 

ABB 3 

16 
17 

ABM: activity-based management; ABB: activity-based budgeting. 
As referred to in Article 54(2)(a) or (b) of the Financial Regulation. 

EN 

24 

   EN 

 
                                                 
1.4.3.  Expected result(s) and impact 

Specify 
beneficiaries/groups targeted. 

the  effects  which 

the  proposal/initiative 

should  have  on 

the 

Taxation will take place in the jurisdiction where profits are generated and value is 
created. This will enhance fairness in attributing the tax burden between companies 
in  the  EU.  Thus,  internationally  active  groups  of  companies  will  no  longer  benefit 
from  tax  planning  opportunities  which  are  not  available  to  taxpayers  (in  particular, 
SMEs) who are only domestically active.  

The tax bases of the Member States will be better protected against practices of base 
erosion and profit shifting.  

The  trust  of  the  public,  citizens  and  taxpayers  in  general  to  the  fairness  of  the  tax 
systerms will be strenghtened. 

1.4.4. 

Indicators of results and impact  

Specify the indicators for monitoring implementation of the proposal/initiative. 

The  proposal  will  be  governed  by  the  requirements  in  the  articles  11  (review)  and 
article 12 (transposition). 

1.5. 

Grounds for the proposal/initiative  

1.5.1.  Requirement(s) to be met in the short or long term  

To better protect the internal market against the most relevant tax planning strategies 
which directly affect the functioning of the market. 

To agree to a common EU approach to implementing the output of BEPS. 

1.5.2.  Added value of EU involvement 

To ensure consistency and avoid mismatches through common rules and procedures 
in  all  Member  States.  Inconsistencies  and  gaps  in  the  implementation  by  Member 
States would endanger the success of the whole project. 

1.5.3.  Lessons learned from similar experiences in the past 

Already  in  1990,  the  Council  had  adopted  two  of  the  so-called  'Corporate  Tax 
Directives'  to  tackle  obstancles  to  the  functioning  of  the  internal  market.  More  
legislation in the area of company taxation, and precisely in respect of cross-border 
activities in the EU, was adopted at the end of the 1990s.  

1.5.4.  Compatibility and possible synergy with other appropriate instruments 

The proposal is part of a package that comprises several initiatives. Positive synergy 
effects  may  be  derived  from  the  interaction  between  measures  within  the  package 
and  with  proposals  which  feature  in  the  Transparency  Package  of  March  2015  and 
the Action Plan of June 2015. 

EN 

25 

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1.6. 

Duration and financial impact  

 Proposal/initiative of limited duration  

–    Proposal/initiative in effect from [DD/MM]YYYY to [DD/MM]YYYY  

–    Financial impact from YYYY to YYYY  

 Proposal/initiative of unlimited duration 

Implementation with a start-up period from YYYY to YYYY, 

followed by full-scale operation. 

1.7.  Management mode(s) planned18  

 Direct management by the Commission 

–   by its departments, including by its staff in the Union delegations;  

–    by the executive agencies  

 Shared management with the Member States  

 Indirect management by entrusting budget implementation tasks to: 

–   third countries or the bodies they have designated; 

–   international organisations and their agencies (to be specified); 

–  the EIB and the European Investment Fund; 

–   bodies referred to in Articles 208 and 209 of the Financial Regulation; 

–   public law bodies; 

–   bodies governed by private law with a public service mission to the extent that 

they provide adequate financial guarantees; 

–   bodies governed by the private law of a Member State that are entrusted with 
the  implementation  of  a  public-private  partnership  and  that  provide  adequate 
financial guarantees; 

–    persons  entrusted  with  the  implementation  of  specific  actions  in  the  CFSP 

pursuant to Title V of the TEU, and identified in the relevant basic act. 

– 

If more than one management mode is indicated, please provide details in the ‘Comments’ section. 

Comments  

As  the  proposal  is  of  legislative  nature,  there  is  no  management  mode  or  budget 
implementation tasks for the Commission. 

18 

Details  of  management  modes  and  references  to  the  Financial  Regulation  may  be  found  on  the  BudgWeb  site: 
http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html 

EN 

26 

   EN 

 
                                                 
2. 

MANAGEMENT MEASURES  

2.1.  Monitoring and reporting rules  

Specify frequency and conditions. 

None 

2.2.  Management and control system  

2.2.1.  Risk(s) identified  

None 

2.2.2. 

Information concerning the internal control system set up 

None 

2.2.3.  Estimate of the costs and benefits of the controls and assessment of the expected level 

of risk of error  

N/A 

2.3.  Measures to prevent fraud and irregularities  

Specify existing or envisaged prevention and protection measures. 

N/A 

EN 

27 

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3. 

3.1. 

ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE  

Heading(s)  of  the  multiannual  financial  framework  and  expenditure  budget 
line(s) affected  

Heading of 
multiannual 
financial 
framework 

  Existing budget lines  

In order of multiannual financial framework headings and budget lines. 

Budget line 

Type of  
expenditure 

Contribution  

Number  
None 
[Heading………………………...……………] 

Diff./Non-
19 

diff.

from 
EFTA 

countries

20 

from 
candidate 
21 

countries

from third 
countries 

within the 
meaning of 
Article 21(2)(b) 
of the Financial 
Regulation  

None 

Diff./Non-
diff. 

YES/NO  YES/NO  YES/NO  YES/NO 

  New budget lines requested  

In order of multiannual financial framework headings and budget lines. 

Heading of 
multiannual 
financial 
framework 

Number 
None 

None 

Budget line 

Type of 
expenditure 

Contribution  

Diff./Non-
diff. 

from 
EFTA 
countries 

from 
candidate 
countries 

from third 
countries 

within the 
meaning of 
Article 21(2)(b) of 
the Financial 
Regulation  

YES/NO  YES/NO  YES/NO 

YES/NO 

19 
20 
21 

Diff. = Differentiated appropriations / Non-diff. = Non-differentiated appropriations. 
EFTA: European Free Trade Association.  
Candidate countries and, where applicable, potential candidate countries from the Western Balkans. 

EN 

28 

   EN 

 
 
 
 
 
 
 
 
 
                                                 
3.2. 

Estimated impact on expenditure  

[This section should be filled in using the spreadsheet on budget data of an administrative nature (second document in annex to this 
financial statement) and uploaded to CISNET for interservice consultation purposes.] 

3.2.1. 

Summary of estimated impact on expenditure  

EUR million (to three decimal places) 

Heading of multiannual financial  
framework  

Number 

Not 
relevant……………...……………………………………………………………….] 

Year 
N22 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the duration 
of the impact (see point 1.6) 

TOTAL 

DG: TAXUD 

 Operational appropriations  

Number of budget line 

Number of budget line 

Commitments 

Payments 

Commitments 

Payments 

(1) 

(2) 

(1a) 

(2a) 

Appropriations  of  an  administrative  nature  financed  from  the 
envelope of specific programmes23  

Number of budget line 

TOTAL appropriations 

Commitments 

(3) 

=1+1a 
+3 

22 
23 

Year N is the year in which implementation of the proposal/initiative starts. 
Technical and/or administrative assistance and expenditure in support of the implementation of EU programmes and/or actions (former ‘BA’ lines), indirect research, direct 
research. 

EN 

29 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
for DG TAXUD 

Payments 

=2+2a 

+3 

 TOTAL operational appropriations  

Commitments 

Payments 

  TOTAL  appropriations  of  an  administrative  nature 
financed from the envelope for specific programmes  

(4) 

(5) 

(6) 

TOTAL appropriations  
under HEADING Not relevant 
of the multiannual financial framework 

Commitments 

=4+ 6 

Payments 

=5+ 6 

If more than one heading is affected by the proposal / initiative: 

 TOTAL operational appropriations  

Commitments 

Payments 

  TOTAL  appropriations  of  an  administrative  nature 
financed from the envelope for specific programmes  

(4) 

(5) 

(6) 

TOTAL appropriations  
under HEADINGS 1 to 4 
of the multiannual financial framework 
(Reference amount) 

Commitments 

=4+ 6 

Payments 

=5+ 6 

EN 

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EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Heading of multiannual financial  
framework  

5 

‘Administrative expenditure’ 

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the duration 
of the impact (see point 1.6)  

TOTAL 

EUR million (to three decimal places) 

DG: TAXUD 

 Human resources  

 Other administrative expenditure  

TOTAL DG TAXUD 

Appropriations  

TOTAL appropriations 
under HEADING 5 
of the multiannual financial framework  

(Total  commitments  = 
Total payments) 

Year 
N24 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as 
necessary to show the duration 
of the impact (see point 1.6) 

TOTAL 

EUR million (to three decimal places) 

TOTAL appropriations  
under HEADINGS 1 to 5 
of the multiannual financial framework  

Commitments 

Payments 

24 

Year N is the year in which implementation of the proposal/initiative starts. 

EN 

31 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.2.2.  Estimated impact on operational appropriations  

–    The proposal/initiative does not require the use of operational appropriations  

–    The proposal/initiative requires the use of operational appropriations, as explained below: 

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

OUTPUTS 

Commitment appropriations in EUR million (to three decimal places) 

Enter as many years as necessary to show the 
duration of the impact (see point 1.6) 

TOTAL 

o
N

Cost 

o
N

Cost 

o
N

Cost 

o
N

Cost 

o
N

Cost  N

o

Cost 

o
N

Cost 

Total 
No 

Total 
cost 

Indicate 
objectives 
and outputs  

 

25

Type

Average 
cost 

SPECIFIC OBJECTIVE No 1

26

… 

- Output 

- Output 

- Output 

Subtotal for specific objective No 1 

SPECIFIC OBJECTIVE No 2 ... 

- Output 

Subtotal for specific objective No 
2 

TOTAL COST 

25 
26 

Outputs are products and services to be supplied (e.g.: number of student exchanges financed, number of km of roads built, etc.). 
As described in point 1.4.2. ‘Specific objective(s)…’  

EN 

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EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.2.3.  Estimated impact on appropriations of an administrative nature 

3.2.3.1.  Summary  

–    The  proposal/initiative  does  not  require  the  use  of  appropriations  of  an 

administrative nature  

–    The proposal/initiative requires the use of appropriations of an administrative 

nature, as explained below: 

EUR million (to three decimal places) 

Year 
27
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary to show the 
duration of the impact (see point 1.6) 

TOTAL 

HEADING 5 
of the multiannual 
financial framework 

Human resources  

Other administrative 
expenditure  

Subtotal HEADING 5 
of the multiannual 
financial framework  

28 

Outside HEADING 5
of the multiannual 
financial framework  

Human resources  

Other expenditure  
of an administrative 
nature 

Subtotal  
outside HEADING 5 
of the multiannual 
financial framework  

TOTAL 

The  appropriations  required  for  human  resources  and  other  expenditure  of  an  administrative  nature  will  be  met  by 
appropriations from the DG that are already assigned to management of the  action and/or have been redeployed within the 
DG,  together  if  necessary  with  any  additional  allocation  which  may  be  granted  to  the  managing  DG  under  the  annual 
allocation procedure and in the light of budgetary constraints. 

27 
28 

Year N is the year in which implementation of the proposal/initiative starts. 
Technical and/or administrative assistance and expenditure in support of the implementation of EU programmes 
and/or actions (former ‘BA’ lines), indirect research, direct research. 

EN 

33 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.2.3.2.  Estimated requirements of human resources 

–    The proposal/initiative does not require the use of human resources.  

–    The  proposal/initiative  requires  the  use  of  human  resources,  as  explained 

below: 

 

Estimate to be expressed in full time equivalent units 

Year 
N 

Year 
N+1 

Year N+2 

Year 
N+3 

Enter as 
many 
years as 
necessary 
to show 
the 
duration 
of the 
impact 
(see 
point 
1.6) 

 Establishment plan posts (officials and temporary staff) 

 
XX 01 01 01 (Headquarters and 
Commission’s Representation Offices) 

 

 

 

XX 01 01 02 (Delegations) 

XX 01 05 01 (Indirect research) 

10 01 05 01 (Direct research) 

 External staff (in Full Time Equivalent unit: FTE)

29

 

 

XX 01 02 01 (AC, END, INT from 

 
the ‘global envelope’) 

XX 01 02 02 (AC, AL, END, INT 

 
and JED in the delegations) 

 
X
X 01 04 
30

yy 

 

- at 

 
Headquarters 

 

- in 

 
Delegations  

 

 

XX 01 05 02 (AC, END, INT - 

 
Indirect research) 

10 01 05 02 (AC, END, INT - 

 
Direct research) 

 

 

Other budget lines (specify) 

TOTAL 

XX is the policy area or budget title concerned. 

The  human  resources  required  will  be  met  by  staff  from  the  DG  who  are  already 
assigned to management of the action and/or have  been redeployed within  the DG, 
together  if  necessary  with  any  additional  allocation  which  may  be  granted  to  the 

29 

30 

AC=  Contract  Staff;  AL  =  Local  Staff;  END=  Seconded  National  Expert;  INT  =  agency  staff;  JED= Junior 
Experts in Delegations.  
Sub-ceiling for external staff covered by operational appropriations (former ‘BA’ lines). 

EN 

34 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
managing  DG  under  the  annual  allocation  procedure  and  in  the  light  of  budgetary 
constraints. 

Description of tasks to be carried out: 

Officials and temporary staff 

External staff 

EN 

35 

   EN 

 
 
 
3.2.4.  Compatibility with the current multiannual financial framework  

–    The  proposal/initiative  is  compatible  the  current  multiannual  financial 

framework. 

–    The proposal/initiative will entail reprogramming of the relevant heading in the 

multiannual financial framework. 

Explain what reprogramming is required, specifying the budget lines concerned and the corresponding 
amounts. 

[…] 

–    The  proposal/initiative  requires  application  of  the  flexibility  instrument  or 

revision of the multiannual financial framework. 

Explain what is required, specifying the headings and budget lines concerned and the corresponding 
amounts. 

[…] 

3.2.5.  Third-party contributions  

–  The proposal/initiative does not provide for co-financing by third parties.  

–  The proposal/initiative provides for the co-financing estimated below: 

Appropriations in EUR million (to three decimal places) 

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary 
to show the duration of the 
impact (see point 1.6) 

Total 

Specify  the  co-financing 
body  

TOTAL appropriations 
co-financed  

EN 

36 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.3. 

Estimated impact on revenue  

–    The proposal/initiative has no financial impact on revenue. 

–    The proposal/initiative has the following financial impact: 

– 

– 

 

 

on own resources  

on miscellaneous revenue  

Appropriations 
available for 
the current 
financial year 

Budget revenue line: 

Article …………. 

EUR million (to three decimal places) 

Impact of the proposal/initiative

31

Year 
N 

Year 
N+1 

Year 
N+2 

Year 
N+3 

Enter as many years as necessary to show 
the duration of the impact (see point 1.6) 

For  miscellaneous  ‘assigned’  revenue,  specify  the  budget  expenditure  line(s) 
affected. 

N/A 

Specify the method for calculating the impact on revenue. 

N/A 

31 

As regards traditional own resources (customs duties, sugar levies), the amounts indicated must be net amounts, 
i.e. gross amounts after deduction of 25 % for collection costs. 

EN 

37 

   EN