Executive summary

On 31 July 2024, the European Commission launched an initiated an evaluation of the Anti-tax Avoidance Directive (ATAD), as stipulated by Article 10 of the ATAD. This evaluation seeks to collect a wide array of evidence and viewpoints on the ATAD's implementation across European Union (EU) Member States, the efficacy of the measures, and their alignment with the current tax landscape, especially considering the recent enactment of the Minimum Tax Directive (Council Directive EU 2022/2523).

In parallel, on 1 August 2024, the European Commission released a draft implementing regulation to standardize the presentation of income tax information for public country-by-country reporting (CbCR), as mandated by Directive 2013/34/EU. The draft act introduces a common template and electronic formats for public Country-by-Country reports in the form of detailed Extensible Business Reporting Language (XBRL)¹ specifications for financial data, requirements for report filing, and a taxonomy defining the reportable data. The proposed regulation, which would come into effect for financial years commencing on or after 1 January 2025, emphasizes the use of Extensible Hypertext Markup Language (XHTML)² and Inline XBRL³ to enhance the accessibility and precision of financial reporting.

For the ATAD evaluation, contributions can be made through a Call for Evidence on the Commission's website until 11 September 2024. For the public CbCR regulation, feedback can be provided in written form on the Commission's website, with a submission deadline of 29 August 2024.

Detailed discussion

Background

The ATAD, formally known as Council Directive (EU) 2016/1164, was adopted on 12 July 2016 and later amended by Council Directive (EU) 2017/9522 on 29 May 2017. The ATAD sets forth a series of measures designed to counteract certain activity that has the potential to disrupt the functioning of the internal market within the European Union. These measures, which are to be transposed into the domestic corporate income tax laws of all EU Member States, include rules on interest limitation, exit taxation, controlled foreign company (CFC) legislation, hybrid mismatches and a general anti-abuse rule (GAAR).

Under Article 10 of the ATAD, the European Commission is tasked with evaluating the implementation of the ATAD, with a particular emphasis on the impact of the interest limitation rule. The Commission's evaluation is intended to consider the effects of the ATAD in the context of subsequent EU legislation and current economic factors. An interim report was delivered to the European Parliament and Council in August 2020, which provided a preliminary review of the Member States' transposition of the directive's measures, particularly those measures with a transposition deadline of 1 January 2020. The interim report also examined the policy choices made by Member States within the scope provided by the ATAD and reported on the progress of infringement cases related to the requirement for Member States to formally communicate their compliance actions to the European Commission.

In a subsequent legislative development, the European Union adopted Council Directive (EU) 2021/2101 on 24 November 2021, which amended the Accounting Directive (Directive 2013/34/EU) to introduce the public CbCR Directive. The CbCR Directive requires certain large undertakings and branches to disclose income tax information, enhancing tax transparency across the EU. To ensure consistency and machine-readability of the data, the Commission was empowered to establish a common template and electronic reporting formats under Article 48c of the Accounting Directive.

Anti-Tax Avoidance Directive evaluation

On 31 July 2024, the European Commission initiated an evaluation of the ATAD, as mandated by ATAD Article 10. The ATAD introduces measures in five key areas: (1) the interest limitation rule, (2) exit taxation, (3) the CFC rule, (4) the hybrid mismatches rule, and (5) the GAAR.

The aim of the consultation is to gather evidence and views on the main aspects of the evaluation, which include the implementation of the ATAD across EU Member States, the functioning of the ATAD and future-proofing the measures. This last point is particularly pertinent in light of the introduction of Council Directive EU 2022/2523 on 14 December 2022 (the Minimum Tax Directive).

The evaluation will cover the period from 1 January 2020, the first date on which the measures should have been implemented, until the date of completion of the evaluation. It will include the application of the ATAD in all EU Member States and examine the policy choices made by Member States where the directive allowed for discretion.

The evaluation will also consider the functioning of the ATAD through a qualitative and quantitative assessment of the directive's measures. It will explore how policy choices might affect a measure's effectiveness in achieving its aims. The evaluation is intended to provide an evidence-based assessment of the ATAD according to five evaluation criteria: (1) effectiveness, (2) efficiency, (3) relevance, (4) coherence with other EU legislation, and (5) EU added value. The effectiveness criterion will consider the extent to which the ATAD has achieved its objectives and its impact on Member States and relevant EU businesses. Efficiency will measure if additional national budget revenue was generated as a result of the measures. Relevance will assess the current relevance of the ATAD measures and their future applicability. Coherence will examine the consistency of the directive with other EU legislation. EU added value will consider the additional benefits achieved by the ATAD beyond what could have been accomplished by Member States independently.

Stakeholders are invited to contribute evidence, data and perspectives through a Call for Evidence on the Commission's website until 11 September 2024.

Template and electronic formats for public CbCR

On 1 August 2024, the European Commission released a draft implementing regulation aimed at standardizing the presentation of income tax information for public CbCR, as stipulated by Directive 2013/34/EU. This draft regulation, now subject to public consultation, represents a significant step in the EU's ongoing efforts to promote greater transparency in tax reporting.

The draft regulation includes a set of four annexes that provide the structural details for the new reporting requirements. Annex I introduces a common template for the public country-by-country report, ensuring uniformity in the presentation of tax information. Annex II specifies the XBRL standards for the electronic communication of financial data. Annex III sets out the requirements for marking up and filing the reports, ensuring that the data is both machine-readable and adheres to a consistent format. Lastly, Annex IV defines the taxonomy elements that determine the scope of data to be reported, providing clarity on the information that needs to be disclosed.

To facilitate accessibility and readability, the proposed regulation mandates the use of XHTML for structuring the reports. Additionally, it requires the use of Inline XBRL to embed detailed financial data within the reports, aligning with the technical specifications outlined in Annex II.

Recognizing the need for a transition period for adaptation to the new reporting formats, the regulation is set to be applicable for public country-by-country reports corresponding to financial years commencing on or after 1 January 2025.

Stakeholders can provide feedback in writing through the Commission's website. The consultation window is four weeks, allowing interested parties to provide their input through 29 August 2024.

Implications

The European Commission's evaluation of the ATAD and the release of the draft implementing regulation for public CbCR are significant developments that could have far-reaching implications for tax policy and compliance within the EU.

For the ATAD, the evaluation process is intended to provide a comprehensive analysis of the directive's effectiveness. The outcome of this evaluation may signal potential adjustments to the ATAD measures, particularly in light of the Minimum Tax Directive's introduction. Companies operating within the EU should closely monitor the results of the evaluation, as it may lead to legislative proposals that could affect their tax profile and compliance obligations. The consultation offers stakeholders an opportunity to share their experiences and perspectives on the ATAD's implementation and effectiveness.

Regarding the draft implementing regulation for public CbCR, the proposed standardization of tax reporting aims to enhance transparency and comparability of tax-related information across the EU. The requirement to use XHTML and Inline XBRL for reporting will necessitate changes to the way financial data is structured and disclosed. Companies will need to prepare for the transition period leading up to the 1 January 2025 applicability date, ensuring that their reporting systems are compliant with the new electronic formats. The consultation period provides a window for businesses to raise concerns and make suggestions regarding the regulation.

Both consultations reflect the EU's commitment to aligning tax policy with digital advancements and the global tax environment. As such, businesses should assess the potential impacts of these developments on their operations and consider engaging with policymakers at both EU and national levels.