Corporate tax avoidance: Maltese Presidency secures Council’s thumbs up on hybrid mismatches

Finance Minister Edward Scicluna: ‘The compromise text strikes the right balance between different views… we will now have a complete system of anti-tax avoidance’

21 February 2017, 11:46am
Finance Minister Edward Scicluna
Finance Minister Edward Scicluna
Under the Maltese Presidency of the Council of the European Union, the Council has agreed its position on rules aimed at closing down 'hybrid mismatches' with the tax systems of third countries.

The draft directive is the latest of a number of measures designed to prevent tax avoidance by large companies.

The compromise text was presented by Finance Minister Edward Scicluna, as President of the Economic and Financial Affairs Council. The directive should provide tax authorities with the necessary tools to fight tax avoidance.

It seeks to prevent companies from exploiting disparities between two or more tax jurisdictions to reduce their overall tax liability. Such arrangements can result in a substantial erosion of the taxable bases of corporate taxpayers in the EU.

The directive will contribute to implementation of 2015 OECD recommendations addressing corporate tax base erosion and profit shifting.

The proposal addresses hybrid mismatches with regard to non-EU countries, given that intra-EU disparities are already covered by the 'anti-tax-avoidance directive' adopted in July 2016. It complements and amends that directive accordingly.

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


The directive is one of a package of corporate taxation proposals presented by the Commission in October 2016.

Agreement was reached at a meeting of the Economic and Financial Affairs Council. The Council will adopt the directive once the European Parliament has given its opinion.

"Today is yet another success story in our campaign for fairer taxation" said Pierre Moscovici, Commissioner for Taxation. "Step by step, we are eliminating the channels used by certain companies to escape taxation. I congratulate the Member States for agreeing on this tangible measure to clamp down on tax abuse and install a fairer tax environment in the EU."

Member states will have until 31 December 2019 to transpose the directive into national laws and regulations.