Malta’s Commissioner for Revenue on August 31, 2020, published guidelines on domestic regulations to implement the EU’s Anti-Tax Avoidance Directives.

The EU has so far released two Anti-Tax Avoidance Directives, known as ATAD 1 and ATAD 2. These included provisions member states were required to adopt as part of an EU-wide response to the recommendations of the OECD on tackling tax base erosion and profit shifting.

ATAD 1 contained five legally binding anti-abuse measures, which all member states were required to apply against common forms of aggressive tax planning.

ATAD 1 included an interest limitation rule; an exit tax, a general anti-abuse rule, controlled foreign company (CFC) rules; and measure to tackle hybrid mismatch arrangements. With the exception of the exit tax rules, these measures were required to be in place by January 1, 2019.

ATAD 2 meanwhile introduced new provisions that member states were required to put in place from January 1, 2020, alongside ATAD 1’s exit tax. ATAD 2 was intended to ensure that hybrid mismatches of all types cannot be used to avoid tax in the EU, even where the arrangements involve third countries. ATAD 2 addressed hybrid mismatches with regard to non-EU countries, given that intra-EU disparities were already covered by the first ATAD.

Anti-hybrid rules are designed to prevent multinationals from accessing unfair advantages by using hybrid mismatch arrangements to exploit differences in the tax treatment of an entity or financial instrument under the income tax laws of two or more countries.

The new guidelines provide practical explanations of how to apply the rules regarding limitations on deductions for interest expenses, the operation of the exit tax, and the CFC rules.

The exit tax is intended to eliminate tax advantages for companies that develop intangible assets in the EU but move them to low or no tax territories before they generate taxable income. It is intended to enable member states to tax the value of the product before the intellectual property is shifted elsewhere.