On February 21, 2017, the 28 European Union (EU) Finance Ministers in the ECOFIN Council meeting reached political agreement on the Council Directive amending Directive (EU) 2016/1164 regarding hybrid mismatches with third countries with a view to adopting it (subject to receiving European Parliament’s opinion and legal-linguistic revision).
ATAD II basically adds to the existing ATAD I (adopted in 2016 and effective as of 2019) rules on mismatches with third countries and basically extends the hybrid mismatch definition to also include mismatches resulting from arrangements involving PEs, hybrid transfers, imported mismatches, and reverse hybrid entities. In addition, ATAD II includes rules on tax residency mismatches.
ATAD II still needs to be submitted for formal adoption at a next ECOFIN Council meeting after the European Parliament has formally issued its opinion on the EC proposal, which is currently scheduled for 26 April 2017.
Once formally adopted, EU Member States will need to transpose the provisions by 31 December 2019 and apply them per 1 January 2020. By way of derogation, the specific reverse hybrid entity rule would need to be transposed by 31 December 2021 and applied per 1 January 2022, however payments to reverse hybrids would not be deductible anymore from 1 January 2020.
The further developments in the EU in this regard should be closely monitored as they may potentially have implications for Swiss Finance Branches and Principal Companies.
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