Opinion Statement CFE 4/2025 on Technical Simplification of EU’s Anti-Tax Avoidance Directive

CFE Tax Advisers Europe has prepared an Opinion Statement concerning potential technical simplification of the EU Anti-Tax Avoidance Directive (ATAD).

CFE welcomes the Commission’s focus on simplification and supports the objectives set out in the Council Conclusions on the EU Tax Decluttering and Simplification Agenda. In CFE’s view, targeted technical changes to ATAD are necessary to improve legal certainty, reduce compliance burdens, and ensure that anti-avoidance rules remain proportionate and aligned with current economic realities, while continuing to safeguard against aggressive tax planning.

CFE’s Statement highlights that several core ATAD provisions—most notably the Interest Limitation Rule (ILR)—were designed in a very different economic context. Rising interest rates, higher capital costs, and increased investment needs in areas such as infrastructure, green transition, digitalisation and defence mean that existing rules risk distorting legitimate business financing decisions, particularly for capital-intensive and cyclical sectors operating cross-border.

Issues Identifies

CFE identifies a number of structural and practical concerns with the current ATAD framework:

  • Interest Limitation Rule (ILR): The fixed 30% EBITDA ratio and extensive Member State optionality have resulted in fragmented implementation, significant compliance costs, and outcomes that no longer reflect economic reality.
  • SME Disproportionate Burden: SMEs face high compliance costs despite posing minimal risk of aggressive tax planning.
  • CFC Rules: The coexistence of different CFC models creates legal uncertainty and duplication, particularly for groups already subject to Pillar Two.
  • Hybrid Mismatch Rules: While important, these rules are excessively complex, especially in relation to imported mismatches.
  • GAAR Divergence: Variations in national GAAR wording and interpretation undermine legal certainty and increase litigation risk.

Key Recommendations

CFE calls on the Commission and Member States to pursue targeted technical simplifications, including:

  • Mandatory ILR Simplifications: Introduce EU-wide mandatory carry-forward of disallowed interest, a carve-out for third-party debt and public infrastructure, and an upward adjustment of the €3 million threshold to reflect current economic conditions.
  • De jure SME Carve-Out: Exclude SMEs from the most complex ATAD provisions to ensure proportionality and reduce unnecessary administrative burdens.
  • Streamlined CFC and Hybrid Rules: Prioritise relief for Pillar Two groups and provide clearer, non-binding guidance or simplification for hybrid mismatch provisions.
  • Greater GAAR Consistency: Align GAAR wording and interpretation across Member States to enhance legal certainty and coherence with other EU corporate tax directives.
  • Reduce Optionality: Limit Member State options in ATAD to avoid fragmentation and ensure consistent application across the Single Market.

Conclusion

CFE Tax Advisers Europe considers that meaningful simplification of ATAD is essential to improve compliance, reduce administrative costs, and support investment and competitiveness within the EU. Simplification should be embedded not only in legislative drafting, but also in national transposition and practical application.

CFE therefore encourages the Commission and Member States to translate political commitments on simplification into concrete, coordinated action. A simplified and proportionate ATAD framework would strengthen tax good governance while maintaining robust protection against tax avoidance.

We invite you to read the full Opinion Statement for further detail and remain available for any questions you may have.