MF issues discussion paper on ATAD implementation

The ATAD is based on the principle of a minimum standard of avoidance protection, while each state may also implement the rules in a stricter regime. The Czech ministry has summarised its approach in this respect in the presented discussion paper.

Interest expense (from related and unrelated parties) in excess of interest income will be deductible only up to 30% of EBITDA. Under the directive, the 30% of EBITDA rule does not have to be applied to interest expense (in excess of interest income) of up to EUR 3 million. However, the ministry proposes to reduce the limit to EUR 1 million, and at the same time wants to allow excess interest expense not claimed in one taxable period to be carried forward to the subsequent period. Neither the retrospective transfer (carry-back) of excess interest expenses nor a transfer (carry-forward) of the unused EBITDA capacity is planned.

The interest deduction limitation of 30% of EBITDA should be applied to each entity on a separate basis, not to a consolidated group as a whole. The ministry does not plan to exclude loans concluded before 17 June 2016 from the rule, as is proposed in the directive. The above rules will apply neither to stand-alone entities nor to financial institutions. For financial institutions, existing thin capitalisation rules should remain in place.

Other rules, i.e. CFC rules, exit taxation and hybrid mismatches rules, will be implemented in the scope proposed by the directive, with no exceptions. The interest limitation rule and CFC rules will be effective from 1 January 2019, the exit taxation and hybrid mismatches rules from 1 January 2020. Comments and suggestions on the discussion paper and the proposed implementation may be sent to the ministry by the end of April.