Concept
EU Anti-Tax Avoidance Directive I (ATAD I) — Council Directive (EU) 2016/1164 of 12 July 2016. Minimum standard on 5 anti-avoidance measures for all Member States. Articles 7-8 — CFC rules. Transposition from 1 January 2019 (exit tax — 2020). ATAD II (Directive 2017/952) expanded Article 9 (hybrid mismatches + reverse hybrids).
Member States are required to choose Option A (categorical) or Option B (transactional) for implementation of Article 7(2). This fork determines how strictly an MS applies CFC to different jurisdictions.
For HNWI, it is significant that: some MS (Italy, Spain, Germany) apply CFC to individuals directly; others (France, Netherlands, Belgium) — only to corporate residents, individuals — through alternative rules. The Italian forfait under Art. 24-bis TUIR (€300k for new residents from 2026; €100k or €200k for those who opted in earlier) neutralises Art. 167 TUIR CFC for the beneficiary in respect of foreign-source income.
Legal Framework
- Council Directive (EU) 2016/1164 ("ATAD I") — 12 July 2016, OJ L 193, 19.7.2016
- Transposition: 31 December 2018, application from 1 January 2019
- Exit tax (Art. 5): application from 1 January 2020
- Council Directive (EU) 2017/952 ("ATAD II") — 29 May 2017. Expanded Art. 9 (hybrid mismatches) + introduced Art. 9a (reverse hybrids)
- Majority — from 1 January 2020; reverse hybrid from 1 January 2022
ATAD I Structure — 5 Mandatory Measures
- Article 4 — Interest limitation rule: exceeding borrowing costs deductible only up to 30% of EBITDA (Art. 4(1)); a member state may allow a deduction of up to €3 million or a full deduction for a standalone entity (Art. 4(3)), and picks one of the three carry regimes in Art. 4(6) — including carry-forward of unused interest capacity for a maximum of five years (Art. 4(6)(c))
- Article 5 — Exit taxation: on unrealised gains upon exit
- Article 6 — General Anti-Abuse Rule (GAAR): disregards "non-genuine arrangements" whose main purpose is a tax advantage; the same construction as the PPT in tax treaties
- Articles 7-8 — CFC rules
- Article 9 — Hybrid mismatches (expanded by ATAD II)
Article 7 — CFC Trigger
Subject: (a) entity resident in another jurisdiction, or (b) permanent establishment, whose profits are not taxed/exempt in MS.
Control test (Art. 7(1)(a)): taxpayer alone or together with associated enterprises holds:
- >50% voting rights, OR
- >50% capital (directly/indirectly), OR
- >50% rights to profits
Associated enterprises (Art. 2(4)): ≥25% votes / capital / rights to profits. Aggregation: person with ≥25% in taxpayer + in one/several others — all associated.
Tax-rate test (Art. 7(1)(b)): actual CT paid by CFC is less than the difference between tax that would have been charged under MS and actually paid. Effectively: CFC ETR < 50% of MS rate.
Article 7(2) — Option A vs Option B
MS are required to choose (or a combination):
Option A — Categorical (Art. 7(2)(a)): re-attribution of non-distributed income from categories:
- (i) interest and income from financial assets
- (ii) royalties and IP
- (iii) dividends and disposal of shares
- (iv) financial leasing
- (v) insurance, banking, financial activity
- (vi) invoicing companies providing sales/services to associated enterprises with low/no added value
Substance carve-out (Art. 7(2)(a) last paragraph): Option A does not apply if CFC carries on substantive economic activity, supported by staff, equipment, assets, premises — a codification of the Cadbury Schweppes test. For third-country CFC, MS may disable the carve-out.
De minimis (Art. 7(3)): MS may not apply Option A if ≤1/3 of CFC income falls into specified categories; for financial undertakings — if ≤1/3 income arises from transactions with taxpayer and its associates.
Option B — Non-genuine arrangements (Art. 7(2)(b)): re-attribution of non-distributed income from non-genuine arrangements with main purpose tax advantage. "Non-genuine" = CFC would not own assets / undertake risks without control by person performing significant people functions in MS of taxpayer.
Member State Implementation
| Member State | Approach | Legal Basis | Applies to Individuals |
|---|---|---|---|
| 🇩🇪 Germany | Option A-aligned (AStG passive catalog) | AStG §§ 7–14 (ATAD-UmsG) | Yes (with substance carve-out for EU/EEA) |
| 🇫🇷 France | Sui generis (combines) | Art. 209 B CGI (corp); Art. 123 bis CGI (individuals) | Yes, through 123 bis (≥10%) |
| 🇮🇹 Italy | Option A-aligned | Art. 167 TUIR (D.Lgs. 142/2018; D.Lgs. 209/2023) | Yes; €300k forfait (from 2026; previously €100k/€200k) neutralises CFC for the beneficiary |
| 🇳🇱 Netherlands | Option B + supplementary | Wet Vpb 1969 (from 1 Jan 2019); substance test: office + payroll ≥€100k | No; individuals — through Box 2/Box 3 |
| 🇪🇸 Spain | Option A-aligned | Art. 100 LIS (corp); Art. 91 LIRPF (individuals) | Yes; up to ~47% |
| 🇱🇺 Luxembourg | Option B | Art. 164ter LIR (from 1 Jan 2019) | No (for individuals) |
| 🇮🇪 Ireland | Option B (SPF test) | Finance Act 2018 | No (for individuals) |
| 🇧🇪 Belgium | Option B (until 2023); Option A (from Dec 2023) | CIR 92; ATAD-aligned | Through kaaiman tax |
| 🇦🇹 Austria | Option A | KStG § 10a (from 1 Jan 2019) | No (corporates) |
| 🇸🇪 Sweden | Sui generis (pre-ATAD) | IL ch. 39a | Yes |
Article 8 — Computation
- Art. 8(1) (Option A): income calculated under the CT rules of the MS; CFC losses are not included in the taxpayer's base but may, under national law, be carried forward and taken into account in later periods
- Art. 8(2) (Option B): only income from assets/risks, linked to SPF in MS
- Art. 8(3): the income attributed is calculated in proportion to the taxpayer's participation as defined in Art. 7(1)(a)
- Art. 8(5): upon subsequent distribution of dividends from previously attributed income — previously attributed amount deducted (avoidance of double tax)
- Art. 8(6): upon disposal of CFC interest — previously attributed undistributed income deducted from capital gain base
- Art. 8(7): mandatory credit for foreign tax paid by CFC against taxpayer's tax (regardless of Option A/B). In C-524/23 (Commission v Belgium, judgment of 26 February 2026) the CJEU held that Belgium had failed to transpose Art. 8(7): the credit is due in every case falling within Article 7, and stricter domestic measures cannot stand in its place.
ECJ Case Law
- Cadbury Schweppes plc v IRC C-196/04 (Grand Chamber, 12 September 2006) — landmark. CFC = restriction on freedom of establishment (Art. 49 TFEU); justifiable only for "wholly artificial arrangements" intended to escape national tax. Objective test: physical existence, premises, staff, equipment.
- X-GmbH v Finanzamt Stuttgart-Körperschaften C-135/17 (Grand Chamber, 26 February 2019) — application to third-country CFC under free movement of capital (Art. 63 TFEU) + standstill clause (Art. 64). "Wholly artificial" broader for third countries; justifiability depends on effective exchange of tax information.
- These precedents remain background; ATAD codified through substance carve-out (Option A) or non-genuine (Option B).
Pillar Two Interaction
- Council Directive (EU) 2022/2523 (14 December 2022) — Pillar Two Directive
- IIR from FY beginning 31 December 2023
- UTPR from FY beginning 31 December 2024
- Scope: MNE groups consolidated revenue ≥€750 million in ≥2 of 4 preceding FY
- Order of application: ATAD CFC applies first; CFC tax then pushed down to CFC entity for calculation of jurisdictional ETR (Art. 24(3), 24(6) Directive 2022/2523 with push-down limitations)
- GloBE Information Return (GIR) — first deadline 30 June 2026 for groups with FY 31 December 2024
- Below threshold groups (<€750m) — Pillar Two not applicable, ATAD CFC remains standalone
EU Non-Cooperative Jurisdictions List
Update of 17 February 2026. Annex I (10 jurisdictions): American Samoa, Anguilla, Guam, Palau, Panama, Russian Federation, Turks and Caicos Islands, US Virgin Islands, Vanuatu, Vietnam. This revision added Vietnam and Turks and Caicos; removed Fiji, Samoa, and Trinidad and Tobago, which had cured long-standing deficiencies. On the mechanics and history of these lists — see tax transparency.
Annex II (grey list, 9 jurisdictions): Belize, BVI, Brunei, Eswatini, Greenland, Jordan, Montenegro, Morocco, Türkiye. In February 2026, Seychelles and Antigua and Barbuda were removed from Annex II, having met the standard on exchange of information on request.
Many MS trigger stricter CFC with respect to these jurisdictions (Netherlands — automatic Option A; Spain — automatic low-tax presumption). For clients with Russian assets this matters: Russia remains in Annex I (see suspension of Russia's tax treaties). Next update — October 2026.
Implications for HNWI
- Italy (Art. 167 TUIR) — applies to individuals. The Art. 24-bis TUIR forfait rose €100k → €200k → €300k (for new residents from 1 January 2026, plus €50k per family member; Legge di Bilancio 2026 of 30.12.2025). Those who opted in earlier keep €100k or €200k (grandfathering). Circolare 17/E 2017: CFC does not apply to the forfait beneficiary for foreign-source income covered by substitute tax. From 1 January 2027 the TUIR itself (Presidential Decree 917/1986) is repealed and replaced by the new Testo unico delle imposte sui redditi (Legislative Decree of 19 June 2026 No. 117) — the article numbering changes, the substance of both regimes does not
- Germany (AStG §§ 7–14) — individuals with >50% participation. Substance carve-out for EU/EEA CFC
- France — Art. 209 B (corporates); individuals under Art. 123 bis CGI (threshold ≥10%; fictitious distribution taxation)
- Netherlands — CFC to corporates; individuals through Box 2 (substantial interest ≥5%) and Box 3 (assumed return on foreign holdings) / lucrative interest
- Spain — Art. 100 LIS (corp), Art. 91 LIRPF (individuals, up to ~47%)
- Belgium — CFC corporates; individuals through kaaiman tax on passive foreign entities
- UK — left the EU; ATAD does not apply. UK CFC — TIOPA 2010 Part 9A; for individuals — Transfer of Assets Abroad (TOAA).
Q/A
I own a low-tax holding outright. Does ATAD CFC reach me as an individual?
Only where your member state extended the regime to individuals. The directive's trigger is control — more than 50% of votes, capital or rights to profits, alone or with associated enterprises — plus a CFC taxed at less than half of what the member state would have charged. Italy, Spain, Germany and Sweden apply it to individuals; France reaches them through Art. 123 bis CGI from a 10% holding; the Netherlands, Luxembourg, Ireland and Austria do not, and use other rules instead.
What actually changes for me between Option A and Option B?
What gets attributed. Option A is categorical: undistributed passive income is re-attributed by category — interest, royalties, dividends and share disposals, financial leasing, insurance and banking, low-value-added invoicing. Option B is transactional: only income from non-genuine arrangements whose main purpose is a tax advantage. Germany, Italy, Spain and Austria took Option A; the Netherlands, Luxembourg and Ireland Option B; Belgium moved from B to A in December 2023.
The company has premises and staff. Does the substance carve-out save it?
Under Option A it does, if the activity is genuine. The last para. of Art. 7(2)(a) disapplies attribution where the CFC carries on substantive economic activity supported by staff, equipment, assets and premises — the Cadbury Schweppes test written into the directive. Two limits: for a third-country CFC a member state may switch the carve-out off, and under Option B the question is instead where the significant people functions sit.
Does the Italian forfait really switch CFC off?
For foreign-source income covered by the substitute tax, yes: Circolare 17/E 2017 treats the Art. 24-bis beneficiary's CFC imputation as absorbed by it, and Quadro FC is not filed. The price rose — €300,000 a year for residence transferred from 1 January 2026, plus €50,000 per family member — while anyone who opted in earlier keeps €100,000 or €200,000 for the rest of the fifteen-year term.
Our company sits in a jurisdiction on the EU list. Does that change anything?
It hardens the regime. After the update of 17 February 2026 Annex I holds ten jurisdictions — Russia, Panama, Vietnam, Turks and Caicos among them — and several member states attach automatic consequences: the Netherlands applies Option A, Spain a presumption of low taxation. The list is revised twice a year and the next revision falls in October 2026, so a structure can land on it without anything changing on your side. How the lists work: the EU listing cycle and the transparency criteria behind it.