# EU ATAD I CFC: Articles 7-8 and Member State Implementation > CFC rules under EU ATAD I (Articles 7–8): two approaches to income attribution and implementation across EU Member States for holding structures. Author: Мария Плотникова — юрист, Family Office (https://wiki.private.law/authors/plotnikova) Last modified: 2026-07-21T17:05:00.000Z Canonical: https://wiki.private.law/en/eu-atad-cfc Topics: investments, structures Jurisdictions: netherlands, luxembourg, ireland, germany, france, italy, belgium, spain, cyprus Product tags: cfc, pillar-two Semantic tags: cfc, pillar-two --- ## 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. > 🍓 Key point: ATAD I sets a minimum CFC standard binding on all 27 Member States; the central implementation fork is Option A (categories of passive income) versus Option B (non-genuine arrangements), while the actual burden on an individual depends on whether the particular Member State extended the regime to individuals. 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. > 🧭 ATAD I grew out of BEPS Action 3 (CFC) and the 2016 Anti-Tax Avoidance Package: the EU turned the OECD recommendations into a binding directive to remove the patchwork of national CFC regimes that followed Cadbury Schweppes, which had confined unilateral rules to "wholly artificial arrangements". ## 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: 30% EBITDA, 5-year carryforward unused capacity (FIFO) - **Article 5** — Exit taxation: on unrealised gains upon exit - **Article 6** — [General Anti-Abuse Rule (GAAR)](https://wiki.private.law/en/gaar-ppt): 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](https://wiki.private.law/en/economic-substance), 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 CT rules of MS, proportionally to share - **Art. 8(2) (Option B):** only income from assets/risks, linked to SPF in MS - **Art. 8(3):** CFC losses not included in taxpayer's base, but carry forward within CFC - **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). CJEU 2026 confirmed mandatory nature of Art. 8(7) for Belgium. ## 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 — [tax havens](https://wiki.private.law/en/tax-havens-history). **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](https://wiki.private.law/en/russia-tax-treaties-suspension)). 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 - **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](https://wiki.private.law/en/uk-cfc); for individuals — Transfer of Assets Abroad (TOAA). ## Frequently asked questions #### What is ATAD I Council Directive (EU) 2016/1164 of 12 July 2016, minimum standard on 5 anti-avoidance measures. Transposition from 1 January 2019. Articles 7-8 — CFC rules. #### How does Option A differ from Option B Option A — categorical: re-attribution of passive income categories (interest, royalties, dividends, leasing, insurance, low-value services). Option B — transactional: only non-genuine arrangements with main purpose tax advantage. #### Which MS chose what Germany, Italy, Spain, Austria — Option A. Netherlands, Luxembourg, Ireland — Option B. France — sui generis. Belgium — Option B until Dec 2023, then Option A. #### Does CFC apply to individuals Depends on MS. Italy, Spain, Germany, Sweden — yes. France — through Art. 123 bis CGI. Netherlands, Luxembourg, Ireland, Austria — not directly (through alternative rules). #### What about Cadbury Schweppes substance If CFC carries on substantive economic activity (staff, equipment, premises) — Option A does not apply. For third-country CFC, MS may disable carve-out. #### What about Pillar Two From Council Directive (EU) 2022/2523: IIR from FY 31 Dec 2023+; UTPR — FY 31 Dec 2024+. Scope ≥€750m. CFC applies first; pushed down to CFC ETR for GloBE. #### What is on the EU non-cooperative list Feb 2026: Annex I — Russia, Panama, Vietnam, and others. Annex II — BVI, Belize, and others. MS trigger stricter CFC. #### How to neutralise CFC through forfait Italy Art. 24-bis TUIR (€300k forfait for new residents from 2026; €100k/€200k — grandfathering): Circolare 17/E 2017 §6.4 — CFC imputation neutralised for the forfait beneficiary. Foreign-source CFC income absorbed by substitute tax; Quadro FC not filed. --- ## Sources - [Directive (EU) 2016/1164 (ATAD I, arts. 7-8 CFC) — EUR-Lex](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32016L1164) - [European Commission — Anti-Tax-Avoidance Directive](https://taxation-customs.ec.europa.eu/taxation/business-taxation/anti-tax-avoidance-directive_en) --- ## Factual claims - EU Anti-Tax Avoidance Directive I (ATAD I) — Council Directive (EU) 2016/1164 of 12 July 2016. - Member States are required to choose Option A (categorical) or Option B (transactional) for implementation of Article 7(2). - Update of 17 February 2026. - Annex II (grey list, 9 jurisdictions): Belize, BVI, Brunei, Eswatini, Greenland, Jordan, Montenegro, Morocco, Türkiye. - Council Directive (EU) 2016/1164 of 12 July 2016, minimum standard on 5 anti-avoidance measures. - From Council Directive (EU) 2022/2523: IIR from FY 31 Dec 2023+; UTPR — FY 31 Dec 2024+. - Feb 2026: Annex I — Russia, Panama, Vietnam, and others.