This study reviews institutional changes resulting from implementation of Council Directive (EU) 2016/1164 of July 12, 2016, laying down rules against tax avoidance practices that directly affect the functioning of the internal market (the ATAD). Moreover, it examined whether the controlled foreign corporations (CFC) rule provided by the ATAD has an effect on profit shifting to countries with harmful tax competition. For the empirical analysis, I use unique data of 110,907 non-residents from 134 countries who obtained passive flows paid by Polish payers and reported this on the IFT-2R withholding tax (WHT) return for 2012–2022. Thanks to Tobit estimating using panel data, I check responses of payers to non-residents as a result of the introduction of the ATAD. The results prove that services have reduced passive flows due to dividends, interest and royalties to countries that introduced ATAD CFC model A or B in 2018-2019 compared to other EU member states. In contrast, the more stringent ATAD regulations have not reduced the passive flows paid by payers in the manufacturing sector. The obtained results can guide policymakers on how to draft CFC rules to make them an effective response to base erosion and profit shifting (BEPS) concerns.