The instructor has to hold at least the license he's giving instruction for.
There is confusion in some quarters over this point. FCL.915(b)(1) states that an instructor "shall hold at least the licence
and where relevant the rating for which flight instruction is to be given". It has been suggested that the use of 'and' instead of 'or' (as was previously used in JAR-FCL) implies that an instructor giving instruction for, say, a single-engine type rating to an ATPL holder must him/herself hold an ATPL. EASA Flight Standards have recently confirmed, however, that this is not the case and that this 'drafting error' will be corrected in the future (along with all the other 'drafting errors').