- The EC released a draft directive targeting the use of 'shell' entities for tax purposes in the EU. This may be relevant for some UK groups with presence in the EU.
- Based on the original EC proposal, EU companies that pass three gateway tests (and are not excluded) will be required to report annually in their tax returns on whether they meet prescribed minimum substance requirements. Those with no minimum required substance would be unable to benefit from double tax treaties as well as EU parent/subsidiary and Interest and Royalties directives (PSD and IRD). Information on entities in scope would be exchanged automatically between EU member states’ tax authorities.
- There are substantial disagreements among member states on the required minimum substance and the consequences of being deemed a ‘shell’ and negotiations continue.
- In June 2024, the Commission attempted to relaunch discussions with a new compromise proposal which, reportedly, is limited to information exchange, leaving tax consequences at the discretion of member states. The new proposal was discussed at the Council of the EU meeting in November 2024 without much progress, with member states raising concerns about an additional reporting obligation.
- Timing: the schedule for adoption remains unclear due to the disagreements among member states. The application is likely to be delayed to at least 2026.
Resources (click to open)
- Texts adopted - Rules to prevent the misuse of shell entities for tax purposes (europa.eu) (January 2023)
- Draft report of the Committee on Economic and Monetary Affairs on the Unshell proposal (May 2022)
- EU Commission proposes directive to prevent misuse of shell entities in the EU (Deloitte tax@hand, December 2021)
