The anti-tax avoidance Directive 3 addressing the abusive use of shell companies
31/12/21
In brief
In a communication dated 18 May 2021, referred to as "Business Taxation for the 21st Century"1, the European Commission announced a tax reform project aimed at pursuing an international tax transformation, in consistency with the reflections undertaken at the Organisation for Economic Cooperation and Development ("OECD") level. One of the projects announced by the European Commission was the release of a draft proposal setting out union rules to neutralise the misuse of shell entities for tax purposes, so called anti-tax avoidance Directive 3 ("ATAD 3"). In this respect, the European Commission has published its draft Directive on 22 December 2021.
Overview
Objectives of the proposal
The main objective of the legislative proposal is to address the abusive use of so-called shell companies, being referred to in the Commission communication as legal entities with no or only minimal substance and economic activity.
According to the European Commission, despite all recently introduced anti-tax avoidance rules at European Union ("EU") and internal level, shell companies could still be used for improper purposes, such as aggressive tax planning, tax evasion or money laundering. The objective of the proposal is therefore to define common tax related substance requirements to be met for entities operating within the EU.
EU companies may therefore be required to provide the tax administration with the necessary information to determine whether they have a substantial presence and a real economic activity. In the case where a company does not comply with these substance requirements, the tax administration may have the possibility to deny tax advantages linked to the misuse of qualifying shell companies.
What’s next?
Once adopted, this proposed Directive should be transposed into national law by the Member States before 30 June 2023 to come into effect from 1 January 2024. Given the European Commission’s packed legislative agenda for 2022, and the significant time required to consider the international tax reforms proposed by the OECD Inclusive Framework, this appears to be an ambitious timeline.
How can we help?
While the ATAD 3 new rules are yet to be released, proper follow-up and substance assessment can help anticipate potential impact that may arise upon implementation of the new rules.
We at PwC Luxembourg, can assist you in this assessment, notably by:
- Providing you with an update of the latest trends (such as ATAD 3), in order to raise your knowledge and understanding of the importance of these rules;
- Conducting a sanity check of your structure in light of the latest OECD standard; and
- Performing substance reviews of your investment companies.
1. PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with 2,800 people employed from 77 different countries. PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing and regulatory advice. The firm provides advice to a wide variety of clients from local and middle market entrepreneurs to large multinational companies operating from Luxembourg and the Greater Region. The firm helps its clients create the value they are looking for by contributing to the smooth operation of the capital markets and providing advice through an industry-focused approach.
2. The PwC global network is the largest provider of professional services in the audit, tax and management consultancy sectors. We are a network of independent firms based in 155 countries and employing over 284,000 people. Talk to us about your concerns and find out more by visiting us at www.pwc.com and www.pwc.lu.
Contact us
