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The anti-tax avoidance Directive 3 addressing the abusive use of shell companies


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 would be the release of a draft proposal setting out union rules to neutralise the misuse of shell entities for tax purposes, the anti-tax avoidance Directive 3 ("ATAD 3"), by the fourth quarter of 2021.


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 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 European Union ("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?

A public consultation was launched between June 2021 and the end of August to obtain stakeholders’ views on EU legislation’s need for improvements (or not) in this field, as well as the criteria to be considered and the policy form that the Commission should consider in its proposal. 

Following the consultation process, a draft proposal directive is expected to be released within the fourth quarter of 2021.

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 ( 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 and

Contact us

Nicolas Sansonnet

Tax Director, Alternative Investment Funds & Wealth Management, PwC Luxembourg

Tel: +352 49 48 48 2025

Charles-Henri de Villedon de Naide

Manager, Wealth Management, PwC Luxembourg

Tel: +352 49 48 48 3696

Betty Giaconia

Tax Associate, Wealth Management, PwC Luxembourg

Tel: +352 49 48 48 2390

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