Clifford Chance

EU proposal directive on transparency standards for the use of shell entities in Europe

11 January 2022

On 22 December 2021, the European Commission released its proposal for a Council Directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU (the "Unshell Directive" or commonly named "ATAD 3"). The aim of ATAD 3 is to prevent the misuse of so-called "shell companies" (i.e., legal entities with no – or only minimal – substance and economic activity) interposed to obtain tax advantages within the EU.

The proposal introduces a substance test (mainly related to personnel and premises) to help Member States identify entities that are ostensibly engaged in economic activity but do not comply with minimum substance standards. The proposal also sets rules regarding the tax treatment of those entities that do not meet the substance indicators and provides for automatic exchange of information and tax audits among Member States' tax authorities.

So far, the proposal provides that Member States are required to implement the ATAD 3 by 30 June 2023 and apply its provisions from no later than 1 January 2024.

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