‘Am I a shell?’ The new question facing EU entities

‘Substance’ has been a hot topic in recent years. The OECD’s BEPS project introduced the ‘principal purpose test’ into double tax treaties tax havens have been pressured into introducing their own substance requirements and most recently companies have been grappling with the implications of the ‘Danish cases’. Now a new EU draft directive has landed: ATAD 3. If enacted ATAD 3 could subject EU entities to additional reporting and if ultimately ‘unshelled’ adverse tax consequences from as early as 1 January 2024.

The rules are structured as a five-step process with the first four steps filtering out entities that meet minimum substance requirements or do not result in a tax advantage and step 5 imposing tax consequences on those that...