On 22 December 2021, the European Commission presented a draft Council Directive to tackle the misuse of shell entities for improper tax purposes which would apply to all undertakings that are considered tax resident and are eligible to receive a tax residency certificate in a member state.
A three ‘gateways’ approach has been proposed, with an entity passing all three gateways being considered as ‘at risk’ of lacking substance, requiring it to report on their substance in their tax return.
As reported in EY’s weekly newsletter, it is understood that on 25 April, the Working Party on Direct Tax Questions held a discussion to advance the technical work on the draft Directive where ‘certain member states raised concerns with the current compromise text of the Directive and that the proposal will require further changes in order to reach a compromise. It is possible these concerns may be addressed publicly at the meeting of ECOFIN 16 May - however the agenda has not yet been published.’
The directive was originally planned to come into force from 1 January 2024, but if 'the Directive is adopted later this year, it is possible that the entry into force of the measures will be postponed, allowing Member States time for transposition of the rules into domestic law’, it added.
On 22 December 2021, the European Commission presented a draft Council Directive to tackle the misuse of shell entities for improper tax purposes which would apply to all undertakings that are considered tax resident and are eligible to receive a tax residency certificate in a member state.
A three ‘gateways’ approach has been proposed, with an entity passing all three gateways being considered as ‘at risk’ of lacking substance, requiring it to report on their substance in their tax return.
As reported in EY’s weekly newsletter, it is understood that on 25 April, the Working Party on Direct Tax Questions held a discussion to advance the technical work on the draft Directive where ‘certain member states raised concerns with the current compromise text of the Directive and that the proposal will require further changes in order to reach a compromise. It is possible these concerns may be addressed publicly at the meeting of ECOFIN 16 May - however the agenda has not yet been published.’
The directive was originally planned to come into force from 1 January 2024, but if 'the Directive is adopted later this year, it is possible that the entry into force of the measures will be postponed, allowing Member States time for transposition of the rules into domestic law’, it added.
