EU Directive Targets 'Shell' Companies

On December 22, 2021, the European Commission published proposals for a Directive which targets the perceived misuse of "shell" entities for tax purposes. The draft of the Directive proposes a common minimum substance test across all EU Member States which is designed to identify undertakings (including companies) that are engaged in an economic activity but which fail to have minimal substance and are misused for the purpose of obtaining tax advantages. The Directive identifies such undertakings, using a slightly pejorative (and deliberate) term, as being "shells."

The focus and objective of the Directive is to identify "shell" entities, and discourage their use. The objective of the proposed Directive is not to raise tax, or impose by itself a penal rate of taxation on the utilization of such entities. Rather, the Directive imposes additional reporting requirements where the entity is deemed to be a "shell" and proposes to deny intra-EU access of a "shell" entity