EU Strike Against "Shell Entities"

I. Background

With the aim of combating tax avoidance and evasion, which have a direct impact on the functioning of the internal market, the European Commission adopted on 22 December 2021 a Proposal for a Directive laying down rules to prevent the abusive use of "shell entities" for tax purposes. This responds to a request from the European Parliament for measures to combat the abusive use of "shell entities" for tax purposes, and more generally to a demand of several Member States for a stronger and more coherent approach by the Union against tax avoidance and evasion.

II. The Proposal in brief

Entities that have insufficient substance and could be abused for tax purposes will in the future be required to report on their actual substance in their annual tax return. If no adequate substance can be proven to the tax authority of the country of domicile, the entity will be qualified as a "shell entity" and it will be presumed that it is being abused for tax