Alerte fiscale

Shell companies in the firing line

Emilie Fillette-Casella
Criteria and indicators of substance finally unveiled by the European Commission (ATAD III)

On 22 December 2021, the European Commission published a directive proposal establishing transparency standards to facilitate the identification of shell companies used for tax purposes to ensure that they cannot benefit from tax benefits. This measure is part of the European Union's (EU) policy to combat harmful tax practices.

The draft directive introduces a mechanism for presuming the existence of shell companies, i.e., entities with no or very limited economic activity. All companies established in an EU Member State are concerned, with the exception of those already subject to a certain level of tax transparency or certain holding companies (Articles 2 and 6).

Step 1: Analysis of the economic substance of the entity (Article 6)

This analysis is carried out through three “decisive criteria” assessed over the last two financial years.

  • Activity: +75% of total revenues are not derived from a business activity - e.g., passive income from outsourced services to related entities - or, +75% of its assets are real estate and/or high value private property.
  • Cross-border element: at least 60% of non-derived revenues from a business activity are received from or transferred to another jurisdiction or at least 60% of the assets are located in another Member State.
  • Administration and decision making: the administration and decision-making processes related to the business activity are outsourced.

If these three criteria are met, the company will be subject to an additional reporting obligation.

To read the rest of this alert, please download this PDF [ 278 kb ].

Our team of lawyers, experts in corporate taxation at Grant Thornton Société d'Avocats, remains at your disposal to assist you in the implementation of your obligations.

Further reading

See more