Article
New rules preventing the misuse of shell entities for tax purpose
On 22 December 2021, the European Commission published a proposal of a directive regulating the rules for prevention of misuse of shell entities for tax purposes. The main objective of the proposed directive is to prevent misuse of shell entities – entities (“undertakings”) without sufficient economic substance, which do not perform any actual economic activity and thus, represent an instrument for harmful tax avoidance and evasion.
Potential impacts
The directive proposal introduces minimum substance requirements for undertakings. Non-compliance with minimum requirements may lead to the denial of entitlement to benefits from double tax treaties and denial of exemptions of dividends, interest and license fees based on respective EU Directives. The new rules will become effective in January 2024, however, the substance requirements introduced by the directive proposal will be examined for two preceding taxable periods (ie from taxable period 2022).
Related risks
The proposal of the new directive amends the directive on administrative cooperation in the field of taxation (DAC), based on which the automatic exchange of information regardng reporting undertakings takes place. In the event of doubt related to the economic substance of a foreign company, the foreign tax authorities may require the tax administration of a Member State in which the company is resident for tax purposes to initiate a tax audit. Such a tax audit must start within one month of the receipt of such a request and the results of the tax audit must be shared with the requestor.
A penalty of up to 5% of turnover of an undertaking for the respective taxable period may be imposed for non-compliance with reporting obligations or provision of misleading information.
Date: 23. 6. 2022
Contact us
