2021-12-23-KPMG_s_EU_Tax_Centre-Euro_Tax_Flash_from_KPMG_s_EU_Tax_Centre_8页_293kb

European Commission “Shell Entities” Proposal Analysis and Summary

Background

The European Commission proposes a directive (ATAD 3) to combat the misuse of shell entities for tax purposes, amending existing EU directives (ATAD and DAC).

Key Objectives:

• Define shell entities lacking minimum economic substance.
• Impose reporting obligations under a three-tier "gateway" test (revenue generation, cross-border element, management).
• Eliminate tax benefits for non-compliant entities and establish information exchange protocols.

Proposed Directive Framework: Seven Steps to Identify Shells

Step 1: Gateway Assessment

• Based on three objective factors:
  1. Revenue Generation: >75% revenue from non-business activities or 75% assets being real estate/private property.
  2. Cross-Border Element: >50% revenue from cross-border transactions or income passed to foreign entities.
  3. Management: Outsourcing managerial functions without in-house personnel.
• Entities meeting all three must report economic substance; otherwise, they are "low-risk."

Step 2: Economic Substance Reporting

• High-risk entities must declare three indicators via annual tax return:
  1. Premises availability for exclusive use.
  2. Active EU bank account.
  3. Qualified personnel (director/local employees) for core operations.

Step 3: Deemed Shell and Rebuttal

• Fails at least one substance indicator → deemed shell, tax benefits denied unless successfully rebutted.
• Rebuttal requires demonstrating substance through evidence on a case-by-case basis, recognized for up to six years.

Step 4: Benefit Denial (Anti-Abuse Measures)

• Member State refusing tax treaties/benefits to entities unable to rebut shell status.
  -Automatic exchange of information between Member States on shell entity data.

Step 5: Rebuttal Process Timeline

• Deadline to refile rebuttal every five years provided facts remain unchanged.
• Impact on recalcitrant jurisdictions including penalties of ≥5% turnover fines.

Exemptions and Carve-Outs

• Listed companies & regulated entities exempt from some provisions.
• Steps include grappling with tax motive determinations and proving permanent establishment absence for third-country entities.

Transposition and Governance

• Timeline: June 30, 2023 transposition; provisions effective from January 1, 2024.
• Requires unanimous legislative approval in the Council — posing political obstacles.

Post-Passage Note

• Only likely if facing objection from small states regarding low-employee carve-outs; alternatively, as recommendations via soft law if blocked.
• Wider context includes the OECD's BEPS Action 5 and the Call for Public Disclosure of Effective Tax Rates,concurrently pending in 2022.