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News in the processing of the Community Directive ATAD3

23 January, 2023

A few days ago, the Committee on Economic and Monetary Affairs published a series of amendments to the European Commission's draft Directive to prevent the misuse of fictitious entities for tax purposes ("ATAD 3", also known as the "Unshell Directive").

ATAD 3, which expected to enter into force on January 1, 2024, is a proposal to establish EU standards on minimum community requirements regarding the substance of companies and improving the exchange of information between tax administrations in order to dissuade the use of fictitious entities.

The overall objective is to prevent the misuse of companies with little or no substance for tax benefits, by introducing a common set of rules across the EU to determine what could be considered insufficient substance for tax purposes.

Among other changes, the amendments introduced by the Commission includes:

  • An adjustment of the thresholds for an entity to be considered at risk, increasing in practice the number of possible affected entities
  • Modification on the exceptions to ATAD 3
  • Elimination of the some “safe harbour” contemplated in the previous version
  • Reduction of the penalties that can be applied to entities that infringes national provisions
  • The change on the procedure for issuing tax residence certificates for this type of entity.

The new version of the Directive will now go to the Council, which must vote unanimously before it could be adopted at European level. As with the other EU anti-tax avoidance directives (ATAD 1 and ATAD 2), it will eventually have to be transposed into the national legislation of the Member States.

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