Proposal for preventing the misuse of shell entities (UNSHELL)

On 22 December 2021, the European Commission (the Commission) published a legislative proposal for a Directive setting forth rules to prevent the misuse of shell entities for tax purposes (the draft Directive, UNSHELL, is also referred to as ATAD III).

The proposed UNSHELL Directive aims at introducing an EU-wide “substance test”, including a reporting obligation for taxpayers. Although the Commission’s initiative is only aimed at certain low-substance shell companies, implementation of the draft Directive would lead to additional compliance obligations for many companies. The Commission proposes to attach consequences to the qualification of a company as a shell company for tax purposes. The Commission proposes that the Member States introduce domestic legislation transposing the Directive by 30 June 2023, and that they shall apply these provisions from 1 January 2024.

Proposal to implement BEPS 2.0 Pillar Two in the EU

On the same date, the Commission also published a legislative proposal for a Directive setting forth rules to ensure a global minimum level of taxation for multinational groups.

The proposed Pillar Two Directive aims at consistently implementing the Model Rules agreed at the global level in the EU. Although the proposed rules are generally consistent and closely follow the global Model Rules published on 20 December 2021, the scope is extended to large-scale purely domestic groups in order to comply with the EU fundamental freedoms. In addition, the Member State of a parent company applying the Income Inclusion Rule is required to ensure effective minimum taxation not only for foreign subsidiaries but also for all group companies resident in that country. The aim is for Member States to transpose the provisions of the Directive by 31 December 2022, and then apply these provisions from 1 January 2023.

If you would like to read more on the above developments, A first impressions alert and detailed alert  are available on the BEPS 2.0 GloBE Model Rules. There are also specific alerts for the proposed EU Pillar Two Directive and the proposed UNSHELL Directive available.  Please also consider registering for the global client webcast on 12 January which will focus on the BEPS 2.0 Pillar Two developments. We are also holding an EMEIA client webcast on 25 January that will also cover UNSHELL besides the EU implications of Pillar Two. An invitation will be sent early in the new year.