On 22 December 2021 the European Commission released the draft directive ‘laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU’ (ATAD 3). Essentially the directive addresses the misuse of shell entities (‘letter box companies’) for improper tax purposes and may have substantial impact on the service offerings of trust service providers. The proposal should ensure that entities in the European Union that have no or minimal economic activity are unable to benefit from any tax advantages and do not place any financial burden on taxpayers.
The directive essentially proposes that companies that don’t meet certain minimum substance requirements, (a) will be denied tax benefits derived from EU directives (e.g. parent subsidiary directive, interest and royalty directive) and double tax treaties between EU member states and (b) information will be exchanged.