The European Commission (EC) has published the text of a draft Directive laying down rules to prevent the misuse of shell entities for tax purposes and to amend Directive 2011/16/EU on Administrative Cooperation (DAC).
This proposed Directive, published on 22 December, provides indicators of minimum substance for undertakings in Member States and rules regarding the tax treatment of those undertakings that do not meet the indicators. The proposed Directive would apply to all undertakings that are considered tax resident and are eligible to receive a tax residency certificate in a Member State (subject to some specific exclusions), including SMEs, partnerships, trusts and other legal arrangements. It is likely to result in additional reporting requirements and in some cases, additional tax liabilities for those impacted.
Given the wide scope of this proposed Directive, it likely will have a large impact on both commercial and personal undertakings that are in scope. Given the purpose of the proposal, the EC has made no exclusion of the groups within the scope of the OECD’s Pillar Two Model Rules that meet the €750 million revenue threshold.