• Alert / Newsletter
  • Corporate and transactional taxation
  • The 30 January 2022

Directive Proposal on Shell compagnies


The European Commission proposes that shell companies in the EU that have no or minimal economic activity are unable to benefit from tax treaties and EU Directives advantages.

Announced by the European Commission on May 18, 2021, a draft Directive has been released on December 22, 2021, aiming at neutralizing the misuse of shell entities (i.e., low substance entities, entities existing only on papers) for improper tax purposes within the EU.
The negotiation phase is now opened between the Member States. The Directive’s enactment requires in principle the unanimity between all Member States. In the context of recent media revelations and OCDE reforms, we believe such enactment should be achieved. It seems that the draft Directive is being taken very seriously by MNE which have already started to review their situation within the EU.

At this stage, the Commission proposes that the Directive be transposed into Member States’ national laws by June 30, 2023, for an entry into force on January 1, 2024.

Each entity engaged in an economic activity, regardless of its legal form, tax resident for corporate income tax purposes in a Member State, will have to follow the approach defined by the Directive to determine if it may fall within its scope. If the answer is positive, the entity will be required to report annually a certain number of additional information to the tax authorities on its tax return.

The “ profile of an entity is based on three gateways. An entity crosses the cumulative gateways if:

1/ more than 75% of its revenue in the previous two years does not derive from the entity’s business activity, i e is in fact “ income as qualified by the Directive Amongst others, are viewed as passive income, leasing, rents, interest, dividends, royalties, revenue from insurance, banking and other financial activities etc.

2/ more than 60% of the book value of assets such as real estate properties or certain movable assets used for private purposes of particularly high value (more than one million euro) are located outside of its country of residence
it receives at least 60% of its passive income through transactions linked to another jurisdiction or transfers this passive income to other companies situated in another jurisdiction.

3/ in the preceding two tax years, it outsourced the administration of day to day operations and the decision making on significant functions.

Some entities performing certain activities are however explicitly carved out and thus considered as low risk and irrelevant for the purpose of the Directive. This includes, in particular, regulated financial entities, listed companies, holding companies which mainly invest in operational companies which are tax resident in the same Member State while their beneficial owners are also tax resident in the same Member State, entities with at least 5 own full time equivalent employees or members of staff exclusively carrying out activities generating the relevant income.

If the cumulative gateways are met not to fall into the scope of the Directive, the entity will have to report on its tax return and provide documents evidencing each year that it meets the minimum substance tests which are in substance:

  • own premises in the Member State or premises for its exclusive use,
  • have at least one own and active bank account in the Union,
  • has at least one director tax resident in its Member State and/or the majority of relevant employee are resident close to it).

Falling to meet the above minimum test substance and not being able to rebut this presumption provided for by the Directive (commercial rationale and employees ‘decision making power), the entity is considered as a shell company to which its Member State of residence will deny the delivery of tax residency certificate.

Other Member States will prevent the shell company to benefit from tax treaties and EU directives and implement a look through approach considering the beneficial owner of the shell company wherever this beneficial owner is tax resident.

We remain at your disposal to discuss the above.



Marie-Ève Chauvière

Attorney, Partner
Marie-Ève Chauvière

Dorothée Traverse

Attorney, Partner
Dorothée Traverse