‘Am I a shell?’ The new question facing EU entities

A new EU draft directive (ATAD 3) could subject EU entities to additional reporting and, if ultimately ‘unshelled’, adverse tax consequences from as early as 1 January 2024. The rules are structured as a five-step process, with the first four steps filtering out entities that meet minimum substance requirements or do not result in a tax advantage, and step 5 imposing tax consequences on those that have not managed to escape under steps 1 to 4. If the directive is implemented, many businesses will need to take steps to bolster the substance of their EU holding companies to prevent additional reporting or adverse tax consequences.