Background
On 22 December 2021, the European Commission released a legislative proposal for a Council Directive (“Draft Directive” or “Draft ATAD 3”) laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU on administrative cooperation in the field of taxation. The proposal aims to fight against the misuse of shell entities for improper tax purposes and to ensure that shell companies in the EU that have no or minimal economic activity are unable to benefit from tax advantages. For more details on ATAD 3, we invite you to refer to our previous publication dated 10 January 2022.
The Economic and Financial Affairs Council of the EU (“ECOFIN”) under the Spanish Presidency published its report to the European council on tax issues dated on 30 November 2023 (available here).
Proposition of the ECOFIN
The ECOFIN report notes that during the term of the Spanish Presidency, a compromise text was presented in September, and on this text, delegations expressed diverging views which prevented them from reaching an agreement and, as an alternative, suggested a two-stage approach:
- a first stage in which the Draft Directive would includes an automatic exchange of information based on a number of agreed hallmarks, that would take place together with the application of domestic tax consequences;
- a second stage, best practices about the use of that information to apply tax consequences among the Member States would be exchanged.
In addition, it was suggested that after an evaluation of such practices a new proposal may be launched in the future, if appropriate.
Although the principle of a two-stage approach was supported to some extent, several delegations considered that the main pending issues would not be solved by this approach and a number of delegations considered that it may require further analysis.
The Commission suggested an alternative way forward that could be based on a minimum standard approach and a tool-box of consequences. The Spanish Presidency submitted this proposal to the November working group in order to check whether this could be an acceptable alternative way forward. However, there was no agreement on this new proposal within reach that would be acceptable for everybody, so further discussions will be needed in order to find compromise solutions on outstanding issues.
Conclusion
A consensus among member states regarding ATAD 3 remains elusive. Efforts to reach an agreement on the Draft Directive are anticipated to continue in the foreseeable future, despite several Member States questioning the pertinence of the initiative.
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