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The Directive referred to as “ATAD III” introduces reporting requirements for so called “shell” entities tax resident in the EU with penalties for failure to comply ranging from 5% of annual turnover to a denial of tax treaty benefits.
ATAD III Directive
The new directive aims to ensure that entities within the EU with limited operational substance, in particular entities that have engaged third party service providers to act as management in order to meet the current minimum substance requirements, are unable to benefit from certain EU and national tax treaty benefits. The clear objective is to discourage the use of shell entities for tax planning or tax evasion purposes. Outlined below are the key considerations of the reporting process and the implications for any “at risk” entities.
The Directive outlines some exemptions for regulated investments and employee based entities.
Timeline for the proposal
All EU Member States will need to implement the proposed measures into their domestic tax legislation by 30 June 2023 with application from 1 January 2024.
A two-year look-back rule will also be applied for entities that fall within the scope of the Directive. Companies should therefore start assessing the potential impact of these rules to take action in addressing potential risks or operational changes to their structures.
How can we help?
We would strongly encourage companies to consider its existing structure and assess, as a starting point, its potential reporting obligations in line with the proposed ATAD III Directive as soon as possible. At Grant Thornton, we have a team of specialist experts in this area that can partner with you to review your organisational structure, provide insight into the latest guidance and its affect for your business and offer sensible guidance to be ready for when these proposed changes come in.