“Unshell” Directive (ATAD 3)

22. June 2023 | Reading Time: 1 Min

The EU has presented the Proposal for the Council Directive, known as “Unshell” Directive or ATAD 3, which aims to prevent the misuse of shell companies for tax purposes.

The directive presents rules to detect the potential misuse of shell companies. For example, it identifies the entities that generate mostly passive income, which will be required to document the minimum signs of substance (e.g., own premises, bank account in the EU and qualified directors/employees residing in the given state). If the test is not met, entities have a possibility to substantiate a commercial rationale for their existence or, alternatively, demonstrate using a detailed calculation that such a setting does not lead to a lower taxation in total.

If the entity does not meet any of these tests, the negative tax consequences will arise – e.g., denying the benefits from double taxation treaties and EU directives by other Member States, or disregarding the entity by its shareholder for tax purposes.

The final wording of the Directive and its implementation into the Czech tax law still remains open.