The European Commission has launched a new public consultation ahead of a new initiative to fight the abusive use of shell companies, i.e. companies with no or minimal substantial presence, or real economic activity.
The initiative was first announced as part of the Communication on Business Taxation for the 21st Century. A future Commission proposal could encompass actions such as requiring companies to report to tax administrations the necessary information to assess whether they have substantial presence and real economic activity, denying tax benefits linked to the existence or the use of abusive shell companies.
Several EU initiatives over recent years have put in place powerful new instruments to tackle the use of often purely artificial and aggressive tax structures used by taxpayers operating cross-border to reduce their tax liability. But many of these entities continue to pose a risk of being used in aggressive tax planning structures. In particular, there are no EU legislative measures that define substance requirements for tax purposes to be met by entities within the EU.
Recent media investigations have also brought the issue to the attention of the general public, and have been followed by calls for action from the European Parliament, from citizens, NGOs, journalists and civil society in general.
While shell companies with no substance and no real economic activities can be used for a number of abusive purposes (including for criminal ones such as money laundering and terrorist financing), this initiative would focus on situations where the ultimate objective is to minimise the overall taxation of a group or of a given structure. The consultation is available here and runs until 27 August 2021.