Members' Research Service By / September 16, 2022

‘Unshell’ – Rules to prevent the misuse of shell entities for tax purposes [EU Legislation in Progress]

The Commission’s initiatives concerning the taxation of corporate entities are part of its broader taxation agenda, which aims for a tax system guided by the principles of fairness, efficiency and simplicity in order to strengthen the single market, alongside a balanced tax revenue mix.

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Written by Pieter Baert (2nd edition, updated on 12.01.2023).

While shell companies – company entities that have no or minimal economic activity – can serve useful commercial and business functions, they are sometimes abused by companies or individuals for aggressive tax planning or tax evasion. To ensure sustainable public finances under the exceptional circumstances imposed by the COVID-19 pandemic, in December 2021 the European Commission presented a directive on preventing shell companies from misusing their structure for tax purposes (‘Unshell’).

The proposal introduces a ‘filtering’ system for EU company entities, which will have to pass a series of gateways, relating to income, staff and premises, to ensure there is sufficient ‘substance’ to the entity. Those entities that are deemed to be lacking in substance are presumed to be ‘shell companies’ and, if they are unable to rebut this presumption through additional evidence regarding the commercial, non-tax rationale of the entity, they will lose any tax advantages granted through bilateral tax treaties or EU directives, thereby discouraging their use. The directive requires unanimity in the Council for its adoption, following consultation of the European Parliament. While negotiations in the Council are ongoing, the Parliament will vote on its report in January 2023.


Proposal for laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU
Committee responsible:Economic and Monetary Affairs (ECON)COM(2021) 565
Rapporteur:Lidia Pereira (EPP, Portugal)2021/0434(CNS)
Shadow rapporteurs:Paul Tang (S&D, the Netherlands)
Gilles Boyer (Renew, France)
Ernest Urtasun (Greens/EFA, Spain)
Gunnar Beck (ID, Germany)
Michiel Hoogeveen (ECR, the Netherlands)
Mick Wallace (The Left, Ireland)
Consultation procedure
(CNS) – Parliament adopts a non-binding opinion
Next steps expected: Vote in plenary
Stage: National Parliaments opinion

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