Skip to main content

Get prepared for the Unshell Directive coming in 202(4)

Last December 2021, the European Union issued a new draft directive, known as the Unshell Directive (or “ATAD 3”).

The directive aims to prevent shell entity misuse for tax purposes by standardizing the assessment criteria and processes to identify shell entities through a substance test, and by coordinating their tax treatment among Member States.

Key points of the directive

While the directive may still be amended and clarified based on comments from various public and private bodies, its main concepts are likely to be adopted.

  • The identification of entities at risk of being “shell” is based on three cumulative criteria (the so-called “gateway tests”).
  • Certain undertakings can be excluded from the scope of application under specific conditions.
  • An undertaking’s reporting obligations in its tax returns are based on three minimum substance indicators.
  • Under certain conditions, it is possible to receive an exemption if there are no tax benefits for the undertaking itself or its group and to rebut the presumption of being a shell entity.
  • If the substance test is not met (and the entity is not exempt and has not rebutted the presumption), the undertaking is presumed to be a “shell”, and the directive's tax consequences should apply.


How Deloitte can help you get ready


If the directive is adopted as such, most gateway tests will be done with a 2-year look-back period, placing possibly the 2022 calendar year into scope. Therefore, companies should start preparing for the new directive as of today.

Deloitte has developed a range of bundled services that address all main concepts of the directive and that can be combined based on your needs: ranging from a current impact analysis on your business over concrete actions for the increase of your substance levels to cross-border considerations and additional services you might benefit from.


For more information


European Commission proposes directive to prevent misuse of shell entities in the EU

Click on each box to find out more on our service packages

All EU member states still need to unanimously constitute an agreement on the draft directive. If approved, the directive’s provisions will then have to be transposed into each EU local legislation. In accordance with the draft proposal, its provisions will come into effect on 1 January 2024. However, entry into force could be postponed until 1 January 2025.

On 30 November 2022, the EU Parliament agreed to the amendments they proposed on the EU Commission’s Unshell proposal and voted for the amended text during January 2023 plenary session. The following points have been suggested (amongst others):

  • Gateway thresholds need to be slightly lowered.
  • Penalties for companies with low or zero revenues should be levied on the basis of the undertaking’s total assets (instead of turnover).
  • Companies that are subject to reporting need to provide more detailed information.
  • Adjustments are foreseen for the information sharing requirements between Member States.

In its November 2022 official press release, the EU Parliament indicated that the agreed text was already transmitted to the EU Council (ECOFIN), although it was not voted yet in plenary at that time. The EU Council is the only legislator in direct tax matters. This means the EU Parliament can propose amendments to the proposal, but the Council is not legally required to take these into account. The Council, however, will only adopt a legislative proposal after the EU Parliament has voted on its proposed amendments.

Some updates were given on the Unshell proposal during the ECOFIN meeting on 6 December 2022, regarding progress on exploring the way forward as regards tax consequences. Additionally, compromise texts were submitted on parts of the proposal, such as the identification of entities not having minimum substance as well as on exchange of information. Most delegations supported the objectives of the proposal, but were of the view that further important technical work may be necessary before an agreement is feasible.

In terms of timing, the EU Council was not in the position to adopt the Unshell proposal during financial year 2022, as it needed to wait for the EU Parliament’s plenary vote in January 2023. Some technical meetings have been held over the last few months at EU level in the view of agreeing on a text.

Scrawl down on mobile to see the full timeline