Arthur Cox LLP has made a submission to the European Commission, which you can access here.

We have concluded that the proposals are not based on sound data or clear definitions of the assumed problem.  Their alleged benefits have not been identified and there are already existing measures that address any alleged concerns. It is reasonable to conclude, therefore, that their only impact will be on genuine commercial situations and will only disadvantage EU companies compared with their global competition. The proposals will breach EU policy in a number of areas. In our view, the most appropriate action at this stage would be to drop the proposals.


The first phase of the feedback request commenced on 20 May 2021 and ran until 17 June 2021.   A second round of public consultation will close on 27 August 2021.  The European Commission aims to adopt measures in the first quarter of 2022.

The issue that the European Commission aims to address is the use of legal entities by taxpayers with no or minimum substance and no real economic activities to reduce their tax liability.  The initiative is directed towards tackling situations where the main goal of the taxpayer is to minimise the overall taxation of the group.

Although there are already measures in place at EU level to combat aggressive tax planning and abuse, the EU aims to introduce additional measures focusing primarily on entities with the lack of substance as it is alleged in the impact statement published by the EU that these entities continue to pose a significant risk of being used in aggressive tax planning.

Under the proposals, several options will be reviewed for the purpose of designing the legislative framework, including:

  • Current national practices and legislation providing for anti-tax avoidance rules and existing EU rules (i.e., EU Anti-Tax Avoidance Directive or ATAD).
  • The existing or new ‘soft law’ instruments which could achieve the planned objectives.
  • A new legislative initiative, which would define tax related substance requirements.
  • Options for enhanced cooperation, monitoring and enforcement of the new rules will also be explored.

It is recognised in the impact statement that the new measures would have an effect on the Member States’ tax revenues and on EU competitiveness as multinationals would relocate shell companies to non-EU countries. There is also a risk of additional compliance costs depending on the preferred option finally chosen, however, the Commission notes that such costs are expected to be limited (although there does not seem to be an economic analysis to back up this statement).

There are a number of key considerations related to the proposed measures, including the central questions on the definition of a shell entity and the meaning of substance.  Further, the impact that such measures could have on businesses, in particular the financial industry and finally, how the proposed measures will interact with the existing measures at EU level, including those that have not yet been implemented.

We have briefly set out our views on those considerations and reached a conclusion that introducing any new measures would not be welcomed at this time as additional research must be conducted to determine if any measures are needed at all.  If the proposed measures are introduced too swiftly, it might result in negative consequences on doing business in the EU as it could affect the attractiveness of the EU as a hub for FDI.

If you have any queries or would like to discuss this topic, please contact a member of the Arthur Cox LLP Tax Team.