Tax News

European Parliament publishes Draft Report with ATAD III amendments

Jean-Nicolas Bourtembourg,
Jean-Michel Hamelle
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On 12 May 2022, the first amendments to the proposal for a directive relating to the prevention of the misuse of shell entities (the “Anti-Tax Avoidance Directive III” or “ATAD III”) have been published.

Some of the amendments pertain to the undertakings in scope, the substance indicators and the tax consequences in case of non-compliance. Furthermore, the entry into force of the provisions of the directive has been postponed to 1 January 2025.


European Commission’s Proposal

On 12 May 2022, the European Parliament published a draft report (‘’The Draft Report’’) relating to the proposal for a directive aiming to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU (proposal for the ATAD III) which was issued in December 2021.

The following aspects of the Draft Report will be further addressed:


1. Background

In December 2021, the European Commission released the proposal for the ATAD III. The directive’s aim is to prevent the misuse of shell entities by establishing criteria relating to reporting obligations, rebuttable presumption for lack of substance and penalties in cases of non-compliance with the domestic rules resulting from the implementation of the directive.

For additional information please consult our preceding article concerning ATAD III Proposal.

Following this, on 12 May 2022, the European Parliament circulated the Draft Report succeeding the proposal for a Council directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU.

As set forth in the report, its the three main objectives consist the following:

  • Guaranteeing high standards for taxpayers in the fields of privacy and data protection
  • Securing a level playing field for companies within the EU, and more precisely, ensuring that they pay their fair share
  • Avoiding excessive administrative burden or compliance for operators

In addition to that, The Draft Report contains amendments to the initial proposal, and despite not being conclusive, they are essential to take into account in order to acknowledge the step towards a more pragmatic approach relating to the substance condition.


2. Amendments to the proposal

Gateways (Article 6(1))

The amendments to the gateways article relate to the increase of the thresholds for, respectively, the revenues accruing to the undertaking in the preceding two tax years to more than 80% (previously more than 75%), and the book value of the undertaking’s assets situated outside of the Member State of the undertaking to more than 55% (previously more than 60%).

Furthermore, there is an additional explanation with regards to the third cumulative requirement under article 6(1) stating that the undertaking outsorcing the day-to-day operation administration shall not be an associated enterprise within the same jurisdiction as the reporting undertaking.

Undertakings out of the scope of ATAD III (Article 6(2))

The first amendment to this subsection relates to the inclusion of an exemption of entities owned by regulated financial undertakings and having as their objective the holding of assets or the investment of funds.

The second amendment pertains to the exemption for undertakings which have at least five full-time equivalent employees who carry out their activities exclusively. The proposed additional condition is that these employees shall be working in the jurisdiction where the undertaking is resident for tax purposes.

Substance indicators (Article 7)

In the proposal this article contained additional requirements related to the directors of the undertaking and in the Draft Report it has been abolished.

Tax consequences (Article 12)

This article, dealing with the treatment of entities not in compliance with the minimum substance condition, has been amended to deny completely the tax residency certificate while providing with a justification for such denial.

Administrative pecuniary sanction (Article 14)

The amendment to article 14 refers to the decrease of the administrative pecuniary sanction to at least 2,5% (previously at least 5%) that could be imposed on the undertaking’s turnover in the relevant tax year.

Audit from tax authorities (Article 15)

Article 15 deals with the possibility of submitting a request from a tax authority in a Member State to a tax authority in another Member State if the former has reason to believe that an undertaking, residing in the latter Member State, has not met its obligations. The modification connected to this article is the inclusion of the opportunity for a joint tax audit in such cases.

Entry into force (Article 18(1))

The entry into force of the ATAD III has been postponed to 1 January 2025 (previously 1 January 2024).

Look back period to the gateways requirement

As previously noted, the entry into force of the directive has been postponed with an additional year, and therefore, the look back period for the first cumulative requirement in Article 6(1) relating to the revenues accrued to the undertaking in the preceding two years should start on 1 January 2023 (previously 1 January 2022).


Draft Directive against the misuse of shell entities (ATAD III)
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Draft Directive against the misuse of shell entities (ATAD III)
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3. Our observations

While the initial proposal of the European Commission regarding ATAD III was the first step towards a harmonisation on the minimum substance criteria, it has also faced many challenges including, but not limited to the increase in administrative burden for tax authorities.

Furthermore, as can be observed from the proposed amendments in the Draft Report, further steps are taken in the right direction, aiming to ameliorate these challenges.

Lastly, as the discussed amendments are not definite, further clarifications remain to be implemented before the final adoption of the directive.


For further guidance regarding the new Anti-Tax Avoidance Directive (ATAD III), please contact Jean-Nicolas Bourtembourg or Jean-Michel Hamelle.