Update on the ‘Unshell’ Directive: European Parliament proposes changes

Earlier this year, the ALG Tax team published an article in relation to the European Commission's proposed Unshell Directive, which has the stated aim of preventing the misuse of shell entities for tax purposes.

The Unshell Directive could potentially impact a wide variety of Irish entities including holding companies, section 110 securitisation companies and entities forming part of multinational groups which, if they do not satisfy certain substance requirements, will result in them being subjected to additional reporting requirements.

In May, the European Parliament issued a draft report outlining a number of changes to the proposed Unshell Directive. In this publication, we examine these proposed changes which include:

• acknowledging that there can be legitimate reasons to use shell structures, and that this possibility should be safeguarded, but nonetheless asserts that shell structures should be discouraged
• changing the thresholds to be considered in scope of the Unshell Directive – the Commission had proposed including entities whose revenue for the previous two years consisted of at least 75% passive income, but the Draft Report proposes increasing this threshold to 80%
• the Commission had also proposed that an entity would be in scope of the Unshell Directive if it outsourced day-to-day operations and decision-making, but the Parliament has proposed limiting this ground to exclude a situation where day-to-day operations are outsourced to an associated entity in the same jurisdiction
• the Parliament has proposed excluding entities owned by regulated financial undertakings which have the objective of holding assets or investing in funds from the scope of the Unshell Directive
• the potential penalties for failing to comply with the Unshell Directive have been reduced in the Parliament's proposals, from at least 5% of the entity's turnover, to at least 2.5%
• the timeline envisaged by the Commission in implementing the Unshell Directive has been pushed back by one year, from 2024 to January 2025

Go to new publication – 'Update on the ‘Unshell’ Directive: European Parliament proposes changes'.

For more information on this topic, please contact James Somerville (Partner) or any member of A&L Goodbody’s Tax team. This insight was prepared with assistance by Darragh Noone (Senior Associate) and Cian Ryan (Solicitor).

Date published: 15 July 2022