The European Commission has launched a public consultation questionnaire on tax avoidance and fighting the use of shell entities for tax purposes. The questionnaire responses will be used to prepare a proposal for a directive planned to be published in the last quarter of 2021. The Inception Impact Assessment concerning the proposed initiative sets out that the Commission aims to address “the use of legal entities with no or minimum substance and no real economic activities, by taxpayers operating cross-border to reduce their tax liability.” The directive will aim to establish minimum standards on tax related substance to decide whether entities in a Member State are deemed shell entities and, if so, to deny them tax advantages in the Member State in order to tackle the erosion of the tax base of the Member States by tax avoidance and evasion.
The Inception Impact Assessment refers to recent Le Monde investigations published in early 2021 which highlighted the lack of EU legislative measures which define substance requirements for tax purposes to be met by entities within the EU, and the pressing need identified by the public to act concerning this deficiency. The document sets out that as part of its policy considerations relating to the proposed directive, the Commission will consider:
- Current national practices and legislation (where existing) providing for anti-tax avoidance rules, including those deriving from the transposition of existing EU rules (e.g. the Anti-Tax Avoidance Directive – ATAD);
- To what extent the existing (e.g. the Code of Conduct on Business Taxation) or new soft-law instruments may eventually achieve the objectives;
- Whether a directive that defines new tax related substance requirements and new mechanisms is needed;
- Possible new substance requirements and indicators of “real economic activity” for the purpose of taxation rules;
- Options for enhanced cooperation, monitoring and enforcement of the new rules will equally be explored, including enhanced cooperation and monitoring of the existing legislation in the field of taxation, for legal entities and arrangements operating in the EU.
The public consultation questionnaire raises questions related to the above points. The consultation will run until 27 August, and responses to the questionnaire and any additional comments on the questionnaire can be submitted via the Have Your Say portal.
Ref. CFE’s Tax Top 5 – 7 June 2021