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Home>News>International Tax Update: ‘ATAD 3’ Update: (Probably) a little more time to prepare and avoid burdensome compliance obligations for in-scope entities

Wednesday, 29 June 2022

International Tax Update: ‘ATAD 3’ Update: (Probably) a little more time to prepare and avoid burdensome compliance obligations for in-scope entities

At the end of last year, the European Commission published a proposal for a directive to "tackle the misuse of shell entities for tax purposes" (see our previous newsflash on this topic). Recently, the Committee on Economic and Monetary Affairs of the European Parliament published its draft report with proposed amendments to the initial proposal.

The most important amendment concerns the timing of the directive. Where the initial proposal provided for an entry into force as from January 1st 2024, the amended proposal delays it by one year, to take effect as of January 1st 2025.

Even though the directive would only apply as from 2025, the (proposed) directive takes the previous two years into account to determine whether the ‘gateways’ or conditions are fulfilled for an entity to be presumed a shell entity that is compelled to report under ATAD 3. Currently, the proposal does not specify how the two year period condition must be applied, so in a strict reading it could be argued that the gateways may not be fulfilled at any given moment during the two previous years. Where an entry into force as from January 1st 2024 could imply that potential remedies for in scope entities would by definition be too late for the first reportable period, the delayed entry into force may allow for such action to be taken in time.

Other amendments include slight changes to the thresholds of the first two ‘gateways’ and a welcomed clarification regarding the third ‘gateway’. As mentioned in our earlier newsflash, if the three gateways are met, the entity must report on its indicators of minimum substance:

  • Regarding the first ‘gateway’, a higher percentage of qualifying passive income is required to be considered a shell (> 80% instead of 75% in the initial proposal)
  • Regarding the second ‘gateway’, > 55% of the assets must be movable assets, other than shares, held for private purposes (previously 60%) or at least 65% of the relevant income is paid out via cross-border transactions (previously 60%)

Regarding the third gateway (‘outsourcing‘), the amendment clarifies that outsourcing to an associated enterprise established within the same jurisdiction would not be targeted.

Four further modifications that may be of particular interest are the following. First, the list of entities that are out of scope is extended to also include entities owned by regulated financial undertakings that have as their objective the holding of assets or the investment of funds. Second, having 5 own FTE’s that exclusively carry out the activities that generate the relevant income, still suffices to not be considered a shell with insufficient substance. However, these 5 FTE’s must work in the jurisdiction where the entity is a tax resident. Third, member states would not be allowed to issue an amended certificate of tax residence to a shell, whereas previously it was stated that such certificate could be issued, but with the caveat that the entity may not rely upon it to claim treaty benefits. And fourth, the potential pecuniary sanction for an in-scope entity that does not report, is seemingly lowered from at least 5% of the entity’s turnover to at least 2,5%.

Of course, these and the other proposed modifications are still mere proposals. The necessary steps should still be concluded before this initiative can become an actual Directive. The amended proposal is still flawed in quite some, even fundamental ways, but the Commission’s and the EU Parliament’s ambitions regarding this topic are becoming clearer. It is up to the taxpayers to anticipate it in order to avoid another round of additional and – almost by definition burdensome – compliance obligations. 

Tiberghien’s international tax team will continue to monitor these and other tax developments relevant for Belgium / Luxembourg based multinational enterprises. Our editorial board consists of: 

Koen Morbée (International and EU corporate tax,;

Michiel Boeren (International and EU corporate tax,;

Ahmed El Jilali (International and EU corporate tax,;

Katrien Bollen (HR tax and global mobility,;

Ben Plessers (Transfer Pricing and Valuations,;

Gert Vranckx (VAT, customs, excises and other indirect taxes,

Rik Smet (International and EU corporate tax,


In case you have further questions on this publication or want to discuss a tax query, please do not hesitate to contact the author(s) or one of the members of the editorial board. 

This newsflash is for information purposes only and cannot be relied upon as legal advice.

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