UEL opinion statement on the “Unshell” proposal for a Directive



UEL has issued an opinion statement in response to the EU Commission public consultation on a proposal for a Directive laying down rules to prevent the misuse of shell entities for tax purposes (hereafter the “EU Proposal”).  

The purpose of the EU Commission’s initiative is to fight the use of legal entities in the EU without a substantial business presence for tax avoidance purposes. This EU proposal aims at implementing minimum substance and transparency requirements and foresees a range of tax consequences for the entities and their shareholders (i.e., reporting obligations, penalties, denial of tax advantages, exchange of information and tax audits). 

UEL and the Luxembourg business sectors it represents generally support the EU Proposal, as well as the fight against aggressive tax planning and tax evasion. UEL is however concerned about the additional complexity and lack of proportionality of the contemplated measures to achieve the intended results which may reduce the attractiveness of the EU for investors.  

The EU Proposal seeks to implement a complex set of rules which lack clear definitions and explanations. We therefore fear that the EU proposal will result in a disproportionate increase of compliance costs and legal uncertainty for taxpayers and tax administrations alike. This is reinforced by the fact that taxpayers already face a very complex European tax landscape with multiple layers of anti-abuse rules and reporting obligations.  

We therefore call on the EU Commission to amend the proposed rules to ensure that they are targeted, commensurate and administrable, and do not negatively impact genuine and compliant businesses operating on a cross-border basis. 

Furthermore, we stress that the EU Commission should aim at modernising the European tax system by implementing coordinated rules which should not hamper the improvement of withholding tax refund procedures for non-resident investors nor the timely issuance of tax residency certificates to genuine taxpayers. In addition, the rules should be applied consistently on a worldwide basis to improve the international level playing field. Consequently, similar rules should apply to non-EU shell entities. 

UEL opinion statement on the “Unshell” proposal for a Directive here.