CYFA would like to inform its members that in relation to the draft Council Directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU (the Directive), published in December 2021 by the European Commission (EC), the Association has actively engaged in the pro-active informal consultation process initiated by the Cyprus Government and is collaborating with all main stakeholders to discuss the key challenges proposed and achieve best possible outcome.
In addition, CYFA is organising a Seminar on the upcoming Tax changes and developments whereby the key challenges ahead shall be analysed and discussed (for detailed information and registration to the Seminar please click here – Seminar 2 Brochure and Registration Form.
According to the EC, the new proposal, to be implemented as the third revision of the EU Anti-Tax Avoidance Directive (ATAD), should ensure that entities in the European Union that have no or minimal economic activity are unable to benefit from any tax advantages and do not place any financial burden on taxpayers. This will also protect the level playing field for the vast majority of European businesses, who are key to the EU’s recovery, and will ensure that ordinary taxpayers do not suffer additional financial burden due to those that try to avoid paying their fair share. As per the EC, while shell, or letterbox, entities can serve useful commercial and business functions, some international groups and even individuals abuse them for aggressive tax planning or tax evasion purposes. Certain businesses direct financial flows to shell entities in jurisdictions that have no or very low taxes, or where taxes can easily be circumvented. Similarly, some individuals can use shells to shield assets and real estate from taxes, either in their country of residence or in the country where the property is located.
In a nutshell, the measures set out in the draft Directive fall into two categories: a set of indicators for deciding whether a given entity is or is not a shell and a set of sanctions to be applied to companies deemed to be shells. To assist shell company identification, Member States’ are expected to use the automatically exchange of information requirements on all entities in scope of the Directive, whether shell entities or not and DAC Rules are expected to be further amended to account for this.
The proposal, that first needs to be adopted by all Member States, is expected by the EC to come into force on 1 January 2024. CYFA will keep all members updated of any further developments.