ATAD III amendments


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On 12 May 2022, the European Parliament's Committee on Economic and Monetary Affairs (the “ECON”) published a draft report (the “Draft Report”) proposing some important alterations to the European Commission’s proposal for the so-called Unshell directive, also referred to as ATAD III. For additional information on the ATAD III proposal, please see our newsletter on 11 April 2022. The Draft Report, even though without legal binding effect, sets out important indicators to the market on the direction being taken. An updated report, including the shadow reporters' comments, was published on 8 September 2022. Although the shadow reporters' comments may also be considered when agreeing on the final directive wording, the following summary only sets out some of the alterations presented in the Draft Report (also known as the “Pereira Report”).

The minimum substance requirements

The Draft Report proposes changes in the cumulative conditions to fall within the scope of ATAD III in accordance with the below:

  • the company has received more than 80% (more than 75% in the Commission’s proposal) of its revenues in the preceding two tax years from passive income;
  • more than 55% (more than 60% in the Commission’s proposal) of the book value of the company's assets was located outside the Member State of the company in the preceding two tax years, or more than 65% (at least 60% in the Commission’s proposal) of the company's relevant income is earned or paid out via cross-border transactions; and
  • the company outsources the administration of day-to-day operations and decision-making on significant functions, with the proposed addition that outsourcing to an associated enterprise within the same jurisdiction as the reporting company would be out of scope.

Regarding the substance indicators, the condition that one of the directors actively and independently uses an authorisation on a regular basis, is proposed to be removed.

Exemptions and the right to rebuttal

Further, the proposed amendments exclude entities owned by regulated financial undertakings, with the objective being the holding of assets or the investment of funds, as an addition to the categories of companies where the use of holding entities is not considered to lead to harmful tax evasion.

It is also proposed to include an additional requirement to the exemption for companies with at least five full-time equivalent employees, namely that such employees must be working in the jurisdiction where the company is resident for tax purposes.

Consequences of not meeting the substance requirements

The Draft Report suggest that Member States may introduce penalties of at least 2.5% of the turnover for companies that fail to report or file incorrect reports, instead of the previous proposed 5%.

Next steps

In addition to the highlights mentioned above, the Draft Report proposes a delayed implementation to 1 January 2025 (instead of 1 January 2024), with a corresponding delayed application of the 2 year “look-back” period. This will give taxpayers more time to anticipate the consequences of ATAD III.

A vote on ATAD III is scheduled for 17 November 2022, with a plenary session for 12 December 2022.

Schjødt's tax lawyers in Sweden and Norway are following the continuous development closely.

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