ATAD III: where is it heading to?

On 8 September 2022 the EU Committee on Economic and Monetary Affairs of the European Parliament (EP) published new amendments to the draft Directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU tabled in committee.

These amendments have been proposed in anticipation of the vote by the EP committee of the draft ATAD III Directive normally scheduled to take place on 17 November 2022 with indicative plenary sitting date scheduled on 12 December.

The proposed amendments are more important in size and numbers as those listed in the draft report of earlier this year (i.e. on 12 May 2022) and seem to significantly strengthen the application and scope of ATAD III.

Although these latest amendments come from different political fractions or working groups within the EP with some amendments being contradictory to others, the tendency points towards a more severe application of ATAD III.

For instance certain proposals:

  • Render the gateways (criteria to assess if a taxpayer fall into the scope the proposed Directive) more binary (by deleting the gateway on the outsourcing of the administration of day-to-day operations and the decision-making on significant functions). Other proposals maintain such outsourcing gateway but clarify that only outsourcing outside the taxpayer jurisdiction, to “third parties” or entities not considered as “associated enterprises” in the same jurisdiction, would meet the gateway;
  • Reduce the threshold for being within the scope of proposed Directive to entities meeting two (rather than the initial three) gateways - whereas other proposal confirms the gateway criteria should be cumulative;
  • Include the question whether the administration of day-to-day operations and the decision-making on significant functions is outsourced in the information on which entities within the scope of the directive need to report in their annual tax return and
  • Finally, significantly reduce or modify the list of exclusions including in particular the exclusion for certain “regulated financial undertakings” (e.g., alternative investment funds within the meaning of the AIFMD), the exclusion for undertakings with holding activities that are resident for tax purposes in the same Member State as the undertaking’s shareholders or the ultimate parent entity as well as the exclusion for undertakings with at least five full-time equivalent employees.

These latest amendments finally confirm 1 January 2025 as the proposed entry into force of the Directive. However, the proposed amendments also suggest having the 2-year look-back period (for the appreciation of the gateways) starting on 1 January 2024 in line with the proposed deadline for transposition of the Directive in domestic law by the EU Member State (31 December 2023).  With a look back period starting on 1 January 2024, ATAD III may have actual effect as from 1 January 2026. It remains open if and to what extent the proposed amendments will find their way in the final text of the ATAD III directive voted and enacted. 

Frédéric Feyten
Managing Partner | Avocat

Alejandro Dominguez

Delphine Danhoui
Knowledge Lawyer