After being stalled at the draft stage for over three years, it results from the ECOFIN report 9960/25 of 18 June 2025 (the "Report") that the proposal for a Council Directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU (so-called "Unshell" or "ATAD 3" proposal) has been officially dropped.
As a reminder, the Unshell proposal's objective was to fight against shell entities by establishing a series of "gateway" tests to identify companies lacking sufficient substance. Once identified as a shell, an undertaking was denied treaty benefits and EU directive access.
However, since then, Member States have not been able to reach consensus on key aspects of the Unshell proposal.
As agreement on compromise texts could not have been achieved, alternative approaches were considered to address the misuse of unshell entities. One notable suggestion was a two-stage approach consisted of a first stage "DAC6-like-automatic exchange of information" based on a number of agreed hallmarks together with the application of domestic tax consequences where appropriate and a second stage with an exchange of best practices about the use of that information to apply tax consequences among the Member States.
However, according to the Report, it was pointed out by the Working Party on Trade Questions (WPTQ) "that potential overlaps can be recognized between the hallmarks in the latest Unshell compromise text and those of DAC 6" while many delegations were of the view that the aims of the Unshell proposal could be achieved with clarifications or amendments of hallmarks in DAC6. Consequently "it emerged that the analysis of the Unshell proposal should not be continued in the Council".
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