A plenary session of the European Parliament has voted to widen the scope of the European Commission's (EC’s) draft unshell directive.

The directive, published in draft form in December 2021, is to be implemented as the third revision of the EU Anti-Tax Avoidance Directive (ATAD). It is aimed at shell companies that are used by individuals or companies for tax avoidance purposes, registered in no- or low-tax jurisdictions or jurisdictions where taxes can easily be circumvented.

Its measures fall into two categories: a set of indicators for deciding whether a given entity is a shell and a set of sanctions to be applied to companies deemed to be shells. The indicators are based on the composition of an entity's income-generating activities, its cross-border involvement and how much of its work is outsourced to others. If these are satisfied, further assessments of the entity's 'substance' will be undertaken to decide if it is a 'shell' and thereby disqualified from any double tax treaty or EU directive and subject to EU withholding taxes on any payments made to third countries.

The MEPs' amendment slightly lowers the thresholds below which a company is exempt from the draft directive's reporting requirements and requires companies subject to the reporting requirements to provide more detailed information...