The ‘Unshell’ Directive : ATAD 3 and the Maltese tax system

Abstract

The latest introduction to the EU’s arsenal combatting aggressive tax planning and tax avoidance has recently been proposed, aiming to ensure adequate public revenues to support economic recovery following the COVID-19 pandemic. The ‘Unshell’ Directive proposes a broad framework which targets shell entities, notorious for their role in the scandalous tax schemes exposed through shocking media revelations such as the Pandora Papers and the OpenLux investigation. This fresh initiative comes as a sequel to the 2016 Anti-Avoidance Directive package, targeting undertakings engaged in crossborder transactions while essentially performing no economic activity and lacking minimum substance. Appropriately referred to as ATAD 3, the provisions ultimately aim to deter the incorporation of such letterbox companies, requesting Member States to deny all tax benefits enjoyed through the application of EU tax treaties should an entity fail to meet the established substance indicators. Should the ‘Unshell’ Directive be implemented, its comprehensive provisions are expected to have vast implications on several domestic tax jurisdictions throughout the EU. The Maltese Tax System’s competitive nature for foreign entities is also expected to suffer from a number of transpositional challenges, and as the enforcement deadline approaches, the author aims to explore the potential clashes foreseen through the interplay between the legislative instruments.