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Taxation and Customs Union
News article22 December 2021Directorate-General for Taxation and Customs Union3 min read

Commission proposes to end the misuse of shell entities for tax purposes within the EU

On 22 December, the European Commission presented a key initiative to fight against the misuse of shell entities for improper tax purposes.

An illustration showing a hand signing a paper

The proposal should ensure that entities in the European Union that have no or minimal economic activity are unable to benefit from any tax advantages and do not place any financial burden on taxpayers.  This will also protect the level playing field for the vast majority of European businesses, who are key to the EU’s recovery, and will ensure that ordinary taxpayers do not suffer additional financial burden due to those that try to avoid paying their fair share.

While shell, or letterbox, entities can serve useful commercial and business functions, some international groups and even individuals abuse them for aggressive tax planning or tax evasion purposes. Certain businesses direct financial flows to shell entities in jurisdictions that have no or very low taxes, or where taxes can easily be circumvented. Similarly, some individuals can use shells to shield assets and real estate from taxes, either in their country of residence or in the country where the property is located.

Executive Vice-President for an Economy that Works for People, Valdis Dombrovskis, said:

Shell companies continue to offer criminals an easy opportunity to abuse tax obligations. We have seen too many scandals arising from misuses of shell companies over the years. They damage the economy and society as a whole, also placing an unfair extra burden on European taxpayers. Today, we are moving to the next level in our longstanding fight against abusive tax arrangements and in favour of more corporate transparency. New monitoring and reporting requirements for shell companies will make it harder for them to enjoy unfair tax advantages and easier for national authorities to track any abuse arising from shell companies. There is no place in Europe for those who exploit the rules for the purpose of tax evasion, avoidance or money laundering: everyone should pay their fair share of tax.

Commissioner for Economy, Paolo Gentiloni, said:

This proposal will tighten the screws on shell companies, establishing transparency standards so that the misuse of such entities for tax purposes can more easily be detected. Our proposal establishes objective indicators to help national tax authorities detect firms that exist merely on paper: when that is the case, the company will be subject to new tax reporting obligations and will lose access to tax benefits. This is another important step in our fight against tax avoidance and evasion in the European Union.

The proposed new measures will establish transparency around the use of shell entities, so that their abuse can be more easily detected and tackled by tax authorities. Using a number of objective indicators related to income, staff and premises, the proposal will help national tax authorities to detect entities that exist merely on paper. Entities that do not fulfil basic economic substance indicators, would then be prevented from receiving a tax residence certificate, and other tax relief and tax advantages designed to support actual businesses performing real economic activity. Importantly, given the cross-border nature of aggressive tax planning, this proposal will enhance cooperation amongst Member States’ tax authorities and ensure that information on shell entities is shared among them.


Once adopted by Member States, the proposal should come into force as of 1 January 2024.  

This is one initiative in the Commission’s toolbox of measures aimed at fighting abusive tax practices. In December 2021, the Commission tabled a very swift transposition of the international agreement on minimum taxation of multinational enterprises. In 2022 the Commission will put forward another transparency proposal, requiring certain large multinationals to publish their effective tax rates, and the 8th Directive on Administrative Cooperation, equipping tax administrations with the information needed to cover crypto assets. In addition, while this initiative addresses the situation inside the EU, the Commission will present in 2022 a new initiative to respond to the challenges linked to non-EU shell entities.

For more information

Unshell page



Link to legal texts

Impact Assessment

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Minimum Corporate Taxation page


Publication date
22 December 2021
Directorate-General for Taxation and Customs Union