Unshell Directive proposal (ATAD 3) discontinued – focus shifts to possible DAC 6 update

During its meeting of 20 June 2025, the Council (ECOFIN) approved its bi-annual report on tax issues, which confirmed that the analysis of the Unshell proposal would not be continued.

Background
On 22 December 2021, the European Commission submitted a proposal for a Council Directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU on administrative cooperation in the field of taxation (the “Unshell” proposal). The objective was to prevent tax avoidance and evasion through actions by entities without substance, and to enhance the proper functioning of the internal market by ensuring that shell companies in the EU with no or minimal economic activity would not be able to benefit from tax advantages.

Technical analysis began in the first half of 2022, with Member States discussing compromise texts and background notes prepared by successive Presidencies. The issues most frequently discussed included tax consequences, links with domestic anti-abuse legislation, excluded entities, minimum substance, rebuttal of the presumption, reduction of administrative burden, tax residency certificates and the exchange of information. While most delegations supported the objectives of the proposal, they considered that substantial further technical work would be needed to reach agreement.

Review under the tax decluttering agenda
In June 2024, a new approach was presented to delegations and, in November 2024, concrete drafting suggestions were tabled on scope, hallmarks, reporting obligations, exchange of information and administrative actions.

Under the Polish Presidency, the Council adopted conclusions setting a tax decluttering and simplification agenda aimed at contributing to the EU’s competitiveness. These conclusions rely on four principles:

• reduce reporting, administrative and compliance burdens for Member States’ administrations and taxpayers;
• eliminate outdated and overlapping tax rules;
• increase the clarity of tax legislation; and
• streamline and improve the application of tax rules, procedures and reporting requirements.

At the High Level Working Party on Tax Questions (HLWP) on 29 April 2025, the Unshell proposal was identified as a file to be analysed in light of these principles.

Overlap with DAC 6 and decision to discontinue work
On 27 May 2025, the Working Party on Tax Questions (WPTQ) held an exchange of views on the file. It was noted that potential overlaps exist between the hallmarks in the latest Unshell compromise text and those in Directive 2011/16/EU as amended by DAC 6, which could lead to similar information being reported twice, potentially through separate IT systems. The objectives of DAC 6, such as strengthening tax transparency and tackling aggressive tax planning, converge with those of the Unshell proposal.

Many delegations considered that the aims of the Unshell proposal could be achieved by clarifying or amending the DAC 6 hallmarks. In line with the decluttering and simplification agenda, they also emphasised that any future solutions should not create undue administrative burden. These could be examined once the European Commission has completed its analyses and submitted a possible new legislative proposal on DAC.

As a result, it emerged that the analysis of the Unshell proposal should not be continued in the Council.

Next steps
The approach was broadly welcomed by delegations, as it aligns with tax simplification and decluttering, and avoids additional administrative and compliance burdens for Member States’ administrations and taxpayers, as well as disproportionate implementation costs and multiple reporting.

Future work will focus on a possible new proposal to amend DAC, taking into account the decluttering principles. The Commission is also carrying out a review of the DAC and the Anti-Tax Avoidance Directive (ATAD), with these reviews integrated into the simplification agenda and aimed at coordinating overlapping rules, reducing fragmentation and maintaining the EU tax acquis.

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