10 Quick Observations on the EC’s ATAD3 Proposal

In this blog, we make 10 observations on how the European Commission's Third Anti Tax Avoidance Directive (“ATAD3”) will affect businesses in Europe once implemented. The amended draft has been approved by the European Parliament and published by the European Commission (“EC”) on 17 January 2023. The Directive is set to be implemented by the European Union (“EU”) Member States on 1 January 2024. However, some of the provisions proposed in the Directive have a two-year look back period (i.e., covering 2022 & 2023).


31 May. '23 Neha Mohan

For a detailed explanation of the implementation, consequences and who’s in/out of ATAD3, reference is made to our blog ATAD3 – Who’s In & Who’s Out.

1. Need for holistic approach

ATAD3 is part of a larger effort to combat the use of shell companies for tax avoidance. For example, the ECJ's decision in the Danish cases clarified the concept of beneficial ownership; the OECD's Multilateral Instrument, which contains (a.o.) a main purpose clause; and the EU's ATAD1, ATAD2 and DAC6 initiatives. These developments (a.o.) seek to limit the use of holding and investment companies for the purpose of tax avoidance.

ATAD3 goes a step further by focusing on taxpayers who use shell companies solely for tax purposes. So, when preparing for ATAD3, businesses should take a holistic approach, asking themselves questions like what are our operations, where are these operations controlled from, and what infrastructure is appropriate for these administrative and managerial control functions.

For instance, managing a holding/investment company entails managing its investments. This includes choosing what investments to make, when to buy and sell and how to diversify. It also entails monitoring asset performance and adjusting the investment strategy to meet the company’s financial objectives. While it is logical that investment and holding companies require fewer employees than a manufacturing or R&D unit, it is pertinent for investment and holding companies to be able to prove that those (few) employees have the capacity and do actually manage the investments.


Neha Mohan

Neha Mohan is a Tax Adviser at NovioTax.

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