On December 22, 2021, the European Commission submitted a proposal for a Council Directive aimed at fighting the misuse of “shell entities” for tax purposes (also known as the “Unshell Directive” or “ATAD 3”).  The initiative sought to ensure that companies within the European Union with minimal or no economic substance do not benefit from tax advantages.
 
After a year and a half of multiple amendments, negotiations and scrutiny, in June 2025 the EU Council formally approved an ECOFIN report confirming that work on the proposed Unshell Directive would be abandoned. This is primarily due to the fact that Member States raised concerns over the overlaps with the DAC6 Directive, the directive requiring the disclosure of cross-border tax arrangements. These overlaps could have led to duplicative reporting and increased administrative burdens both for businesses and tax authorities.
 
But while the enactment of a new directive is no longer in the works, the priority of the European Union to combat “shell entities” still remains. Therefore, it appears that, as an alternative approach, the European Union now intends to focus on implementing the same tax policies by amending existing frameworks, such as the DAC6 Directive.
 
Our team remains available to consult businesses and companies incorporated in Cyprus regarding substance requirements and reporting obligations under the current legislation.

October 2025, Antis Triantafyllides & Sons LLC, Nicosia, Cyprus