The EU Intentions as for Minimum Substitution Size at the Legislative Level

Published:
January 13, 2022
realistic european union flag 125540 1989

The European Commission has published a draft Directive developed by the Council of the EU, which outlined rules on how to prevent the illegal use of shell companies in order to “circumvent” tax conditions. The latest EU intentions as for minimum substitution size amended Directive 2011/16/EU.

The measures that were outlined in the draft can be divided into two categories: the first one is indicators, in accordance with which a decision is made about the fictitious nature of a particular legal entity; the second is the sanctions applicable to firms that have been identified as bogus.

The designated indicators represent three “gateways” that relate to the company’s income-generating activities, the cross-border interaction of the organization and that part of its work that is transferred to other enterprises. An activity gateway can be considered completed if 75+% of the company’s total income is not received from trading operations, or if more than 75% of the organization’s assets are real estate or other property with a particularly high value. A cross-border gateway can be considered fulfilled when most of the income comes to the company from operations performed in other jurisdictions, or the firm transfers the income to other organizations located abroad.

If, if the first two criteria are met, the third “outsourcing” gateway can also be considered fulfilled, the company must provide tax officials every year with information regarding the premises in which it operates, bank accounts and tax residency of persons holding managerial positions, and employees in general. An organization that does not meet at least one of the substitution indicators can be classified as bogus, and, accordingly, it will be denied tax benefits. In addition, any payment sent to third countries from another party will be subject to withholding tax on the client’s side.

In order to assist in identifying a front company, the relevant authorities of the EU member states will need to maintain an automatic exchange of information regarding all companies subject to the Directive’s provisions, regardless of whether they are considered to be dummies or not. To ensure this, Council Directive 2011/16/EC governing administrative cooperation in the field of taxation will be amended further. Member States of the EU will also be empowered to require another Member State to conduct a tax audit of any reporting person there and communicate the results to the requesting State.

Let’s summarize

EU intentions as for minimum substitution size are intended to prevent and, if possible, minimize the violation of the use of tax incentives by enterprises, as well as illegal activities of front companies in general. By complying with these rules, it will also be possible, among other things, to increase the transparency of the functioning of front companies for tax dealerships.

Therefore, among the minimum requirements that an enterprise must meet in order not to be classified as bogus, the following can be distinguished:

  • own or have exclusive use of premises located in the Member State where the company is registered;
  • open an active account in one of the EU banking institutions;
  • hire at least one director with the appropriate qualifications, who would have the status of a tax resident of the Member State in which the company is registered; or, to have in your state most of the tax residents of the country.

The EU Commission assumes that these provisions will take effect on 1 January 2024. However, first, they must be pre-approved by each of the member states.

If you are interested in the entrepreneurial field and want to realize your own commercial plans, then the ELI DEAL is at your service. We propose many lucrative offers of companies for sale in various categories, in particular, “Banking License“, “AEMI/EMI (Authorized Electronic Money Institution license)“, “Cryptocurrency Exchange License“, and many others.

We reccomend you to pay your attention to the recent businesses for sale. Our specialists will provide you with full support. Contact us anytime.

Related insights

Advantages of buying property with a real estate agency

Acquiring estate is a complex endeavor. While saving up the necessary funds is challenging in itself, it’s only the beginning. Verifying papers, drafting contracts, navigating the purchase agreement, and registering the housing – each step presents feasible pitfalls that could leave you both financially and literally homeless.  Therefore, selecting the right seller is paramount to…

Read more 18.06.2024

Discover the benefits and pitfalls of investing in property in Bali

Bali attracts everyone from digital nomads and entrepreneurs to retirees and the ultra-wealthy. The island’s enduring popularity among tourists combines with a vibrant local market, presents lucrative chances. Nevertheless, discrete analysis is crucial. This article highlights pros and cons of investing in property in Bali and other details you may be interested in. Why Bali’s…

Read more 18.06.2024

A guide to paradise: discovering the beautiful world of Bali for property investment

Bali, the jewel of Indonesia, is no longer just a traveler’s paradise – it’s an investor’s dream realized.  The island’s allure extends far beyond its captivating beauty, fueled by a potent combination of surging tourism and unwavering economic strength. This tropical haven boasts an enviable economic track record. Indonesia’s GDP has witnessed a remarkable upswing,…

Read more 18.06.2024

Obtaining residence permit and citizenship in Turkey when buying a property

Dreaming of life under the Turkish sun? A Turkish Residency Permit is your ticket to a carefree holiday. Residency allowance not only legalizes your stay for a year or more but also opens doors for work, depending on the type of document obtained. Learn who can get the coveted status, under what terms, and what…

Read more 03.06.2024

NIE NUMBER in Spain: Definition, Types, Procedure and Papers

Provided that you are a non-citizen, buying a property in Spain is possible with the NIE. It is your unique number as a non-citizen. It’s vital for various activities, from buying housing to making a bank account. However, it’s important to note that the NIE alone doesn’t grant lawful residency. This article will guide you…

Read more 28.05.2024

How to Purchase a Property in Spain

Buying a property in another state offers numerous chances, from generating rental income to becoming a resident or even a citizen. With a diverse range of places to choose from, finding the ideal house in Spain is within reach. While the acquiring procedure may appear daunting at first, this guide provides a clear and concise…

Read more 28.05.2024

Gaming license in Portugal

The gaming industry in Portugal has seen substantial growth, prompting both local entrepreneurs and global investors to explore opportunities in this lucrative market. Understanding the legal framework for obtaining a gaming license in Portugal is essential for those interested in documenting this sector. This comprehensive guide covers the essentials of the gaming-license process, the associated…

Read more 27.05.2024

Buying A House In Spain In 2024

Acquiring housing requires careful navigation of legal procedures and a keen awareness of the accommodation market. Before investing, in-depth investigation is vital to avoid scams, understand taxation, and stay ahead of market changes.  This guide provides valuable insights for a smooth transition to homeownership in Spain, whether you’re interested in coastal areas or major cities….

Read more 27.05.2024

Buying an apartment in Spain: Is it a good idea

Acquiring a property in Spain can be an appealing choice for numerous international investors. The country boasts stunning beaches, a pleasant climate, and a rich culture that draws people from various backgrounds. In this article, we will delve into the reasons why investing in an apartment in Spain is a wise decision. Embracing the Mediterranean…

Read more 21.05.2024

How does the Process of Buying a Property in Turkey Work?

Turkey, with its rich cultural heritage, stunning landscapes, and booming real-estate field, has become an increasingly popular destination for possession investing. Whether you’re looking for a holiday home, a retirement retreat, or a lucrative investing possibility, guiding the method of Purchasing Property in Turkey can be an exciting yet daunting task. In this comprehensive guide,…

Read more 13.05.2024

Crypto license in the Dominican Republic

Crypto has significantly altered the economic landscape globally, offering innovative ways to transact and invest. As these digital assets gain traction, various countries are establishing adjustment substructures to oversee their use and protect investors. The Dominican Republic, known for its progressive policy to technology and finance, has also begun to navigate the complex terrain of…

Read more 24.04.2024

5 Best jurisdictions for Gaming license

In the vibrant realm of online-gaming, selecting a jurisdiction for achieving gaming permission transcends a mere adjustment formality; it’s a crucial decision impacting field access, tax obligations, and the brand’s prestige. A wise choice can unlock doors to profitable fields, build trust among players and partners, and ensure a stable legal framework conducive to growth….

Read more 17.04.2024