The European Union has abandoned plans for a new rulebook on corporate tax, known as ATAD 3, leaving international groups to handle existing regulations. The Council ended work on the Unshell Directive in June 2025, and the Commission has signaled its intention to withdraw the proposal.
The End of ATAD 3 and Its Implications
The demise of ATAD 3 means that a measurable threshold for corporate substance in Luxembourg, as proposed in the Unshell Directive, will not be established. Instead, the focus shifts to the existing fact-based test and the amended DAC6 reporting hallmarks, which Member States concluded could achieve the objectives of the Unshell Directive, in line with the EU simplification agenda.
The DAC6 hallmarks govern disclosure and do not provide a safe harbor or determine sufficient substance. The instruments that deny benefits, such as the ATAD I general anti-abuse rule, the principal purpose test, and beneficial ownership case law, remain in place. These rules do not rely on a checklist, and Luxembourg residence was never based on a checklist.
Luxembourg Residence and Corporate Governance
The role of the board of directors is key in this context. Two seemingly identical Luxembourg holding companies may have different levels of substance depending on how their directors engage with transactions. A director’s liability under Luxembourg law also depends on their involvement and ability to record reservations.
Director Liability and Conflict Management in Luxembourg
Under the amended law of 10 August 1915, directors in Luxembourg, depending on the legal form, face liability for management faults and breaches of company law or articles. This liability is joint and several, unless a director did not participate in the breach and reported it. A minuted objection serves as the primary exoneration mechanism, requiring access to meeting files and the ability to record reservations.
Conflicted directors must declare their interest, abstain from voting, ensure the conflict is minuted, and report the transaction to the next general meeting. Failure to follow these steps is often identified during due diligence. These rules vary depending on the company’s legal form and emphasize the importance of proper documentation and adherence to procedural requirements.
The Importance of Decision-Making and Documentation
The record of decision-making is also critical. A resolution that merely states a transaction was approved provides little evidence of substance. For intragroup loans, guarantees, and other arrangements, the record should include details such as documents reviewed, rationale, risks, declared conflicts, and advice obtained.
