ATAD 3 (Unshell) is off the table: what it really means for substance requirements in Dutch and Luxembourg holding structures
On 18 June 2025, the ECOFIN Council formally confirmed that the proposed Unshell Directive (ATAD 3) was withdrawn from the EU legislative agenda (ECOFIN Report 9960/25). For groups using Dutch or Luxembourg holding platforms, this is not a free-pass for shell entities. Instead, it signals a shift towards enforcing existing anti-avoidance and transparency rules: ATAD 1/2, DAC6/7, Pillar Two, national GAARs and the new EU AML package.
What happened to ATAD 3
Timeline:
- December 2021 — European Commission tabled the Unshell proposal
- January 2023 — European Parliament adopted its position
- 2023–2024 — file stalled in Council, where unanimity is required
- 18 June 2025 — ECOFIN acknowledged that Unshell reached a political deadlock and listed it among initiatives to be dropped under the EU’s ‘tax decluttering’ agenda
Official documents refer to a ‘lack of consensus in the Council’ but do not name specific blocking Member States. Commentaries suggest that jurisdictions with sizeable holding, fund and financial sectors – including the Netherlands and Luxembourg – were particularly concerned about overlaps with existing anti-abuse rules. This is an analytical inference rather than an official statement.
Important: The Commission’s 2025–2026 work programme confirmed the withdrawal of Unshell, DEBRA, the FTT proposal and the Transfer Pricing Directive, while announcing an intention to revisit parts of these initiatives in future amendments to the DAC framework.
Why ‘no ATAD 3’ does not mean ‘no substance’
1. ATAD 1/2 and national GAARs remain fully in force
ATAD 1 and ATAD 2 introduced interest limitation rules, CFC rules, exit taxation and a general anti-abuse rule. These provisions have been implemented in Dutch and Luxembourg law and are actively used to challenge artificial arrangements.
2. DAC6 and DAC7 ensure granular transparency
DAC6 requires intermediaries and taxpayers to disclose cross-border arrangements meeting specific hallmarks, with information automatically exchanged between Member States. DAC7 extends reporting obligations to digital platforms.
3. Pillar Two adds an additional layer of scrutiny
Luxembourg enacted a Minimum Taxation Law (December 2023) and a Grand-Ducal regulation of July 2024 on tax credits and qualified holdings. The Netherlands has implemented Pillar Two rules for groups with global revenue >EUR 750m. This pushes groups to rethink low-substance structures.
4. The new EU AML package and AMLA tighten beneficial ownership monitoring
The AMLA Regulation, the new AML Regulation and the 6th AML Directive entered into force in 2024 and will gradually apply by 2027, together with the new EU-level AML Authority (AMLA). This significantly increases scrutiny on opaque ownership chains.
5. Tax authorities are stepping up substance and BO audits
Recent surveys (including KPMG 2025) show that tax authorities across Europe pay increasing attention to beneficial ownership and substance.
Substance in 2025: the Netherlands
Dutch substance requirements operate as indicative criteria, not hard-law conditions. Still, they are crucial for: obtaining tax residence certificates and advance tax rulings; applying participation exemption and withholding tax exemptions; assessing CFC, conditional WHT and GAAR risks.
Typical ‘minimum substance’ indicators:
- Majority of Dutch-resident board members with genuine decision-making powers
- Key strategic decisions taken in the Netherlands and properly documented
- Qualified staff and/or management service providers commensurate with functions
- Office premises in NL (at least 24 months for service/financing/licensing companies)
- Annual personnel costs of at least EUR 100,000 for service companies
- Accounting records and documentation kept in NL
- Active Dutch bank account
- Adequate equity and risk-bearing capacity
Key change: Since 2021, these criteria no longer operate as a ‘safe harbour’. Even if all indicators are met, tax authorities may still deny benefits if the overall arrangement is considered artificial or lacking economic nexus. In 2024–2025, additional legislation has tightened transparency for Dutch group financing and licensing companies with limited substance.
Substance in 2025: Luxembourg
Luxembourg does not provide a single codified substance test, but a combination of rules and practice sets the bar:
- TP Circular requires sufficient equity-at-risk and genuine risk management functions for financing and holding entities
- Boards expected to consist mainly of Luxembourg-resident directors who meet physically and actually steer the company
- Adequate local infrastructure (office, staff or outsourced management)
- For fund structures: minimum 3 FTEs in LU (CSSF 18/698)
- GAAR and beneficial ownership concepts increasingly applied by courts (case law tightening since 2024)
Practical implications: how should holding structures react?
- Perform a substance and governance audit: review directors, decision-making processes, documentation, office, staffing and equity levels
- Align tax and AML narratives: ensure documentation tells the same story about functions, risks and ownership
- Revisit financing and licensing flows: test against ATAD, DAC6 hallmarks and local GAAR practice
- Prepare for deeper questions from banks and investors: many EU financial institutions will benchmark your structure against Pillar Two, AML and ESG expectations
Conclusion
ATAD 3 is gone from the Official Journal, but substance is very much alive in the daily practice of tax authorities, AML supervisors and financial counterparties. The ‘matrix of control’ has shifted from a single directive to a combination of ATAD 1/2, DAC6/7, Pillar Two, national GAARs and the new AML package.
The best use of this ‘pause’ is to redesign your structure on your own terms – before someone else forces you to.
Need a consultation on substance requirements? Contact the LigLex team.
Disclaimer: Information is current as of December 2025 and does not constitute legal or tax advice. Tailored advice should be sought before taking any action.
#ATAD #Substance #TaxStructuring #Holding #EU #Liglex
Author by Lipatnikov Sergey
