In brief
In recent years, the European Union has intensified its efforts to combat the abusive use of corporate structures lacking real substance, particularly in the tax domain. In this context, the ATAD III Directive proposal emerged, aimed at limiting the tax benefits of so-called “shell companies”. Although its implementation would have significantly impacted holding entities such as Spanish ETVEs, the project was ultimately abandoned in June 2025. This document analyzes the scope of the proposal, its implications, and current recommendations for groups with international structures.
Current status
In a constantly evolving global environment, marked by a proliferation of case law at both local and EU levels and an increasingly active role of legislators, a common denominator has emerged: the prevention of abusive use of holding companies. A key pillar in this area is the concept of substance in holding companies, understood as the set of requirements these entities must meet to benefit from specific tax advantages or treatments.
Among these measures, the European Union proposed to curb the abusive use of shell companies through the European Commission’s draft directive known as the Anti-Tax Avoidance Directive or ATAD III, whose primary objective was to prevent the use of structures referred to as “shell companies”.
The approval of the Directive and its subsequent transposition into the legal systems of EU Member States, including Spain, would have had significant consequences for Spanish holding entities, including the Foreign Securities Holding Entities or ETVEs.
The draft Directive included mandatory requirements to establish the existence of minimum substance in holding entities. Failure to meet these requirements — or the taxpayer’s inability to prove such minimum substance — would result in the loss of benefits granted under Double Taxation Treaties and EU Directives.
The Directive was intended to apply to certain holding entities (excluding, for example, regulated or listed groups) that cumulatively: (i) earn passive income; (ii) engage in cross-border activity; and (iii) outsource the management of day-to-day operations and decision-making on significant functions. To this end, the Directive established a set of minimum substance indicators.
These indicators included, among others: having a bank account in the European Union; having directors and employees who are sufficiently qualified and tax residents in the same jurisdiction as the holding entity. Failure to meet these indicators —unless the taxpayer proves otherwise — would result in denial of the tax residency certificate, loss of tax benefits, increased withholding taxes, etc.
The draft Directive was not without controversy. Ultimately, during the European Union Council meeting held on 20 June 2025, it was decided to abandon the ATAD III project. The main reason for this decision was the potential overlap between ATAD III and the requirements set forth in the Directive on Administrative Cooperation (“DAC 6”), which would have increased the administrative burden for both companies and tax authorities across Member States.
We will continue to monitor developments on this matter at the EU level and keep you informed. In the meantime, we recommend reviewing compliance with the ETVE regime requirements in Colombian corporate groups.
