What Is Redundancy
General 12.05.2022
There has been much confusion surrounding what constitutes redundancy. Many people interpret it as being sacked, laid off and perceive it as being thrown on the proverbial scrapheap. However, the
New Years’ Day in January 2024 will be an important day for people celebrating the New Year. However, 1st January 2024 will also be the day upon which the European Union plans to implement the ‘Shell Directive’.
The Shell Directive is the term used to describe Council Directive 2021/0434 and will apply to EU Member States. Once enacted it will seek to stop shell companies being used inappropriately to secure tax advantages. By way of definition ‘shell companies’ are those companies ‘without economic substance’.
The EU has sought to put affected Member States on notice that once the Unshell Directive is introduced, each individual Member State will have until 30th June 2023 to transpose the Directive into its domestic law. This will provide the affected Member State with ample opportunity to introduce domestic legislation to implement the Directive in time for New Years’ Day 2024 when the new legislation enters into force.
Affected companies and organisations falling under the proposed definition of ‘a company lacking economic substance’ if it:
The Shell Directive has been drafted to capture any business entity based in a Member State for tax reasons which is participating in commercial activities.
Once in force the proposed Shell Directive will require companies to prove that they have been incorporated for legitimate business reasons. Presumably affected companies will need to provide company incorporation certificates, up-to-date financial information, property ownership evidence and having directors and employees located in a EU Member State for tax reasons. Such persons may also be required to submit evidence that they are qualified to perform the commercial pursuit.
‘Economic substance’ will be measured against new ‘gateway’ criteria designed to make it easier to spot companies susceptible to tax abuse and seemingly deficient in economic substance. To fall within the ‘shell company’ definition affected businesses will be required to comply with the following three criteria laid down by the Gateways. The first Gateway covers companies where three-quarters of its revenue from the previous two tax years are ‘passive income’. The Second Gateway covers businesses primarily involved with cross-border transactions. The Third Gateway covers businesses who outsource their daily management functions and decision-making because of a resource shortage. Under the new gateways lawyers should be advising affected companies if they fall short of the Directive’s requirements they will be obliged to:
Lawyers also need to be advising their clients that they can escape liability by providing evidence that the respective company’s activities are sufficiently regulated in the Member State and the company assumes responsibility for its own risk. Lawyers also need to be exploring with affected clients any exemptions from reporting that might be available from the Member State. This is the case even if it falls below the minimum substance requirements.
ASSESSING FIRMS
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THE ARTICLE WAS WRITTEN USING THE FOLLOWING SOURCES
[1] Council Directive 2021/0434 – The Unshell Directive – 22 December 2021
[2] Ramos, I et al. – The Unshell Directive proposes a specific arrangements to combat the use of companies for tax avoidance or tax evasion purposes – PLMJ – Informative Note – 21.03.2022 - The Unshell Directive – Shell companies - Informative Notes - Knowledge - PLMJ Transformative legal experts
[3] The Lawyer – The Unshell Directive – 31 March 2022 - The Unshell Directive – Shell companies (thelawyer.com)
[4] Council Directive 2011/96/EU – 30 June 2011
[5] Council Directive 2003/49/EC – 3 June 2003
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