Timeline
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An undertaking will pass the gateway (and need to report on substance indicators) where:
- more than 75% of revenue accrues from (typically) passive income sources e.g. interest, dividends, but also extends to leasing and property income;
- the entity predominantly engages in cross-border activities; and
- the entity outsources administration of day-to-day operations and decision-making on significant functions.
2. Gateway tests
A number of undertakings are carved-out from the Directive. This includes listed entities; certain regulated financial undertakings (e.g AIFs and AIFMs); domestic holding companies; and entities with at least five full-time employees.
1. Carve-outs
The minimum substance requirements that need to be reported on include:
- own premises or premises for exclusive use in the Member State;
- active bank account in the EU; and
- at least one qualified director resident in the Member State (or commutable distance) that does not carry out director duties for un-associated enterprises; or majority of full-time employees are resident and suitably qualified to perform the entity’s revenue generating activity.
3. Substance reporting requirements
A number of potential tax consequences arise if the minimum substance tests are not met, including a refusal to issue tax residence certificates; denial of benefits under EU Directives and bilateral tax treaties; and new taxing rights provided to EU shareholders.
6. Tax consequences
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It is possible to rebut the presumption that an entity does not have minimum substance if additional supporting evidence is provided around the commercial rationale; employee profiles; and decision-making.
4. Rebuttal of presumption
An exemption can be requested if the entity does not reduce the tax liability of its beneficial owner(s) or of the group.
5. Exemption for lack of tax motive
A number of undertakings are carved-out from the Directive. This includes listed entities; certain regulated financial undertakings (e.g AIFs and AIFMs); domestic holding companies; and entities with at least five full-time employees.
1. Carve-outs
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An undertaking will pass the gateway (and need to report on substance indicators) where:
- more than 75% of revenue accrues from (typically) passive income sources e.g. interest, dividends, but also extends to leasing and property income;
- the entity predominantly engages in cross-border activities; and
- the entity outsources administration of day-to-day operations and decision-making on significant functions.
2. Gateway tests
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The minimum substance requirements that need to be reported on include:
- own premises or premises for exclusive use in the Member State;
- active bank account in the EU; and
- at least one qualified director resident in the Member State (or commutable distance) that does not carry out director duties for un-associated enterprises; or majority of full-time employees are resident and suitably qualified to perform the entity’s revenue generating activity.
3. Substance reporting requirements
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It is possible to rebut the presumption that an entity does not have minimum substance if additional supporting evidence is provided around the commercial rationale; employee profiles; and decision-making.
4. Rebuttal of presumption
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An exemption can be requested if the entity does not reduce the tax liability of its beneficial owner(s) or of the group.
5. Exemption for lack of tax motive
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A number of potential tax consequences arise if the minimum substance tests are not met, including a refusal to issue tax residence certificates; denial of benefits under EU Directives and bilateral tax treaties; and new taxing rights provided to EU shareholders.
6. Tax consequences
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