Concept
What economic substance is and which regimes impose it is the subject of economic substance. This article takes the other side of the same question: what actually proves presence once a tax authority starts testing it. The difference is practical. Substance requirements are described in near-identical words across almost every regime — people, premises, spend, decisions taken locally — and a company that has read them usually believes it complies. It loses on documents: the board met, but the agenda contains no decision; the director is resident, but no document shows him deciding anything; there is spend, but its ratio to turnover reads against the company; the bookkeeping is impeccable and takes place in another country.
That asymmetry will widen over the next few years. The single attempt to convert substance into formal criteria with a closed list of supporting evidence is being taken off the table, and its replacement will not arrive before the early 2030s. In the meantime the question is decided under general anti-abuse rules and administrative practice, where there is no threshold, no safe harbour and no closed list — only the file and how it reads.
The test that is not coming
The Commission tabled the Unshell proposal (ATAD III) on 22 December 2021. The design had two stages: gateway criteria filtered out at-risk undertakings, and those caught had to declare three indicators of minimum substance in their annual tax return — own premises in the Member State, or premises for exclusive use; an own and active bank account in the Union; and one of two further limbs — either a director resident for tax purposes in that Member State, qualified and authorised to take decisions on the activities generating relevant income, who "actively and independently uses that authorisation on a regular basis" and is not a director of non-associated enterprises, or a majority of full-time equivalent employees resident for tax purposes in that Member State and qualified to carry out the income-generating activities.
The most valuable part of the proposal is Article 7(2). It listed the documentary evidence to accompany the declaration: address and type of premises; amount and type of gross revenue; amount and type of business expenses; the type of business activities performed to generate the relevant income; the number of directors with their qualifications, authorisations and tax residence, or the number of full-time equivalent employees with the same particulars; outsourced business activities; and the bank account number, any mandates granted to access the account and to use or issue payment instructions, and evidence of the account's activity. No instrument in force contains such a list. It is the only text in which a legislator set out what a substance file consists of.
Articles 8 and 9 built the presumption machinery on top. An undertaking declaring all indicators and providing satisfactory documentary evidence was presumed to have minimum substance; one failing to declare an indicator or to provide satisfactory evidence was presumed not to. Rebuttal ran through additional evidence: a document allowing the commercial rationale for setting up the undertaking to be ascertained; employee profiles covering level of experience, decision-making power in the organisation, role and position on the organisation chart, type of employment contract, qualifications and duration of employment; and concrete evidence that decision-making on the income-generating activity takes place in the undertaking's Member State. The presumption counted as rebutted where the undertaking proved it had "performed and continuously had control over, and borne the risks of" the relevant business activities. A successful rebuttal carried forward for five further years — but only on condition that the undertaking's factual and legal circumstances remained unchanged.
The text was never agreed. The ECOFIN report of 20 June 2025 recorded that analysis of the proposal in the Council would be discontinued in light of the simplification agenda, and the Commission work programme for 2026 — COM(2025) 870 final, Strasbourg, 21 October 2025 — placed Unshell at number 4 of Annex IV, "Withdrawals", alongside the transfer pricing directive (number 8), DEBRA (number 5) and the financial transaction tax (number 1). The footnote to the annex states the status precisely: these are "pending legislative proposals, which the Commission intends to withdraw within six months".
Where the criteria went
The proposed DAC recast — COM(2026) 308 final of 24 June 2026 — consolidates every generation of the administrative cooperation directive into a single instrument. On the DAC6 side it deletes the generic category A hallmarks in full, ties hallmark C1 to the work of the Code of Conduct Group instead of the OECD list, and leaves hallmark D2 in place while handing the definition of its content to the Council. The explanatory memorandum: "In order to ensure legal clarity and consistent application, the substance critera in Hallmark D2 should be further developed in a Council implementing act". Recital 105 supplies the reasoning: the implementing acts are to give taxpayers and administrations "detailed and clear rules on the criteria for the requirements set out in Part II, points D.2(a) and (b) of Annex IV", and because such measures bear on Member States' executive and enforcement powers and on their tax bases, the power is conferred on the Council rather than the Commission.
Hallmark D2 as it stands covers an arrangement involving a non-transparent legal or beneficial ownership chain with the use of persons, legal arrangements or structures: (a) "that do not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises"; (b) that are incorporated, managed, resident, controlled or established in a jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the assets held; and (c) where those beneficial owners are made unidentifiable. Points (a) and (b) are the ones to be developed. The wording of (a) is the vocabulary of every economic substance regime, verbatim: staff, equipment, assets, premises.
The timing repays close reading. Article 52 of the proposal requires the Council to adopt the implementing act "within 5 years from the date of entry into force of this Directive". Annex IV, which carries hallmark D2 itself, falls in the first transposition tranche — by [31 December 2027], applying from [1 January 2028]; Article 52 falls in the second — by [31 December 2029], applying from [1 January 2030]. The dates appear in square brackets in the proposal, meaning they are not agreed. And the governing point: this is a Commission proposal under Article 115 TFEU, requiring unanimity in the Council. No obligation flows from it today, and the period within which the substance criteria acquire normative content runs from a date that has not yet arrived.
What administrations actually look at
While no formalised test exists, the behaviour of tax authorities is the working guide. An internal survey by KPMG's EU Tax Centre conducted in August 2025 across member firms found that 57 per cent of surveyed jurisdictions reported heightened scrutiny from tax authorities on substance and beneficial ownership; a further group representing around 10 per cent had not yet seen it and expected it to come. The caveat on the source is mandatory: this is a survey of advisers measuring the perception of practice; it does not count assessments raised.
The value of the survey lies in the list of factors that tax authorities are reported to weigh: the company's management, meaning whether key decision-making authority is exercised in the jurisdiction of registration; the location where the bookkeeping is carried out; the structure of costs and expenditures, meaning whether spend is proportionate to the entity's operational scope; and further factors including the size of the workforce and the ownership of premises and equipment.
None of the five factors was invented by administrations. Where decisions are taken is "directed and managed" from the offshore substance statutes and "place of effective management" from tax treaties. Where bookkeeping is carried out is an express Cayman rule requiring minutes and appropriate records to be kept in the Islands. Proportionality of spend is "adequate amount of operating expenditure" qualified by "having regard to the level of relevant income". Staff and premises are hallmark D2(a) word for word. The scrutiny runs on a vocabulary that is already written; only the threshold value of each word is missing, and it is that gap the file fills.
The date on which the structure is assessed
The Court of Justice judgment in C-228/24 'Nordcurrent group' UAB of 3 April 2025 shifted the evidentiary task further than any of the EU proposals, and the facts read as a catalogue of file defects.
The Lithuanian parent created and distributed electronic games; its United Kingdom subsidiary, established in 2009 and wound up in 2021, acted as intermediary between the group and advertising and game distribution platforms until direct agreements with those platforms could be concluded. Part of the distribution functions passed to the parent in 2017. Following a 2023 inspection the Lithuanian Inspectorate treated the subsidiary as a non-genuine arrangement for 2018 and 2019 and assessed EUR 3 205 211.53 of corporation tax on the dividends received from it.
The grounds are set out in the judgment: the subsidiary's only employee was its director, who at the same time managed seven other companies; it had neither its own place of business nor tangible assets in the United Kingdom; 97 110 undertakings were registered at the same address, provided through a company registration service; and the work of creating and distributing games was in fact carried out by the parent's own employees, who had access to the platforms. The Court did not rule on those facts — the question returns to the national body — but they are what the dispute was made of.
The Court split the question three ways. First, the anti-abuse provision in Article 1(2) and (3) of Directive 2011/96/EU is not confined to conduits: the conduit case is "just one example of the application of the principle of the prohibition of abuse", and a subsidiary carrying on activity in its own name falls within scope.
Second, the assessment is not tied to a single moment. Paragraph 36: it cannot be ruled out that an arrangement "initially put into place for valid commercial reasons which reflect economic reality" has to be regarded as not genuine "from a certain point onwards", on account of having been maintained despite a change in circumstances. Paragraph 38 closes the symmetrical error: it is not appropriate to limit the assessment to the formation of the arrangement, but the circumstances at the date of formation cannot be disregarded either. The operative part precludes a national practice under which, "without exception", only the situation at the dates of payment of dividends is taken into account.
Third, the classification as non-genuine is not on its own sufficient for refusal: a separate finding is needed that the parent obtained a tax advantage defeating the object and purpose of the Directive.
The first two holdings impose a direct requirement on the file, and it cuts against how files are assembled in practice. The set is created when the structure is set up — constitutional documents, lease, director's appointment letter, a note on why the jurisdiction was chosen — and then left untouched for years. On Nordcurrent's logic such a set proves exactly what the tax authority does not dispute: at the date of formation there were reasons. It says nothing about the moment at which the reasons ceased, and that moment is now what is being looked for.
The form that works is a dated annual review: a written assessment of what functions the company performs in the current year, which have changed, whether the commercial rationale survives, and a decision of the governing body on the outcome. A note recording that nothing changed in the reporting year is worth more than no note at all: it is dated, and it shows the structure was being monitored. The inverse case — functions have moved and the company has been kept — requires either a fresh, freestanding rationale or a decision to liquidate or reorganise that fixes the date on which the functions left. The Unshell drafters reached the same conclusion independently: Article 9(4) extended a successful rebuttal for five years only while the undertaking's factual and legal circumstances remained unchanged.
The boundary with corporate residence is worth holding separate. Substance reporting shows where people and costs sit; it does not show where the decision was taken, and in a residence dispute it works as evidence without ever standing in for the substantive defence — that line is drawn in corporate tax residence.
Offshore economic substance regimes
Seven territories enacted economic substance legislation in 2018–2019 under pressure from the Council's Code of Conduct Group and in implementation of BEPS Action 5. The architecture is the same everywhere: a list of relevant activities, core income-generating activities (CIGA) defined for each, and an obligation on an entity carrying on a relevant activity to conduct its CIGA in the jurisdiction, to be "directed and managed" there, and to have adequate staff, expenditure and physical presence measured against the level of relevant income.
The list of relevant activities is near-identical: banking, insurance, fund management, financing and leasing, headquarters, shipping, holding company business, intellectual property, and distribution and service centre business. The differences begin in the detail of the test, and they are evidentiary.
| Jurisdiction | Statute | How the test is framed | What is specific to the file |
|---|---|---|---|
| Cayman Islands | International Tax Co-operation (Economic Substance) Act (2026 Revision), section 4 | Conducting CIGA; being "directed and managed in an appropriate manner in the Islands"; and, having regard to the level of relevant income, adequate operating expenditure, adequate physical presence (including a place of business or plant, property and equipment) and an adequate number of full-time employees with appropriate qualifications | Unpacks "directed and managed" into five testable features of a board meeting: the board as a whole having appropriate knowledge and expertise, meetings held in the Islands at adequate frequencies, a quorum of directors present in the Islands, minutes recording the making of strategic decisions at the meeting, and minutes and appropriate records kept in the Islands |
| British Virgin Islands | Economic Substance (Companies and Limited Partnerships) Act, 2018, sections 7–10 | The relevant activity being "directed and managed" in the Virgin Islands; and, having regard to the nature and scale of the activity, an adequate number of suitably qualified employees physically present there, adequate expenditure, physical offices or premises, and, for intellectual property business requiring specific equipment, that equipment located in the Virgin Islands | A six-year window for a determination of non-compliance (section 10), disapplied altogether in cases of deliberate misrepresentation or negligent or fraudulent action. The file is worth keeping against that window |
| Jersey | Taxation (Companies — Economic Substance) (Jersey) Law 2019, Articles 3–5 | The company being directed and managed in Jersey in relation to the activity; an adequate number of employees physically present in Jersey, adequate expenditure and adequate physical assets; and all of the CIGA carried out in Jersey | The requirement on frequency of board meetings and physical presence of directors in Jersey sits in the Law itself (Article 5(3)), not in subordinate guidance |
The content of CIGA is where the regimes become concrete. For banking it is raising funds, managing credit, currency and interest risk, taking hedging positions, providing loans and credit, managing capital and preparing regulatory reports. For financing and leasing it is negotiating or agreeing funding terms, identifying and acquiring assets to be leased, setting terms and duration, monitoring and revising agreements and managing the associated risks. For fund management it is taking decisions on the holding and selling of investments, calculating risk and reserves, and taking decisions on currency or interest fluctuations and hedging positions. For headquarters business it is taking relevant management decisions, incurring expenditure on behalf of group entities and co-ordinating group activities. For shipping it is managing crew, maintaining ships, overseeing deliveries and organising voyages. The Cayman statute adds a general formula the BVI text does not carry: CIGA are "activities that are of central importance to a relevant entity in terms of generating relevant income", and they must be carried on in the Islands.
Holding companies get a reduced test. Cayman section 4(5): a pure equity holding company satisfies it by confirming compliance with the applicable filing requirements under the Companies Act and adequate human resources and adequate premises in the Islands for holding and managing equity participations. The BVI formulation (section 8(2)) is materially the same. The practical reading is often got wrong: the reduced test removes the CIGA requirement and leaves the people and premises requirements standing, and the word "managing" in it means that a holding company that actively manages its participations must have resources for that management too.
The intellectual property regime stands apart as the one place where the legislator wrote a presumption expressly. BVI section 9: a legal entity is presumed not to conduct CIGA if the activities carried on within the Virgin Islands include none of those listed for IP business, or if the entity is a high risk IP legal entity. The first presumption is rebutted by showing that the strategic decisions and the principal risks relating to the development and subsequent exploitation of the intangible, or to its acquisition from third parties and subsequent exploitation, are taken and borne within the territory, or that the underlying trading activities through which the asset is exploited are carried on there. The second is rebutted by evidence of a high degree of control over the development, exploitation, maintenance, enhancement and protection of the asset exercised by suitably qualified employees of the entity, physically present in the territory and on long-term contracts. Cayman section 4(7) is built the same way and adds a requirement that the employees permanently reside in the Islands.
What the file consists of
The six lines below cover everything named in hallmark D2, in Article 7 of Unshell, in the offshore substance statutes and in the factors reported from practice. The order is not arbitrary: each line corroborates the one before it, and a file that is strong in one place and empty next to it reads worse than an even one.
Governance
The primary document is the board minute, and the requirements on it are stricter than is generally assumed. The Cayman rule requires the minutes to record the making of strategic decisions of the entity at the meeting; a minute recording the approval of a decision already taken does not, on its face, meet the wording. Board papers — the agenda, documents circulated in advance, calculations, alternatives — prove the decision was prepared; the trace of discussion — directors' questions, amendments, deferred items — proves it was taken. Place and attendance are recorded separately: a quorum of directors must be physically in the jurisdiction, and that is tested against entry dates and travel expenditure.
The second layer is everything that is not a minute. Dividend policy, decision-making rules, delegated authority limits, powers of attorney and their actual use, and the correspondence around the decision. Chronology works as evidence in its own right here: a board resolution dated after the transaction it authorises devalues the whole set.
The third layer is the annual structure review carried by a board decision, discussed above. It is the only one that answers the Nordcurrent question.
People and functions
Headcount on its own proves nothing; what is proved is the match between functions and income. For each individual the file holds an employment or services contract describing the functions, qualifications and the documents evidencing them, place of tax residence, extent of engagement and — most valuable of all — work product. The list in Article 9(2)(b) of Unshell supplies a ready frame: level of experience, decision-making power in the organisation, role and position on the organisation chart, type of contract, qualifications, duration of employment.
The director without functions is the most common defect. The Unshell indicator framed the requirement through behaviour: the director must "actively and independently use the authorisation on a regular basis" and must not hold directorships in non-associated enterprises. No rule in force carries that text, but this is precisely what gets tested: how many companies the same director serves, whether he signed anything beyond standard corporate documents, whether he leaves any trace in the preparation of decisions.
Outsourced functions are documented separately, because the substance statutes permit outsourcing on conditions. Cayman section 4(4) requires the entity to be able to "monitor and control" the carrying out of CIGA by the other person. The BVI rule (section 8(1)(d)) adds two constraints: no CIGA is carried on outside the territory, and only that part of the other entity's activities solely attributable to this entity counts. Hence the outsourcing file: the contract describing the functions, the provider's reporting, evidence of the entity's control, and a separate record of the provider's hours by client.
Premises and equipment
A lease proves a right of use; it does not prove use. The file closes the gap with utility and communications bills, a floor plan showing workstations, access system data, insurance policies, dated photographs and correspondence arriving at the address. A virtual office fails at this layer for a plain reason: it generates none of those documents.
Equipment becomes a subject in its own right where the rule names it. The BVI Act expressly requires that where intellectual property business needs specific equipment, that equipment be located in the territory. The Cayman "plant, property and equipment" formulation frames the point more widely: physical presence means either a place of business or plant, property and equipment, and for companies without an office the second limb has to be evidenced by inventory and title documents.
Finance and spend
Proportionality is the only one of the five factors with no threshold and no formula. The statutes frame it relatively: adequacy is assessed "having regard to the level of relevant income" (Cayman) or "having regard to the nature and scale of the relevant activity" (BVI). The practical consequence is that the absolute figure proves nothing: a hundred thousand dollars of spend against a hundred thousand of turnover is persuasive; against a hundred million it is not.
Into the file go a standalone budget broken down by function, annual financial statements, an audit opinion where one exists, bank statements showing the account is operational, and contracts with local service providers together with the acceptance documents under them. The Unshell requirement on the bank account is worth reproducing in full because it is more precise than anything since: the account number, any mandates granted to access the account and to use or issue payment instructions, and evidence of the account's activity.
Where the bookkeeping is done is a free-standing assessed fact. The Cayman rule requires the minutes and appropriate records of the entity to be kept in the Islands; the factor reported from practice is worded as "the location where the company's bookkeeping is carried out". A company whose accountant sits in another country and works remotely in a group-wide system loses that factor entirely, and it cannot be reconstructed after the event.
The contractual base
Contracts answer the question the other layers do not close: did the company bear risk. The file keeps the contracts and, alongside them, what shows they were individual — negotiation correspondence, drafts, the rationale for terms that depart from the standard form. A template intragroup contract with no trace of negotiation reads as the documentation of a decision taken elsewhere.
Intragroup contracts need a further layer: a description of the service, evidence it was actually rendered, the absence of duplication with the recipient's own functions, and the allocation base with its justification. This is where the substance file meets transfer pricing, and separating them is pointless — the tax authority reads both sets at once.
The tax position
The last layer answers the question for whose sake presence is tested at all. It holds certificates of tax residence for each year of payment; the computation showing what relief the company claimed and on what basis; a document establishing the commercial rationale for setting the company up — the wording of Article 9(2)(a) of Unshell; and an analysis showing that the structure survives the principal purpose test (GAAR and the principal purpose test) on the allocation of functions recorded in the preceding five layers.
Nordcurrent's third holding makes this layer mandatory from the other direction. Classification as non-genuine is not on its own enough to refuse the benefit — a separate finding on a tax advantage defeating the purpose of the directive is required. That gives the company a second line of defence, and it is built on the documents of this layer: what advantage was obtained, how it compares with the position without the structure, and whether it is consistent with the purpose of the provision under which it was claimed.
The recurring failures
The five defects below occur more often than all the others combined, and each is created by the company itself — which makes each of them avoidable in advance and unfixable afterwards.
A minute with no substantive agenda. The meeting was held in the jurisdiction, the quorum was met, the minute was signed, and the text records the approval of accounts and the ratification of steps already taken. The Cayman rule requires the making of strategic decisions to be recorded at the meeting; a minute containing no strategic decisions at all shows they were being taken elsewhere.
A resident director with no functions. The director lives in the jurisdiction, was appointed correctly and signs documents — and that is all that is known about him. What gets tested is different: traces of participation in preparing decisions, independence in taking them, and the number of companies served. One resident director across several dozen structures is not in itself a breach, but he contributes nothing to the file.
Spend out of proportion to turnover. The defect appears as the structure grows: the presence budget is fixed at first-year level and never revisited while turnover multiplies. The ratio is tested at each year's reporting date, so the defect accumulates unnoticed and surfaces for several periods at once.
Bookkeeping run from another country. The group keeps the records in a shared system and the local provider only signs off the filings. Formally the filing requirements are met; in substance one of the five assessed factors is missing, and the Cayman rule on keeping appropriate records in the Islands is breached on its face.
A decision taken before the meeting. The most destructive defect, because it is dated. The contract is signed before the minute approving it; the draft resolution arrives from the parent; the correspondence shows the question was settled before the papers went out. The chronology is reconstructed from metadata and bank movements, and no amount of later tidiness repairs it.
Indicators, how they read, and what rebuts them
The table below is a working frame for assessment, not a ready verdict: each line is tested against the facts of the case, the applicable rule and the practice of the particular administration.
| Indicator | Why it reads against the company | What rebuts it |
|---|---|---|
| The board formally meets in the jurisdiction, but the minutes only approve decisions already made | Cayman section 4(3)(d) requires the minutes to record the making of strategic decisions at the meeting itself; the reported practice factor is where key decision-making authority is exercised | Papers circulated before the meeting; recorded questions and amendments from directors; alternatives considered; at least one rejected or deferred proposal in the record over the period |
| A single resident director holding the same position in dozens of non-associated companies | The Unshell indicator required the director to use the authorisation actively and independently on a regular basis and not to be a director of non-associated enterprises; with no rule in force it remains the reference point of the review | A description of the director's functions and authority, traces of his participation in preparing decisions, and documents signed by him on the substance of the business beyond standard corporate forms |
| Local spend is small relative to turnover | Adequacy of expenditure is assessed against the level of relevant income (Cayman, section 4(2)(c)) or the nature and scale of the activity (BVI, section 8(1)(b)); proportionality of costs is one of the five reported factors | A budget broken down by function and revised as turnover grows; contracts with local providers and the acceptance documents under them; statements showing the account is operational |
| Bookkeeping is carried out abroad and only the filings are made locally | Cayman section 4(3)(e) requires minutes and appropriate records to be kept in the Islands; the location of bookkeeping is named as a separate assessment factor | A contract with a local accountant or provider describing the scope of work; primary documents held in the jurisdiction; accounting system access tied to local users |
| The contract is signed before the minute approving it | The chronology proves the decision was taken outside the governing body and, in all likelihood, outside the jurisdiction | Nothing repairs it. It is prevented by procedure: the board resolution precedes signature, and urgent matters are handled under authority limits granted in advance with subsequent reporting |
| The structure is retained after the functions have moved to another country | Nordcurrent (C-228/24, paragraph 36): an arrangement put into place for valid commercial reasons becomes non-genuine from the point at which it is maintained despite a change in circumstances | A dated annual review carried by a board decision; a fresh freestanding rationale for the company's continued existence after the functions moved, or a decision to liquidate that fixes the date |
| The file was assembled once at incorporation and never added to | The operative part of Nordcurrent also precludes the opposite extreme — taking account only of the situation at the payment date; the assessment runs on the whole body of facts across the period of existence | Annual substance assessments, including those recording that nothing changed; Article 9(4) of Unshell proceeded on the same logic, extending a rebuttal for five years only while circumstances remained unchanged |
| The company owns intellectual property while the development and the decisions on it sit elsewhere | BVI section 9(2) and Cayman section 4(7) expressly impose a presumption of non-compliance for IP business and for a high risk IP entity | Evidence that strategic decisions on the development and exploitation of the asset are taken and the principal risks borne in the territory; a high degree of control by suitably qualified employees on long-term contracts, physically present in the jurisdiction |
| Functions are outsourced to a provider serving the whole group | Cayman section 4(4) requires the ability to monitor and control the provider's performance of CIGA; the BVI rule (section 8(1)(d)) counts only the part of the provider's activity solely attributable to this entity | The contract describing the functions, the provider's reporting to the company, documented control, and a separate record of the provider's hours by client |
| The intragroup contract is a template with no trace of negotiation | The absence of individual terms reads as the documentation of a decision taken elsewhere and weakens the transfer pricing position at the same time | Negotiation correspondence and drafts; the rationale for terms departing from the standard form; a description of the service, evidence it was rendered, and the cost allocation base |
Q/A
The file and its scope
Is there an approved list of the documents a substance file consists of?
Not one in force. The only legislative text in which a legislator itself listed the documentary evidence is Article 7(2) of the Unshell proposal: address and type of premises, the amounts and types of gross revenue and business expenses, the type of activities generating relevant income, particulars of directors or employees with qualifications and tax residence, outsourced activities, and the bank account number with mandates and evidence of activity. The proposal is being withdrawn and the list has no binding force, but as a map of what a file contains it remains the best available. The second reference point is Article 9(2) of the same proposal: a document on the commercial rationale for setting the company up, employee profiles, and concrete evidence that decisions are taken in the jurisdiction.
How long should the file be kept?
Longer than the accounting records. The BVI Act (section 10) gives the competent authority six years after the end of the financial period to make a determination of non-compliance, and that limit does not apply where the determination could not be made in time because of deliberate misrepresentation or negligent or fraudulent action. Nordcurrent's logic asks for more still: if the whole life of the structure is assessed, the documents showing when the functions changed are needed across that whole life, including the older periods.
Which of the six layers matters most?
Whichever one is empty. The file reads as a single body of evidence, and a weak point in one layer devalues the strength of its neighbours: impeccable minutes do not save a company with no spend; a generous budget does not save a company where no document shows a decision being taken. If a sequence has to be chosen, governance comes first — it answers the question every regime asks at once, from the offshore "directed and managed" test to corporate residence.
How the review runs
Change and horizon
Has Unshell been withdrawn or not?
It is being withdrawn. The Commission work programme for 2026, COM(2025) 870 final of 21 October 2025, placed the proposal at number 4 of Annex IV, "Withdrawals"; the footnote to the annex refers to proposals the Commission intends to withdraw within six months. A withdrawal notice in the Official Journal could not be located as at September 2026. The gap carries no practical consequence — analysis in the Council was discontinued by the ECOFIN report of 20 June 2025 — but in documents the accurate wording is "being withdrawn" rather than "withdrawn".
When will substance criteria appear in DAC6?
Not before the early 2030s, and only on unanimity in the Council. The proposed DAC recast (COM(2026) 308 final of 24 June 2026) retains hallmark D2 and, by Article 52, requires the Council to adopt an implementing act establishing the applicable criteria for points D.2(a) and (b) of Annex IV within five years of the directive entering into force. Annex IV falls in the first transposition tranche — by [31 December 2027], applying from [1 January 2028]; Article 52 itself falls in the second, by [31 December 2029], applying from [1 January 2030]. The dates stand in square brackets, meaning they are not agreed; and the proposal is tabled under Article 115 TFEU and requires unanimity. Planning to a specific date is not possible.
What changed for the file after Nordcurrent?
A requirement about dates appeared. Before April 2025 the file answered whether the structure had a commercial rationale; it now has to answer in which period it had one. Paragraph 36 of C-228/24 accepts that an arrangement initially put into place for valid commercial reasons reflecting economic reality becomes non-genuine from a certain point onwards, because it was maintained despite a change in circumstances. Paragraph 38 forecloses the opposite simplification: the assessment may not be confined to the moment of formation, and the circumstances at that date may not be disregarded either. The practical consequence is a single one — an annual review with a dated decision of the governing body, including for the years in which nothing changed.
Does the withdrawal of Unshell empty the gateway criteria of meaning?
No, it changes their status. While the proposal was live the gateways were a candidate rule with consequences attached. After withdrawal they remain a description of which companies administrations treat as risky, and Article 6(1) of the proposal put numbers on them: more than 75 per cent of revenue over the two preceding tax years is relevant (broadly passive) income; the activity is cross-border on either of two grounds — more than 60 per cent of the book value of certain assets was located outside the undertaking's Member State over the same two years, or at least 60 per cent of relevant income was earned or paid out through cross-border transactions; and over the same two years the undertaking outsourced the administration of day-to-day operations and the decision-making on significant functions. Meeting that combination carries no consequence in itself now, but as a self-assessment frame before assembling a file it still works: each of the three criteria points to the layer that will have to be built out most carefully.