Since shell companies are very often abused for various illegal purposes, regulation of shell companies is becoming more important to prevent such illegal activities.
United Kingdom Currently British overseas territories and crown dependencies are only required to tell the true name of owners of shell companies upon request from official law enforcement agencies. However, since 2020 they are forced to publish these names in a public register in order to prevent anonymous use of shell companies.
United States The customer due diligence (CDD) rule from 2016 requires that banks know the identities of beneficial owners of legal entity customers, enabling them to disclose this information to law enforcement agencies, thus aiding in the identification of the true business owners and their tax liabilities. Thereby, the rule aims to prevent the anonymous misuse of shell companies. The rule is administered by the
Financial Crimes Enforcement Network (FinCEN). In January 2021, anonymous shell companies were effectively banned via the Corporate Transparency Act, a provision in the
William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021. In 2025, however, the US Treasury department announced it would not enforce this law, and thus shell companies would not be required to follow the law requiring they disclose their owners and beneficiaries. On March 21, 2025, FinCEN announced an interim final rule removing the reporting requirement for domestic businesses.
India A "Task Force on Shell Companies" was constituted in 2017 under the chairmanship of the Revenue Secretary to the Government of India and Corporate Affairs Secretary to Govt. of India, for effectively tackling malpractice by shell companies in a comprehensive manner.
European Union Within the
European Union outlined here, the problem has arisen of the lack of a common definition at Community level of shell companies, often also defined by the specific legislation of Member States as non-operating companies. To compensate for this absence and with the aim of preventing, identifying, and combating the misuse of shell companies for tax purposes, on 22 December 2021, the
European Commission adopted a proposal for an
EU directive (n. 565/2021). Also known as “Unshell” or "ATAD 3 - Anti-Tax Avoidance Directive,“ the proposal would aim to support Member States in identifying shell companies located in the EU that are used exclusively for tax purposes, through an ”access test" that assesses the percentage of passive income, the degree of cross-border operations of the entity, and the possible outsourcing of management functions. This proposal for a directive from the Commission No. 565 of 2021 would have amended a previous
European Union directive, namely directive 2011/16/EU on administrative cooperation in the field of taxation. As can be inferred from the text of the proposal itself, the
European Union would be competent to enact legislation in this area by invoking Article 115 of the
Treaty on the Functioning of the European Union. According to the
European Union's special legislative procedure, the proposed directive would have required a unanimous vote in the
Council of the EU, after consultation with the
European Parliament and the
European Economic and Social Committee. However, despite the legal basis having been correctly identified, the
Council of the EU formally announced its decision to abandon the draft directive in question in
ECOFIN Report 9960/2025, published on June 18, 2025. As can be inferred from
ECOFIN Report 9960/2025 itself, on May 27, 2025, the Working Party on Trade Questions (WPTQ) noted that there is an overlap between the tax risk indicators provided for in the Unshell proposal and those contained in the DAC6 directive, which trigger a reporting obligation to the tax authorities as a result of a presumption of aggressive tax planning. The WPTQ itself justified its decision not to issue the Unshell directive by noting that it could have led to duplication of communications and an increase in administrative burdens that would have been incompatible with the objectives of simplification and reduction of the regulatory burden sought by the
European Union institutions. One of the reasons for deciding to abandon the preparatory work on the directive was therefore the fact that directive 2018/822 had already been issued within the
European Union, providing for the mandatory automatic exchange of information on cross-border arrangements subject to notification (DAC6). The acronym DAC stands for Directive on Administrative Cooperation; it was issued with the aim of ensuring greater fiscal transparency through mandatory reporting, by intermediaries or taxpayers themselves in cases where there is no obligated intermediary, of certain cross-border transactions within a predetermined time frame. The exchange of information is made possible by the creation of a central register accessible to
EU Member States. The European Union has been pursuing regulatory measures to address the use of “shell entities” for
tax purposes. The proposed Unshell Directive (ATAD III) aims to introduce a unified substance test for
EU companies, establishing minimum criteria for economic presence and activity. Three major Member States —
France,
Germany, and
Spain — illustrate distinct regulatory approaches and challenges in implementing such measures.
France French companies may be affected by the “gateway test” of the Unshell Directive, which assesses whether more than 75 % of income is passive, whether management is outsourced, and whether premises or staff are lacking. Entities failing the substance test risk losing benefits under bilateral
tax treaties and
EU directives (Parent-Subsidiary Directive, Interest & Royalties Directive), unless they provide evidence of real business activity. Annual reporting obligations require disclosure of employees, premises, bank accounts, and governance details.
Germany German-resident companies are subject to the same substance test, evaluating staff, premises, and decision-making functions. Entities presumed to be shells may be denied standard
tax residence certificates or receive one marked as “shell,” affecting treaty and
EU directive benefits. Domestic rules on treaty-shopping may still apply in parallel, so passing the Unshell test alone may not fully shield a company from scrutiny.
Spain Spanish entities are also subject to the gateway test and must report detailed information, including staff, premises, bank accounts, and decision-making structures. Presumed shell entities risk loss of
treaty benefits, limited residency certification, or flow-through treatment unless they rebut the presumption. Commentators warn that the administrative burden may disproportionately affect small companies and cross-border start-ups.
Italy In Italy, the concept most closely corresponding to Anglo-Saxon "shell companies" is the category of "" (non-operating companies), a statutory anti-avoidance tool used to identify entities lacking genuine economic activity. Italian
tax law applies presumptions of non-operativity, which companies may rebut by providing evidence of substantive operations, such as actual business premises, employees, and commercial activity. Italian
jurisprudence has repeatedly stressed that the formal existence of a company is not sufficient when its economic reality is inconsistent with its declared activity. The Italian
Court of Cassation has held that the creation or use of shell-type entities to issue invoices for non-existent transactions constitutes a criminal offence under Legislative Decree 74/2000. Recent decisions also address the interaction between the Italian regime and
EU VAT law. An Italian
court has ruled that entities deemed non-operating do not automatically lose their right to deduct
VAT, finding that a blanket denial would be inconsistent with Directive 2006/112/EC and that taxpayers must be allowed to demonstrate the substance of their transactions. Italian parliamentary and academic sources have also linked domestic "" rules to the broader
EU debate on the proposed Unshell Directive, noting potential overlaps and inconsistencies between national presumptions of non-operativity and the EU-level substance test. ==See also==