Shell entities – which can take the form of the better known, so-called ‘letterbox companies’ – are ‘firms’ without any real economic activity, employees or physical presence in the registered country that are often set up solely to take advantage of tax avoidance possibilities. As part of an initiative to take to draw up new rules in the EU to combat the abusive use of shell entities, the European Commission asked stakeholders and social partners to provide data and evidence on the rationale and functioning of such structures.

As a European trade union umbrella organisation representing more than 5 million workers across Europe, CESI welcomed this initiative as a tool to also increase social fairness. CESI Secretary General Klaus Heeger said: “If workers pay income taxes while firms shift profits and avoid taxes by means of shell entities, then this is highly unfair. Moreover, we live in times where public services need adequate financial resources to coordiante or master multiple challenges – from the Covid pandemic to anti-terrorism, climate change and digitalisation – and they need to be able to perform high quality essential services for the most vulnerable members of our society, who depend on them. Profit-making companies should not be exempted from contributing to this, and loopholes for tax evasion should be closed.”

As a trade union organisation also representing tax administration unions, CESI calls on the European Commission to address, most notably:

• insufficient informaiton of tax admnistrations on potential tax avoidance structure.
• their insufficient capacity to process available information on such structures.
• loopholes in legislation as well as insufficient enforcement of existing rules in the Member States.

To this end, according to CESI, EU action should aim especially:

• to pomote effective implementation and enforcement of the existing anti-tax
  avoidance tools.
• to ensure coordination of all Member States on what qualifies as shell entity for tax purposes and how it should be treated in terms of taxation.
• to promote transparency on shell entities across the EU.
• to monitor the implementation by Member States of any new EU rules targeted at shell entities.

CESI Secretary General Klaus Heeger concluded: “As a member of the European Commission’s advisory Platform for Tax Good Governance, we have highlighted for long that any anti-tax avoidance rules and procedures will not work as long as tax administrations remain understaffed and without adequate resources. More investments in staff and equipment are dearly needed in many Member Statess. We all know that investments in tax administrations yield multiple returns. The EU should encourage this more actively for instance through the European Semester.”