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The Federation of European Independent Financial Advisers

By Ricardo da Palma Borges, Managing Partner at Ricardo da Palma Borges & Associates, on behalf of Utmost Wealth Solutions.

Ricardo da Palma Borges is recognised as a Specialist Lawyer in Tax Law by the Portuguese Bar Association since 2004 and is one of the industry experts on the Non-Habitual Tax Resident regime.

This Utmost Insights article is designed to provide some guidance to advisers and their clients on the “Unshell” draft Directive proposal, its tax consequences and how unit-linked life insurance policies can be the solution.

A recent development in the fight against tax abuse is the “Unshell” draft Directive proposal issued on 22 December 2021, which is designed to prevent the misuse of shell entities for improper tax purposes. The likelihood of this proposal becoming law, even if amended, is high, due to the European Commission pressure. Assuming that consensus is reached between Member States of the European Union (EU), the new rules will come into effect on 1 January 2024. The status of the shell entities is determined by analysing the two preceding years. Accordingly, 2022 will be a relevant period if the rules come into effect. 

Affected undertakings and impacts

The proposal sets out a list of criteria to identify “reporting entities.” Reporting entities are defined as EU resident entities that earn predominantly passive income (or hold predominantly certain types of assets), in a cross-border context, and outsource daily management and decision-making for significant functions. All reporting entities must then demonstrate that they meet certain minimum substance requirements (own premises, exclusive local director or sufficient full-time resident employees and bank account in the EU). If the minimum substance requirements are not met, the proposed Directive will consider the entity a “shell.” This results in the loss of benefits (based on double tax treaties and EU directives) and the shell being treated as a look-through for tax purposes. Whilst non-EU states will not be bound by the regime, negative tax consequences will also arise from the denial of a tax residence certificate for the shell or the issuing of one with a shell warning statement by the Tax Authorities of the jurisdiction where it intended to be a resident taxpayer. For example, third country source / payer States may apply domestic taxes on the outbound payments (without consideration for the double tax treaty entered into with the shell residence State). The data reported by entities in scope will be covered by automatic exchange of information and may generate requests for tax audits.

What next?

Investors are coming under increasing scrutiny from a tax compliance perspective. There is pressure to be transparent and to conform with regulatory and tax authority requirements. The use of corporate vehicles is becoming progressively difficult.

Indeed, a growing number of investors are using long-term savings products to protect, manage and pass on wealth. These provide a robust, well-recognised and transparent solution utilising available tax reliefs. They include well-regulated investment or capital redemption bonds or ULLIP, which are typically only subject to the taxation rules of the country of the policyholder’s residence. ULLIP, namely, offers flexibility in terms of investment selection, asset protection,

privacy towards parties other than public authorities and probate avoidance. It also typically allows advantages in line with the intent of the legislator, namely tax-deferred growth, exempt death benefits, and reduced tax rates for surrenders based on the length of the policy.

When migrating from a corporate holding structure to a substitute solution, like the ULLIP, investors need to address tax impacts and decide whether to set it up pre or post the vehicle dissolution. If the latter is to occur first, the tax treatment on the sharing of its assets may vary significantly, some countries considering the proceeds to the shareholder as a dividend and others as a capital gain. In some jurisdictions it might be possible to attribute the assets in kind to the shareholder by “death” of a company without liquidating them, generally with a basis equal to their fair market value. Nevertheless, in other scenarios (for example, for Non-Habitual Tax Residents in Portugal), the efficient solution would be for the company to sell its investments and distribute tax exempt dividends to the shareholder still during its “lifetime,” rather than the latter generating taxable gains on dissolution proceeds. Investing in the ULLIP would then be the ultimate step.


The “Unshell” Directive will likely add to other tools that tackle aggressive tax planning, namely the recent mandatory disclosure rules for intermediaries, the future framework for business taxation in the EU (BEFIT), or the 8th Directive on administrative cooperation covering crypto assets. Beneficiaries of at-risk entities need to swiftly review their current structures to prevent harsh consequences and ULLIP may be a viable alternative to existing wealth management shells.

Ricardo can be contacted at: – whilst his company’s website is:

To find out about the expatriate solutions available from Utmost Wealth Solutions please contact: Ryan Perkins – or tel: +44 (0)7834 499727 or James Clark – or tel: +44 (0)7977 917396.