What is ATAD3?

The European Anti-tax Avoidance Directive 3 (ATAD3) is a regulatory measure introduced by the European Union to combat tax avoidance and enhance tax fairness. Effective from 2025, ATAD3 aims to prevent companies from artificially shifting profits to low-tax jurisdictions, thus ensuring that multinational corporations contribute their fair share to the EU’s tax base. Key aspects of ATAD3 include:

Controlled Foreign Companies (CFC) Rules: These rules target profits shifted to subsidiaries in low-tax countries, requiring companies to demonstrate genuine economic activity in these jurisdictions.

Exit Taxation: This measure deals with the taxation of companies relocating their assets or operations out of the EU to avoid taxes.

ATAD3 demands greater transparency from companies regarding their substance and activities in low-tax jurisdictions. Companies must provide evidence of real economic activity, or they risk losing tax benefits under EU directives or tax treaties.

Impact on Offshore Banking

The implementation of ATAD3 introduces additional scrutiny for offshore entities, affecting their ability to secure banking services:

1. Increased Due Diligence: Banks are required to adhere to stringent compliance regulations, including Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) requirements. Offshore companies, often associated with higher risks of tax evasion and illicit activities, face more rigorous checks.
2. Higher Risk and Costs: Banks might impose higher fees and stricter conditions for offshore accounts. They may require substantial documentation to prove the legitimacy of the company’s operations and its adherence to local regulations.
3. Challenges in Opening Accounts: Without clear evidence of substance, such as a local office or directors residing in the jurisdiction of incorporation, offshore entities may struggle to open bank accounts or execute transactions.

Navigating Offshore Banking with ATAD3

Given the increased regulatory environment under ATAD3, companies must carefully weigh the benefits and challenges of maintaining offshore entities:

• Provide Substance: To mitigate banking challenges, ensure that your offshore company has a tangible presence, such as a local office or qualified directors. This demonstrates that the company is genuinely operating within the jurisdiction and justifies the tax benefits.
• Consult Experts: Engaging with payment consultants like Viktoria Soltesz of PSP Angels can be crucial. Professionals can guide you through the complexities of regulatory compliance, banking requirements, and optimal tax planning strategies.
• Evaluate Risks vs. Benefits: Consider the trade-offs between lower taxation and increased banking costs and risks. Sometimes, the benefits of an offshore structure may be offset by higher fees and regulatory hurdles.

Viktoria Soltesz is the Founder of PSP Angels, a payment consulting firm specializing in optimizing payment flows and banking solutions for online businesses. With extensive experience in payment processing and high-risk industries, Viktoria also partners with a boutique firm in Malta and runs a finance and tax consulting firm in Cyprus. Her expertise spans iGaming, blockchain, fintech, and investment sectors, making her a valuable resource for navigating the complexities of offshore banking and tax planning.

ATAD3 marks a significant shift in the regulation of tax avoidance within the EU. For offshore companies, adapting to these changes means ensuring compliance with new substance requirements and managing increased banking challenges. Leveraging expert advice and maintaining transparency can help navigate this evolving landscape effectively.