The Death of the “Paper Company”: Navigating EU Substance

Why your entity "substance" matters and why you should care

In 2026, the EU’s “Unshell” Directive (ATAD 3) and stricter CFC rules have made “paper companies” a liability. Authorities now use a 7-point substance test to determine if an entity is a shell, focusing on dedicated office space and local bank accounts. To avoid being taxed at your local European rate, your US LLC must prove “Mind and Management” occurs in the US. This requires documented local decision-making and at least one qualified person managing operations from the US. Without these markers, the LLC is “looked through” and profits are taxed immediately at your home residence.