International groups spent three and a half years preparing for a rulebook that will never arrive. The Council ended work on the Unshell Directive, known as ATAD 3, in June 2025, and the Commission has signalled in its 2026 work programme that it intends to withdraw the proposal.
Most groups read that as a reprieve. It raises the stakes. The instrument that would have fixed a measurable threshold for Luxembourg corporate substance never survived negotiation, and the fact-based test that preceded it still stands.
What replaced the substance checklist
Member States concluded that the objectives of Unshell could be met by amending the DAC6 reporting hallmarks, in line with the EU simplification agenda. The Council now awaits a possible Commission proposal on the DAC.
A hallmark governs disclosure. It says nothing about whether a structure holds sufficient substance, and it creates no safe harbour.
The instruments that deny benefits are untouched. The ATAD I general anti-abuse rule, the principal purpose test and the beneficial ownership case law from the Danish cases all still apply, and none works from a checklist.
Luxembourg residence was never a checklist either
A company is resident, and taxable on worldwide income, where it has its registered office or its centre of effective management in Luxembourg.
The second limb carries the risk and has no statutory definition. Central administration is the place where the company is managed and controlled, established on the facts, including where the board meets, where officers take their decisions and where the books are kept.
Corporate governance, tax residence, beneficial ownership and treaty entitlement answer different questions. Counsel should settle which one a structure will face before assembling evidence.
The board has become the evidence
Two Luxembourg holding companies acquire a subsidiary. In the first, the directors receive the memorandum and financing terms in advance, take advice, challenge a valuation assumption and have a reservation minuted. In the second, the deal is negotiated elsewhere and the board receives documents for signature.
Both files hold a convening notice, a resolution and signatures. On paper they look identical. Only one answers the question a tax authority, a bank or an acquirer will put.
What a Luxembourg director actually carries
Under the amended law of 10 August 1915, and depending on legal form, directors answer to the company for management faults, and to the company and third parties for breaches of company law and of the articles. That liability can be joint and several, except for a member who took no part in the breach and reported it.
The minuted objection is the exoneration mechanism. A director who cannot obtain the file, or have a reservation recorded, has no way of using it.
Luxembourg directorship services should therefore be judged on how the mandate is exercised. A name on the register creates no substance, no tax residence and no treaty access. At Financial Services Luxembourg we build mandates around the file before the meeting, participation in the decision, documented deliberation and declared conflicts.
Where the decision actually happens
Take one transaction and follow it end to end. Who receives the investment memorandum, who evaluates the financing, who can challenge the assumptions, and who holds the authority to refuse? Then establish where that took place.
Nobody suggests every commercial conversation happens in Luxembourg. Shareholders exercise shareholder rights and group management sets strategy. The narrower question is whether the Luxembourg organ keeps and uses the authority given to it by law and the articles. For multi-jurisdiction groups that is the substance of cross-border governance, where mind and management are mapped rather than assumed.
Minutes and the record of reasoning
A resolution stating that a transaction was considered and approved records a result and little else. For intragroup loans, guarantees, cash pooling and management fee arrangements, the record should identify the documents reviewed, the rationale, the risks, the conflicts declared and the advice obtained.
Depending on legal form, a conflicted director must declare the interest, abstain, have it minuted and see the transaction reported to the next general meeting. Skipping that is picked up immediately in due diligence.
A better starting question
The collapse of ATAD 3 removed the prospect of a bright line without lowering the evidential bar. Boards and advisers are better served asking what decisions the company genuinely has to make, who holds authority to make them, and what record will show that it did.
Mickaël LOC is Managing Director of Financial Services Luxembourg, a licensed accounting firm in Luxembourg City (authorisation 10077274), and acts as independent director for Luxembourg holdings, SOPARFIs and funds.
General information on Luxembourg corporate governance and cross-border structuring; the analysis depends on the facts of each structure and is not a substitute for legal or tax advice.