Product Code Database
A shell corporation is a company or corporation with no significant assets or operations, often formed to obtain financing before beginning business. Shell companies were primarily vehicles for lawfully hiding the identity of their beneficial owners, and this is still their defining feature due to the loopholes in global corporate transparency initiatives. (2026). 9786254326233, On İki Levha Yayıncılık. ISBN 9786254326233 It may hold passive investments or be the registered owner of assets, such as intellectual property or ships. Shell companies may be registered to the address of a company that provides a service setting up shell companies, and which may act as the agent for receipt of legal correspondence (such as an accountant or lawyer). The company may serve as a vehicle for business transactions without itself having any significant or operations.
Shell companies are used for lawful purposes such as holding assets or tax avoidance. However, they can also be used for illegal purposes such as tax evasion, hiding stolen assets, or money laundering. Anonymity, in the context of shell companies, relates to anonymity of beneficial owners of the company. Anonymity may be sought to shield personal assets from others, such as a spouse in the event of divorce, from creditors, or from government authorities.
Shell companies' legitimate business purposes are, for example, acting as trustee for a trust, and not engaging in any other activity on their own account. This structure creates limited liability for the trustee. A corporate shell can also be formed around a partnership to create limited liability for the partners, and other business ventures, or to immunize one part of a business from the risks of another part. Shell companies can be used to transfer assets from one company into a new one while leaving the liabilities in the former company. Shell companies are also used for privacy and security reasons by wealthy individuals and celebrities. Accordingly, shell companies may be used to generate both pecuniary and non- pecuniary private benefits by their beneficial owners. (2026). 9789004686519, Brill Nijhoff. ISBN 9789004686519
Shell company: The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB (§ 229.1101(b) of this chapter), that has:
(1) No or nominal operations; and
(2) Either:
(i) No or nominal assets;
(ii) Assets consisting solely of cash and cash equivalents; or
(iii) Assets consisting of any amount of cash and cash equivalents and nominal other assets.
Shell companies are a main component of the black market, especially those based in . They may also be known as international business companies, personal investment companies, front companies, or mailbox companies. While these terms are generally used interchangeably in practice, their meanings are not the same and each term is generated to refer to a different theme of illegality. Shell companies can also be used for tax avoidance. A classic tax avoidance operation may utilize favorable transfer pricing among multiple corporate entities to lower tax liability in a certain country; e.g. Double Irish arrangement.
A special purpose entity, used often in the context of a larger corporate structure, may be formed to achieve a specific goal, such as to create anonymity.
According to a 2013 experimental study, where the researchers requested anonymous incorporation in violation of international law, one in four corporate service providers offered to provide services in violation of international law.
When Hilco Capital purchased HMV Canada, they used a shell company by the name of Huk 10 Ltd. in order to secure funds and minimize liability. HMV was then sued by Huk 10 Ltd., allowing Hilco to regain assets and dispose of HMV Canada.
As another example, the use of a shell company in a tax haven makes it possible to move profits to that shell company, in a strategy of tax evasion. A United States company buying products from overseas would have to pay US taxes on the profits, but to avoid this, it may buy the products through a non-resident shell company based in a tax haven, where it is described as an offshore company. The shell company would purchase the products in its name, mark up the products and sell them on to the US company, thereby transferring the profit to the tax haven. (The products may never actually physically pass through that tax haven, and be shipped directly to the US company.) As the shell company is not based in the United States, its profit is not subject to US income tax, and as it is an offshore company in the tax haven jurisdiction, it is not taxed there either. Under the tax haven law, the profits are deemed not to have been made in the jurisdiction, with the sale deemed to have taken place in the United States. As US personal income tax is significantly less important than corporate income tax, US company executives would claim a salary (or fees, consulting fees, etc.) from the company's profits.
In addition, there are several shell companies that are used by broadcasting groups to circumvent FCC limits on television station ownership. For example, Sinclair Broadcasting Group forms local marketing agreements with stations owned by Cunningham Broadcasting and Deerfield Media; nearly all of the stock of Cunningham Broadcasting is controlled by trusts in the name of the owner's children. Other examples include Nexstar Media Group controlling television stations owned by Mission Broadcasting and Vaughan Media.
Due to federalism in the United States, shell companies are often set up in states such as Delaware, Nevada, and Wyoming due to advantageous tax regimes.
There are also shell companies that were created for the purpose of owning assets (including tangibles, such as real estate for property development, and intangibles, such as royalties or copyrights) and receiving income. The reasons behind creating such a shell company may include protection against litigation and/or tax benefits (some expenses that would not be deductible for an individual may be deductible for a corporation). Sometimes, shell companies are used for tax evasion or tax avoidance.Nicholas Shaxson, , Random House, January 2011
To compensate for this absence and with the aim of preventing, identifying, and combating the misuse of shell companies for tax purposes, on 22 December 2021, the European Commission adopted a proposal for an EU directive (n. 565/2021). Also known as “Unshell” or "ATAD 3 - Anti-Tax Avoidance Directive,“ the proposal would aim to support Member States in identifying shell companies located in the EU that are used exclusively for tax purposes, through an ”access test" that assesses the percentage of passive income, the degree of cross-border operations of the entity, and the possible outsourcing of management functions.
This proposal for a directive from the Commission No. 565 of 2021 would have amended a previous European Union directive, namely directive 2011/16/EU on administrative cooperation in the field of taxation.
As can be inferred from the text of the proposal itself, the European Union would be competent to enact legislation in this area by invoking Article 115 of the Treaty on the Functioning of the European Union.
According to the European Union's special legislative procedure, the proposed directive would have required a unanimous vote in the Council of the EU, after consultation with the European Parliament and the European Economic and Social Committee.
However, despite the legal basis having been correctly identified, the Council of the EU formally announced its decision to abandon the draft directive in question in ECOFIN Report 9960/2025, published on June 18, 2025.
As can be inferred from ECOFIN Report 9960/2025 itself, on May 27, 2025, the Working Party on Trade Questions (WPTQ) noted that there is an overlap between the tax risk indicators provided for in the Unshell proposal and those contained in the DAC6 directive, which trigger a reporting obligation to the tax authorities as a result of a presumption of aggressive tax planning. The WPTQ itself justified its decision not to issue the Unshell directive by noting that it could have led to duplication of communications and an increase in administrative burdens that would have been incompatible with the objectives of simplification and reduction of the regulatory burden sought by the European Union institutions.
One of the reasons for deciding to abandon the preparatory work on the directive was therefore the fact that directive 2018/822 had already been issued within the European Union, providing for the mandatory automatic exchange of information on cross-border arrangements subject to notification (DAC6). The acronym DAC stands for Directive on Administrative Cooperation; it was issued with the aim of ensuring greater fiscal transparency through mandatory reporting, by intermediaries or taxpayers themselves in cases where there is no obligated intermediary, of certain cross-border transactions within a predetermined time frame. The exchange of information is made possible by the creation of a central register accessible to EU Member States.
The European Union has been pursuing regulatory measures to address the use of “shell entities” for tax purposes. The proposed Unshell Directive (ATAD III) aims to introduce a unified substance test for EU companies, establishing minimum criteria for economic presence and activity. Three major Member States — France, Germany, and Spain — illustrate distinct regulatory approaches and challenges in implementing such measures.
Italian jurisprudence has repeatedly stressed that the formal existence of a company is not sufficient when its economic reality is inconsistent with its declared activity. The Italian Court of Cassation has held that the creation or use of shell-type entities to issue invoices for non-existent transactions constitutes a criminal offence under Legislative Decree 74/2000. Recent decisions also address the interaction between the Italian regime and EU VAT law. An Italian court has ruled that entities deemed non-operating do not automatically lose their right to deduct VAT, finding that a blanket denial would be inconsistent with Directive 2006/112/EC and that taxpayers must be allowed to demonstrate the substance of their transactions. Italian parliamentary and academic sources have also linked domestic "" rules to the broader EU debate on the proposed Unshell Directive, noting potential overlaps and inconsistencies between national presumptions of non-operativity and the EU-level substance test.
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