For a generation, the offshore structure, a company in a zero-tax jurisdiction, holding assets or routing income, needing little more than a registered agent, was a standard tool of international business. That world has ended. A combination of transparency, substance requirements and anti-avoidance rules has stripped most traditional offshore structures of the advantages they were built for, and many that still exist are liabilities their owners have not yet recognized.
What changed
Several forces converged. Automatic exchange of financial account information ended the secrecy that many structures relied on. Economic substance requirements, adopted by the offshore jurisdictions themselves under international pressure, mean a company in those places must now have real activity to enjoy its status. Anti-avoidance rules, from controlled foreign company regimes to the principal purpose test, disregard structures that lack substance. And banks, under their own pressure, increasingly decline to service offshore entities at all. The offshore company kept its low rate and lost everything that made the low rate useful.
That exchange works through the account, not the company. Under the Common Reporting Standard adopted in 2014, a bank holding an account for an entity whose income and assets are mostly passive looks through it and reports each reportable controlling person by name, residence, tax number and date of birth, the role giving control, and the year-end balance. Accounts opened now carry no threshold.
Beneficial ownership registers moved separately. In Joined Cases C-37/20 and C-601/20, decided on 22 November 2022, the Court of Justice held invalid the amendment opening that information to any member of the general public. Owners read that as a reprieve wrongly: authorities and banks kept access, and Directive (EU) 2024/1640 rebuilt the wider tier around legitimate interest.
The signals that the structure has stopped working
The first signal is the bank, and it is not appetite. The anti-money laundering directive requires it to identify the beneficial owner, understand the ownership and control structure, and collect a register excerpt at onboarding. Where it cannot complete that identification, article 14(4) tells it to refuse the relationship, terminate an existing one, and consider a suspicious transaction report.
The second arrives on a remittance advice. Treaty relief at source normally needs a certificate of residence, which in the Dutch formulation attests that the taxpayer is resident and subject to income or corporate tax. Without a request for exemption, the Dutch tax administration is explicit that tax is withheld when the dividend, interest or royalty is paid. An entity subject to no profit tax anywhere has nothing for such a certificate to record.
The third is the counterparty. A purchaser, lender or co-investor asks for the ownership chart and the beneficial owner before signing, because its own file must hold them, and an offshore entity lengthens every deal it sits in.
What substance means, and who verifies it
Substance stopped being rhetorical when the Forum on Harmful Tax Practices resumed the substantial activity factor for jurisdictions with no or nominal tax. Its standard requires an entity carrying on a mobile activity to conduct the core income generating activities, by the entity or within the jurisdiction, with adequate qualified full-time employees and adequate operating expenditure.
It is proved on paper, annually. The entity reports the core income generating activities it performed, the amount and type of its gross income, its expenses, the assets and premises it held, and its qualified full-time employees. A registered agent and yearly minutes do not fill those fields.
Failure has a consequence owners miss. The jurisdiction must monitor and enforce, and where an entity falls short its file is exchanged spontaneously with the residence states of the immediate parent, the ultimate parent and the ultimate beneficial owner that have opted in, so they can apply their controlled foreign company rules. The February 2026 peer review placed Anguilla and the Turks and Caicos Islands under focused monitoring.
The structure that is now a liability
An offshore entity with no substance, holding assets or receiving income, is now exposed on multiple fronts at once: its treaty and directive access can be denied, its income can be attributed to its owners, its bank can exit it, and its very existence can be a red flag to counterparties and authorities. What was once an asset that saved tax is now a structure that attracts scrutiny while delivering little, and the owner who has not looked at it recently is carrying a risk they have not priced.
Attribution is the sharpest front. Article 7 of Council Directive (EU) 2016/1164 treats an entity as a controlled foreign company where the taxpayer, alone or with associated enterprises, holds more than half the votes, capital or profit entitlement, and the tax it actually paid is lower than the difference between what the taxpayer’s own state would have charged and what was paid. Under the income categories route, interest, royalties, dividends and share gains enter the parent’s base. Substantive economic activity supported by staff, equipment, assets and premises escapes that, though a Member State may decline the escape outside the European Economic Area.
Article 13ab of the Dutch corporate income tax act uses the same control threshold, but only for entities in a state designated by ministerial regulation because it levies no profit tax or taxes profits below 9 percent, or appears on the European list of non-cooperative jurisdictions. On the first of those grounds the regulation names Anguilla, the Bahamas, Bahrain, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Turkmenistan, the Turks and Caicos Islands and Vanuatu.
Treaty access closes from the other side. Article 7 of the multilateral instrument denies a benefit where it is reasonable to conclude that obtaining it was one of the principal purposes of the arrangement, unless granting it would accord with the object and purpose of the provision relied on. And in Cases C-116/16 and C-117/16 the Court held that an authority refusing beneficial ownership status need not identify the real beneficial owner.
The offshore company did not become illegal. It became pointless and conspicuous at the same time, which is the worst combination a structure can have.
Migrating to substance
The answer for most is to migrate to a structure that has genuine substance in a jurisdiction that offers real advantages, which for European activity typically means a Dutch holding built to the standard we describe in our note on Dutch substance requirements. The migration itself has to be handled carefully, because moving assets and unwinding the offshore entity have their own tax consequences, and the route we describe in our note on redomiciliation is often part of the answer.
Three real exits price differently. Liquidation is cleanest and fastest where the entity holds cash or listed securities, but it closes the deferral: the gain inside crystallises on distribution, taxed where the owner is resident, in one year rather than at a time of his choosing.
Redomiciliation keeps the entity and its history alive, which matters where contracts, licences or a bank relationship attach to it, and spends time at registries rather than tax at shareholder level. Its friction is the opening balance sheet: a transfer from another Member State carries its departure value across where that value reflects the market; a company arriving from outside has no such guarantee.
A European parent above the entity is cheapest to execute and weakest if nothing changes below it. The Dutch participation exemption does not reach a participation held as an investment unless it qualifies, which requires a profit tax on the subsidiary amounting to a real levy by Dutch standards, or less than half its assets in low-taxed portfolio investments.
Why another offshore jurisdiction is not a migration
The common reflex, moving the entity somewhere quieter, fails because the tests are not written against names. The controlled foreign company test compares tax actually paid against tax that would have been charged, so it travels with the entity, and the Dutch designation turns on the rate, not the flag.
The conditional withholding tax is the same. It catches interest, royalties and dividends paid by a Dutch payer to an affiliated entity in a low-taxed jurisdiction, and its article 4.1 sets the rate at the highest percentage in the corporate income tax table, 25.8 percent for 2026. A move between designated jurisdictions changes the letterhead and leaves the withholding in place.
Reporting is indifferent too: the Common Reporting Standard follows the residence of the controlling person, not of the company. What moves the outcome is where the company is actually run, because residence for an organisation turns on circumstances such as where the main policy decisions are taken, where the directors work and meet, and where the accounts are kept.
The genuine remaining uses
This is not to say every offshore jurisdiction is now useless. Some retain genuine, legitimate roles, in fund structuring, in specific regulated activities, and where a common law framework and neutral forum add real value, as we describe in our notes on Jersey limited partnerships and Delaware LLCs. The point is that these uses are specific and substantive, not the general tax-driven interposition of the past. An offshore entity today needs a real reason to exist.
Those uses survive because the reason is legal or commercial rather than a rate. A fund vehicle sits in a neutral forum because investors from a dozen countries need one body of law they all recognise, and its manager, administrator, auditor and regulator are real. Several such jurisdictions sit on the Dutch designated list, so it is the substantive activity escape being relied upon.
The same discipline governs a United States holding vehicle used alongside a European one: it exists because the group’s investors, managers and contracts are American.
Look before you are made to
The owners who come through this transition well are the ones who review their offshore structures on their own initiative and migrate deliberately, before a bank forces the issue or an authority applies a presumption. The offshore structure that is quietly restructured into a substantive one is a problem solved; the one that is unwound under pressure, after a bank exit or an assessment, is a problem that was left too long. The reckoning has already arrived; the only choice is whether to meet it early or late.
A useful review is short. It asks where the entity is actually managed, what it would report if a substance return fell due tomorrow, which treaty benefit it depends on and whether it would survive a principal purpose test, and what a bank would now find in its file. Repaired before anyone asks, it is a transaction; afterwards, a concession.
Montclare runs a dedicated International and Offshore desk, structuring the corporate, tax and holding architecture for groups and families entering Europe through the Netherlands. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.