Yes. Cross-border structuring is a normal and often necessary feature of international business, used to expand into new markets, centralise functions, protect intellectual property, or organise financing. It remains legitimate when aligned with commercial reality. What has changed is the regulatory expectation that legal form reflects genuine economic substance rather than relying on incorporation alone.
Substance is not defined by a single threshold; it is assessed through coherence. In practical terms it may involve identifiable decision-making taking place in the jurisdiction, qualified personnel performing core income-generating activities, appropriate operational infrastructure, and a commercial rationale consistent with the group structure. The underlying question is whether the structure reflects the business or is detached from it.
Within the European Union, substance principles are embedded in binding legislation. The Anti-Tax Avoidance Directive (Directive (EU) 2016/1164) contains a General Anti-Abuse Rule in Article 6, which allows Member States to disregard arrangements that are not genuine and are put in place primarily to obtain a tax advantage. An arrangement may be regarded as non-genuine where it does not reflect economic reality.
Financial institutions, investors, and counterparties increasingly assess governance quality and operational credibility. Structures that lack demonstrable substance may encounter enhanced due diligence, difficulty maintaining banking relationships, reputational scrutiny, and challenges accessing treaty or directive benefits. Substance has become a broader governance standard, not only a tax consideration.
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