Action required: mandatory disclosure of cross-border tax planning arrangements – effective (very) soon
New EU rules providing for mandatory disclosure of certain cross-border tax planning arrangements by intermediaries and taxpayers will enter into force on 25 June 2018. Although reports to tax authorities will not be required until July/August 2020, the retrospective nature of the new rules means that reportable arrangements implemented after 25 June could be reportable in this first batch of (2020) reports. Preparations for the new regime should therefore begin now.
New reporting obligations for intermediaries and taxpayers
On 13 March 2018, the EU Council agreed to new measures1 to require the mandatory disclosure by intermediaries or (in the absence of intermediary involvement, or where the intermediary claims privilege) taxpayers to their local tax authorities of certain cross-border tax planning arrangements. This came as a response to the OECD's Base Erosion and Profit Shifting (BEPS) project.
An "intermediary" for these purposes is anyone with an EU taxable presence (or EU professional services registration) who designs, markets, organises or makes available for implementation or manages the implementation of a "reportable" cross-border arrangement. Lawyers, accountants, bankers, investment managers and others are likely to be within this group.
Taxpayers may themselves be required to make disclosures under the new tax rules to the extent that they implement 'in-house' reportable arrangements or they use intermediaries protected by privilege.
The new rules must be implemented by member states by 31 December 2019, to be applied (in terms of reporting) from 1 July 2020. Both dates are therefore expected to occur during the Brexit 'transition' period. The uncertainty surrounding Brexit casts doubt as to whether the UK will impose these new rules, although the UK has been a vocal supporter of the OECD work in this area.
What is reportable?
At least one of the two or more countries involved in the arrangement must be an EU member state.
Although the target of the new rules are instances of so-called "aggressive" tax planning, the new Directive adopts an approach that whilst familiar (at least to UK tax advisors) is rather more convoluted. The new rules are similar to the UK's existing 'DOTAS'2 regime as, for the EU cross-border arrangement to be "reportable", at least one specified 'hallmark' must exist. In addition for many (but not all) of the hallmarks, one of the main benefits must be the obtaining of a tax advantage.
The hallmarks are broadly grouped as follows:
- 'generic' hallmarks: confidentiality; contingent fee; standardisation
- 'specific' hallmarks: linked to (1) the main benefit test (e.g. use of losses to offset taxable profit) or (2) the cross-border characteristic (e.g. claiming double tax relief more than once, in different jurisdictions) or (3) beneficial ownership or automatic exchange of information or (4) transfer pricing
Automatic exchange of information
Once reported, member state tax authorities will be required to automatically exchange information with authorities in other member states.
First, and subsequent, reports
Between 1 July and 31 August 2020, reports of all reportable arrangements implemented from 25 June 20183 to 1 July 2020 must be made to the applicable member state tax authorities.
Taxpayers and intermediaries should therefore, from 25 June, start recording activities that will potentially need to be disclosed by the end of August 2020.
Afterwards, reportable arrangements will be reported quarterly, from 30 October 2020.
1 Council Directive 2018/822.
2 Disclosure of tax avoidance scheme.
3 Being the twentieth day following that of the new Directive's publication in the Official Journal of the European Union.