The European Union (EU) has formally adopted amendments to the Directive on Administrative Cooperation in the field of Taxation (the "Directive") that require the mandatory reporting of information related to cross-border arrangements and will take effect on June 25, 2018. The Directive is intended to curb aggressive international tax planning and increase transparency by imposing reporting obligations on intermediaries and taxpayers, and mandating the automatic exchange of information between EU member states.
The Directive applies to arrangements involving a resident of an EU member state that contain one or more listed hallmarks of aggressive tax planning. The hallmarks cover a broad scope of arrangements and can be characterized as generic (such as certain contingent fee and non-disclosure arrangements) or specific (such as tax loss planning, circular transactions, and deductible payments to related parties that are subject to nil or low tax in the recipient's jurisdiction). Certain hallmarks require reporting only in circumstances where a main benefit of the arrangement is an expected tax benefit.
While the reporting obligations set forth in the Directive are generally imposed on intermediaries (e.g., banks or lawyers), reporting is required whenever there is an EU party to the transaction, regardless of whether there is an intermediary or where the intermediary does not have an EU nexus. In such cases, as well as in certain cases of legal privilege, the disclosure requirements may be imposed on the taxpayer directly.
Where the mandatory disclosure requirement applies, the reported information must include a summary of the arrangement, details of the hallmarks it contains, and identifying information with respect to the relevant taxpayers and intermediaries (e.g., their names, tax identification numbers, and residences).
The reporting deadline is August 31, 2020 for all cross-border arrangements that initiate implementation between June 25, 2018 and July 1, 2020, and the information must be exchanged between EU member states by October 31, 2020. Thereafter, arrangements must be reported within 30 days of the date that the arrangement is ready for implementation or the first step of implementation, whichever occurs first. Reported information will be automatically exchanged with EU member states on a quarterly basis. EU member states must adopt local laws implementing the Directive, including penalties for non-compliance, by December 31, 2019.