On 21 June 2017, the European Commission submitted a proposal for a Council Directive (the proposal) introducing mandatory disclosure rules for intermediaries concerning reportable cross-border tax arrangements. The proposal also provides for an automatic exchange of the reported information to other Member States.
The proposal should be seen in the light of the many transparency initiatives that have been launched by the EU with as principal goal to curb the use of alleged aggressive tax planning arrangements. It places an obligation on intermediaries to report potentially aggressive tax planning arrangements which have a cross-border dimension, i.e., situations in either more than one Member State or a Member State and a third country. Some countries (like the UK and the US) are already using similar mandatory reporting systems today.
List of features (hallmarks)
The proposal does not provide for a definition of aggressive tax planning. Instead, it includes a long and very extensive list of features, elements and examples of arrangements that present, according to the Commission, a strong indication of aggressive tax planning. The features – referred to as ‘hallmarks’ – are both general and specific and also include arrangements which do not conform with the arm’s length principle or with the OECD transfer pricing guidelines. It suffices that an arrangement falls within the scope of one of those hallmarks in order to be treated as a reportable arrangement to the tax authorities. For certain categories of hallmarks, a ‘main benefit test’ is applied.
The disclosure obligation applies to individuals and entities identified as ‘intermediaries’, who are resident or based in a Member State or registered with a professional association related to legal, tax or consultancy services in a Member State. The definition of intermediaries is very broad, comprising any person responsible for designing, marketing, organizing and managing the implementation of the tax aspects of a reportable cross-border arrangement. Also persons who provide, directly or indirectly, material aid or assistance in connection with the arrangement fall within the scope of intermediaries. In case there is no intermediary because a taxpayer designs and implements a scheme in-house, or the intermediary is not within the EU, or is under legal profession privilege, the obligation to disclose shifts to the taxpayer who uses the arrangement.
Disclosure within 5 days
The proposal provides that intermediaries must disclose the arrangements within 5 days beginning on the day after such arrangements become available to a taxpayer for implementation. In case the disclosure is shifted to the taxpayer, the arrangement must be reported within 5 days beginning on the day after such arrangement has been implemented. The failure to comply with the disclosure rule will be subject to penalties determined in accordance with domestic law of Member States.
The subsequent automatic exchange of information on the targeted arrangements among tax authorities will happen every quarter.
Entry into force
According to the text of the proposal, the entry into force is scheduled for 1 January 2019. However, it may apply retroactively to arrangements that have already been implemented between a starting date still subject to political agreement and 31 December 2018.
The proposal has the legal form of an amendment to the Directive on administrative cooperation in the field of taxation (2011/16/EU, of 15 February 2011). The proposal will now be subject of discussions within the ECOFIN Council.