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EU Directive laying down transparency rules for tax intermediaries

Deloitte Malta Tax Alert

27 June 2018

On 25 May 2018, the Council of the European Union adopted a directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements, laying down mandatory disclosure rules for tax intermediaries (Directive).

Background

The Directive broadly reflects Action 12 of the OECD's BEPS Project and aims to ensure the automatic exchange of information (within the EU) of potentially aggressive cross-border tax planning arrangements by virtue a reporting obligation on tax intermediaries such as tax advisors, accountants and lawyers.

In order to identify reportable cross-border arrangements, the Directive establishes a list of attributes or features that present an indication of a potential risk of tax avoidance (i.e. hallmarks). According to the European Council’s press release of 13 March 2018, the requirement to report an arrangement will not imply that it is harmful, only that it may be of interest to tax authorities for further scrutiny.

Reporting person

The reporting obligation primarily lies with the intermediary, which is defined as any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement. However, in certain cases the reporting obligation is shifted to the relevant taxpayer. This occurs when: (i) the taxpayer designs and implements an arrangement in-house, (ii) the intermediary does not have a presence within the EU, or (iii) the intermediary cannot disclose the information because of a professional secrecy obligation arising from the law.

Member States, in turn, will be required to automatically exchange the information disclosed with tax authorities of Member States concerned and, to a limited extent, with the European Commission through a centralised database.

Hallmarks

A cross-border arrangement becomes reportable if it contains one or more of the attributes or hallmarks listed in the Directive. Whilst most of the hallmarks are drafted broadly and do not appear to exclusively address cases of tax avoidance or abuse, certain groups of hallmarks must only be taken into account if the arrangement satisfies what is known as the ‘main benefit test’. The latter test is deemed to be satisfied if it can been established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect from an arrangement is the obtaining of a tax advantage.

Information to be exchanged

The information to be exchanged by the tax authorities of a Member State to the other Member State(s) in terms of the Directive is:

  • the identification of intermediaries, relevant taxpayers and, where appropriate, the associated enterprises to the latter;  
  • details of the hallmark(s) that make the cross-border arrangement reportable; 
  • a summary of the content of the reportable cross-border arrangement;
  • the date on which the first step in implementing the reportable cross-border arrangement has been made or will be made;
  • details of the national provisions that form the basis of the reportable cross-border arrangement;
  • the value of the reportable cross-border arrangement; 
  • the identification of the Member State of the relevant taxpayer(s) and any other Member States which are likely to be concerned by the reportable cross-border arrangement;
  • the identification of any other person in a Member State likely to be affected by the reportable cross-border arrangement, indicating to which Member State such person is linked.

Penalties

Whilst the Directive does not stipulate specific penalties for non-compliance, Member States will be obliged to introduce effective, proportionate and dissuasive penalties applicable to infringements of national provisions pursuant to the Directive.

Next steps

The new transparency rules are required to be transposed into national laws and regulations of Member States by 31 December 2019 and will be applicable from 1 July 2020. Intermediaries and/or taxpayers, as the case may be, are however required to collect the relevant information in connection with reportable cross-border arrangements whose first step was implemented on or after 25 June 2018. The first automatic exchange of information will be effected by 31 October 2020.

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