On 13th March 2018 EU Finance Ministers reached a political agreement for the approval of the tax intermediaries Directive proposed by the European Commission on 21 June 2017.
The Directive is a legislative initiative for mandatory disclosure rules inspired by BEPS Action 12 of the OECD project. It aims to discourage intermediaries from assisting in tax evasion or avoidance schemes.
The Directive, which will take form of an amendment to the Directive for Administrative Cooperation (DAC). Its main objective is the mandatory disclosure and exchange of information of potentially aggressive tax planning arrangements by requiring certain information regarding individuals, companies and other entities by tax intermediaries such as tax advisors, accountants, banks and lawyers, who design and promote tax planning schemes for their clients.
Disclosure will have to be made to the tax authorities in the country in which intermediaries reside regarding cross-border tax planning arrangement they design or promote that contains certain broadly defined criteria ("hallmarks").
According to the Directive, a “cross-border arrangement" means an arrangement or series of arrangements in either more than one Member State or a Member State and a third country where:
- Not all of the parties to the arrangement or series of arrangements are resident for tax purposes in the same jurisdiction;
- One or more of the parties to the arrangement or series of arrangements is simultaneously resident for tax purposes in more than one jurisdiction;
- One or more of the parties to the arrangement or series of arrangements carries on a business in another jurisdiction through a permanent establishment situated in that jurisdiction;
- One or more of the parties to the arrangement or series of arrangements carries on a business in another jurisdiction through a permanent establishment which is not situated in that jurisdiction and the arrangement or series of arrangements forms part or the whole of the business of that permanent establishment;
- Such arrangement or series of arrangements has a tax-related impact on at least two jurisdictions.
The “hallmarks” that determine if an operation is aggressive are vaguely defined. For instance, some hallmarks will be:
- The existence of confidentiality clauses, contingent fees and standardized structures that would require limited customization for implementation;
- The transfer of losses or conversion of income into other categories of revenue that are taxed at a lower level or are exempt from tax (e.g. capital gains, gifts)
- Transactions involving a jurisdiction that does not impose corporate tax or imposes corporate tax at the rate of zero or almost zero, or where a payment benefits from a full exemption from tax or from a preferential regime in the jurisdiction where the recipient is established for tax purposes
All such types of arrangements must be disclosed to the tax authorities within 30 days after the arrangement is ready to be implemented or the first step in the implementation has taken place. The specific information to be disclosed will be the following:
- The identification of intermediaries and taxpayers, including their name, residence for tax purposes, and taxpayer identification number (TIN) and, where appropriate, the persons who are associated enterprises to the intermediary or taxpayer;
- Details of the hallmarks that make the cross-border arrangement reportable;
- Summary of the content of the arrangement
- Date the implementation of the arrangement was or will be made;
- Details of the member state provisions that form the basis of the arrangement;
- Value of the arrangement;
- Identification of the member state of the relevant taxpayer(s) and any other member states that are likely to be concerned by the arrangement,
After such disclosure to the tax authorities, the tax authorities will exchange that information on a quarterly basis to other EU member States. Penalties will be imposed on intermediaries that do not comply. However those penalties have not yet been determined.
Moreover, if the taxpayer developed the arrangements in-house, in the same member State, or the taxpayer is advised by a non-EU adviser, or legal legal professional privilege applies (professional secrecy) the obligation to notify the tax authorities falls on the taxpayer itself.
The Directive should be formally adopted on 25 May 2018 and it will apply as from 1st July 2020.
Marina Serrat
BECERRA ADVOCATS, S.C.P.
BARCELONA