Political agreement on proposal for mandatory disclosure of aggressive tax planning schemes

During a meeting of the ECOFIN in Brussels on 13 March 2018, a political agreement was reached on a proposal to strengthen tax transparency of supposedly aggressive cross-border tax planning by amending the Directive on Administrative Cooperation (“DAC”). 

Introduction

The amendments to the DAC (“DAC 6”) involves the implementation of a series of three obligations:

1. Mandatory disclosure by tax advisors and others that establish and facilitate tax planning schemes (so called intermediaries) of potentially cross-border aggressive tax planning schemes (so called arrangements) to the relevant tax authorities;
2. Automatic exchange of the information received by the tax authorities with the tax authorities of other Member States under the DAC’s centralized exchange mechanism;
3. Implementation of penalties in case of non-compliance with the transparency provisions (the DAC does not impose specific penalties save for the requirement that the penalties are proportionate and have a dissuasive effect).

What types of arrangements have to be reported to the tax authorities?

The DAC establishes hallmarks in order to determine which types of arrangements have to be reported to the tax authorities. The hallmarks are divided into generic and specific hallmarks.

Safe for the situations that the recipient is not resident for tax purposes in any jurisdiction or the tax jurisdiction is included in a non-cooperative list of third-countries, the below hallmarks should only be taken into account where it can be established that the main benefit or one of the main benefits from an arrangement is the obtaining of a tax advantage.

Examples of specific hallmarks are, amongst others, arrangements:

• which consist of acquiring a loss-making company in order to reduce tax liability;
• that has the effect of converting income into another category of revenue which is taxed at a lower level or exempt from tax;
• which includes circular transactions resulting in the round-tripping of funds;
• that involves deductible cross-border payments where (i) the recipient is not resident for tax purposes in any tax jurisdiction, (ii) the jurisdiction the recipient is resident of, does not impose any corporate tax, levies corporate tax at the rate of zero or is included in a list of third-country jurisdictions which have been assessed as non-cooperative, (iii) the payment benefits from a full exemption or from a preferential tax regime in the jurisdiction where the recipient is resident for tax purposes;
• that claims for a relief from double taxation in respect of the same item of income or capital in more than one jurisdiction.

When do intermediaries have to disclose to the tax authorities?

Intermediaries are obliged to disclose the information with the tax authorities within thirty days beginning on the earliest of; the day after the reportable cross-border arrangement is made available, is ready for implementation, or when the first step in the implementation has been made.

By 31 December 2019 the Member States have to adopt and publish the laws, regulations and provisions which are necessary to comply with the DAC. These provisions shall be applied by the Member States from 1 July 2020. The automatic exchange of information between tax authorities of Member States shall take place within one month from the end of the quarter in which the information was filed. Therefore, the first cross-border exchange of information shall be transmitted by 31 October 2020.