New EU Disclosure Rules for Advisers and Taxpayers | KPMG | CA

New EU Disclosure Rules for Advisers and Taxpayers

New EU Disclosure Rules for Advisers and Taxpayers

The European Commission is proposing new tax disclosure requirements.

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Under the new proposal certain tax planners and advisers (intermediaries) or certain taxpayers themselves must disclose potentially aggressive cross-border tax planning arrangements to the tax authorities in their jurisdiction. This new requirement is a result of the disclosure rules proposed by the OECD in the base erosion and profit shifting (BEPS) Action 12 report, among others. The proposal requires tax authorities in the EU to automatically exchange reported information with other tax authorities (also in the EU). It also amends Directive 2011/16/EU, the directive on administrative co-operation in the field of taxation.

The proposal does not outline penalties for non-compliance; EU member states must implement those on their own.

The measures will be effective after being approved by the European Parliament and the EU Economic and Financial Affairs Council. EU Member States must implement the proposal by December 31, 2018, and apply the new legislation as of January 1, 2019.

Background

The OECD's BEPS Action 12, "Require Taxpayers to disclose their aggressive tax planning arrangements", focuses on disclosure initiatives for tax authorities to address the lack of timely, comprehensive and relevant information on potentially aggressive or abusive tax planning strategies. The OECD's report on Action 12 makes recommendations regarding the design of mandatory disclosure rules for aggressive or abusive transactions, arrangements or structures, taking into consideration the administrative costs for tax administrations and businesses and drawing on experiences of the increasing number of countries that have such rules.

Reporting entity

Under the proposal, an "intermediary" is the party responsible for designing, marketing, organizing or managing the implementation of a taxpayer's reportable cross-border arrangement, while also providing that taxpayer with tax-related services. If there is no intermediary, the proposal requires the taxpayer to report the arrangement (e.g., if the taxpayer designs and implements an arrangement in-house, if the intermediary does not have a presence within the EU, or if the intermediary cannot disclose the information because of a legal professional privilege).

Indicators for potential tax avoidance or abuse

The proposal does not define the terms "arrangement" or "aggressive tax planning". However, it does list characteristics of cross-border tax planning schemes, or "hallmarks," that would strongly indicate whether tax avoidance or abuse occurred and says that an arrangement should be disclosed and reported if it meets at least one of the hallmarks. Hallmarks could be generic or specific.

Generic hallmarks include arrangements or series of arrangements where:

  • The taxpayer has complied with a confidentiality condition not to disclose how the arrangement could secure a tax advantage in relation to other intermediaries or the tax authorities
  • Where the intermediary is entitled to receive a fee (or interest, remuneration for finance costs and other charges) for the arrangement or series of arrangements and the fee is fixed in reference to:
    • The amount of the tax advantage derived from the arrangement or series of arrangements, or
    • Whether the tax advantage is actually derived from the arrangement or series of arrangements.

Specific hallmarks include arrangements or series of arrangements that:

  • Allow the taxpayer to use losses to reduce their tax liability
  • Involve deductible cross-border payments made between two or more related parties where the payment benefits from a preferential tax regime in the recipient’s tax-resident jurisdiction
  • Creates a mismatch within the scope of Council Directive amending Directive (EU) 2016/1164 as regards to hybrid mismatches with third countries.

Information to be exchanged

The information that must be exchanged under the proposal includes:

  • The identities of the taxpayer and of the intermediary, if applicable 
  • Details about the hallmark(s) of the arrangement 
  • The date that the arrangement was implemented 
  • The value of the transactions or series of transactions included in the reportable cross-border arrangement 
  • The identities of the EU member states involved and of any person (i.e., natural or legal persons or entities without legal personality) in the other EU member states likely to be affected.

Reporting deadlines

Reportable cross-border arrangements must be disclosed and reported to the tax authorities by the intermediary (or by the taxpayer as the case may be) within five working days after the arrangement becomes available for implementation.

Tax authorities must automatically exchange information received on tax planning schemes through a centralized database that other EU tax authorities may access. The database will give the tax authorities early warning on new risk of avoidance and enable them to take measures to block harmful arrangements. The tax authorities must communicate the information for the first time by the end of the first quarter of 2019 and every three months thereafter.

 

For more information, contact your KPMG adviser.

 

Information is current to July 25, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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