European Commission promotes next level of tax transparency
On June 21, 2017, the European Commission published its proposal for mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements and introduces an obligation on intermediaries to disclose potentially aggressive tax planning arrangements and also the means for tax administrations to exchange information on these structures.
Last year, the European Parliament called on the Commission to introduce tougher transparency requirements for intermediaries. The ECOFIN Council also invited the Commission to consider initiatives on mandatory disclosure rules in line with those proposed by the OECD and G20 in Action 12 of the Base Erosion and Profit Shifting (BEPS) initiative.
Therefore, the Commission proposes to further amend the Directive on Administrative Cooperation 2011/16/EU in the field of taxation (the DAC).
As a reminder:
Specific hallmarks which generate a reporting obligation are classified as follows:
The Commission may subsequently update the Annex to include arrangements identified through the operation of the Directive.
Where an intermediary is involved, disclosure should be made before the scheme is implemented, i.e. within five days beginning on the day after the reportable arrangement has become available to the taxpayer. Where the obligation is shifted to the taxpayer, the timing of disclosure should be within five days beginning on the day after the arrangement (or the first step in a series of reportable schemes) has been implemented.
Exchange of information
The disclosed information will be exchanged automatically every quarter via a central directory. A standard form will be developed and will include the identification of the taxpayers and intermediaries involved, the hallmarks that generated the reporting obligation, details of the arrangement and the relevant domestic tax rules.
National tax authorities of all Member States have access to the directory. However, the exchanged information will not be made available to the public and the Commission will only have access to it insofar as needed for the monitoring of the functioning of the Directive.
The proposal leaves it to Member States to introduce sanctions for failing to comply with the Directive’s requirements. However, penalties must be “effective, proportionate and dissuasive”.
The adoption of the Commission’s proposal requires unanimity in the Council.
The Commission proposes that the provisions should apply as of January 1, 2019, and that the first information should be exchanged by the end of the first quarter of 2019. It is also noted that Member States should require intermediaries and taxpayers to disclose by March 31, 2019 any reportable arrangements implemented between the date when political agreement is reached on this proposal and December 31, 2018.
The Commission is also considering a future legislative initiative requiring auditors to disclose any potentially aggressive tax planning arrangements they discover in the course of their professional activities.
KPMG Luxembourg comment
The Commission considers tax transparency to be one of the key pillars for a fair tax system and a properly functioning internal market and this proposal is only the latest in a series of initiatives in this area.
A series of instruments have already been introduced, including rules implementing the Common Reporting Standard (CRS) in the EU, the mandatory automatic exchange of information on advance cross-border rulings and on country-by-country reporting (CbCR) and the Directive on Double Taxation Dispute Resolution Mechanisms (DTDRM) in the EU. The proposal of the European Commission for a public CbCR (i.e. to amend the Accounting Directive 2013/34/EU which would require large multinational companies operating in the EU to draw up and publically disclose reports on income tax information, including a breakdown of profits, revenues, taxes and employees) is also expected to be discussed in the European Parliament plenary session in the near future. Taxpayers should therefore carefully monitor the next developments in this respect as well as on this new proposal on disclosure requirements in the course of the upcoming discussion at EU level.
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