The EU has agreed on mandatory disclosure requirements for certain cross border arrangements.
An EU Directive requiring intermediaries and taxpayers to disclose information on certain cross border arrangements is imminent. The new EU Mandatory Disclosure rules, also known as DAC 6, will apply from July 2020, but are expected to have a retrospective effect for all reportable arrangements that have their ‘first step’ after 20 days following publication of DAC 6 in the official journal (currently expected to be May/June 2018). The rules have to be incorporated into domestic legislation by the end of 2019. We do not expect Brexit to affect this for the UK. It is important, therefore, that taxpayers take action now to understand how they may be affected.
The EU Mandatory Disclosure rules are much broader than the UK’s Disclosure of Tax Avoidance Schemes (DoTAS) rules, and contain fewer filters and exemptions.
The definition of an intermediary subject to the reporting obligation is drawn very broadly and includes any person who designs, markets, organises or makes available for implementation or manages the implementation of a reportable arrangement. It also covers those persons who know or could reasonably be expected to know that they have undertaken to provide assistance with respect to a reportable arrangement. This could therefore broaden the application to other parties to a transaction. If there is no intermediary, the obligation to disclose shifts to the taxpayer.
To be reportable, the arrangement must be cross border. A cross border arrangement is one that affects one or more EU Member States. Therefore a transaction between, say, the UK and the US would be within the definition.The arrangement also has to bear one (or more) certain specific hallmarks. Some of the hallmarks have a ‘main benefit test’ filter – where one of the main benefits is the ‘obtaining of a tax advantage’. The hallmarks cover a broad range of transactions, including, for example, loss buying transactions, as well as transactions where there is a tax deduction in one jurisdiction with the receipt being taxed at zero or nearly zero. It also includes a specific transfer pricing hallmark in relation to intra-group transactions.
The rules apply to direct taxation and so are primarily focussed on corporate tax and income tax. However, some forms of indirect tax may be included.
The reported information will include client specific data (including the name, address, tax reference and size of transaction). The information will be automatically exchanged each quarter by the competent authorities of each Member State via a central directory on administrative cooperation, to be developed by the EC by the end of 2019. The automatic exchange of information will take place within one month of the end of the quarter in which the information was filed, with the first information having to be communicated by 31 October 2020.
For more information, see our Euro Tax Flash prepared by KPMG’s EU Tax Centre here.
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