The European Commission has proposed new transparency rules for tax planning intermediaries who design and promote tax planning schemes for their clients.
Under the proposal, intermediaries will have to report any cross-border tax planning arrangement that they design or promote if it bears any of the features or ‘hallmarks’ defined in the Directive. They must make this report to their tax authorities within five days of giving such an arrangement to their client. Member states must ensure proper penalties are in place for intermediaries that fail to meet these reporting requirements.
The proposal is said to have a very wide scope, covering all intermediaries and all types of direct taxes. Any company or professional that designs or promotes a tax planning arrangement which has a cross-border element and contains any of the hallmarks set out in the proposed Directive will be covered. This includes lawyers, accountants, tax and financial advisors, banks and consultants.
The ‘hallmarks’ are features or characteristics in a transaction that could potentially enable tax avoidance or abuse. Examples include arrangements which:
involve a cross-border payment to a recipient resident in a no-tax country;
involve a jurisdiction with inadequate or weakly enforced anti-money laundering legislation;
are set up to avoid reporting income as required under EU transparency rules;
circumvent EU information exchange requirements for tax rulings;
have a direct correlation between the fee charged by the intermediary and what the taxpayer will save in tax avoidance;
ensure that the same asset benefits from depreciation rules in more than one country;
enable the same income to benefit from tax relief in more than one jurisdiction; or
do not respect EU or international transfer pricing guidelines.
The obligation to report a cross-border scheme bearing one or more of these hallmarks will be borne by:
the intermediary who supplied the cross-border scheme for implementation and use by a company or an individual;
the individual or company receiving the advice, when the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is bound by professional privilege or secrecy rules;
the individual or company implementing the cross-border scheme when it is developed by in-house tax consultants or lawyers.
Member states will automatically exchange the information that they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements. The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities. However, member states will be obliged to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures, creating a powerful new deterrent for those that encourage or facilitate tax abuse.
The proposal takes the form of an amendment to the Directive for Administration Cooperation (DAC). It will be submitted to the European Parliament for consultation and to the Council for adoption. It is foreseen that the new reporting requirements would enter into force on 1 January 2019, with EU member states obliged to exchange information every three months thereafter.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: ‘We are setting our sights on the professionals who promote tax abuse. Tax administrations should have the information they need to thwart aggressive tax planning schemes. Our proposal will provide more certainty for those intermediaries who respect the spirit and the letter of our laws and make life very difficult for those that do not.’
The European Commission has proposed new transparency rules for tax planning intermediaries who design and promote tax planning schemes for their clients.
Under the proposal, intermediaries will have to report any cross-border tax planning arrangement that they design or promote if it bears any of the features or ‘hallmarks’ defined in the Directive. They must make this report to their tax authorities within five days of giving such an arrangement to their client. Member states must ensure proper penalties are in place for intermediaries that fail to meet these reporting requirements.
The proposal is said to have a very wide scope, covering all intermediaries and all types of direct taxes. Any company or professional that designs or promotes a tax planning arrangement which has a cross-border element and contains any of the hallmarks set out in the proposed Directive will be covered. This includes lawyers, accountants, tax and financial advisors, banks and consultants.
The ‘hallmarks’ are features or characteristics in a transaction that could potentially enable tax avoidance or abuse. Examples include arrangements which:
involve a cross-border payment to a recipient resident in a no-tax country;
involve a jurisdiction with inadequate or weakly enforced anti-money laundering legislation;
are set up to avoid reporting income as required under EU transparency rules;
circumvent EU information exchange requirements for tax rulings;
have a direct correlation between the fee charged by the intermediary and what the taxpayer will save in tax avoidance;
ensure that the same asset benefits from depreciation rules in more than one country;
enable the same income to benefit from tax relief in more than one jurisdiction; or
do not respect EU or international transfer pricing guidelines.
The obligation to report a cross-border scheme bearing one or more of these hallmarks will be borne by:
the intermediary who supplied the cross-border scheme for implementation and use by a company or an individual;
the individual or company receiving the advice, when the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is bound by professional privilege or secrecy rules;
the individual or company implementing the cross-border scheme when it is developed by in-house tax consultants or lawyers.
Member states will automatically exchange the information that they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements. The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities. However, member states will be obliged to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures, creating a powerful new deterrent for those that encourage or facilitate tax abuse.
The proposal takes the form of an amendment to the Directive for Administration Cooperation (DAC). It will be submitted to the European Parliament for consultation and to the Council for adoption. It is foreseen that the new reporting requirements would enter into force on 1 January 2019, with EU member states obliged to exchange information every three months thereafter.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: ‘We are setting our sights on the professionals who promote tax abuse. Tax administrations should have the information they need to thwart aggressive tax planning schemes. Our proposal will provide more certainty for those intermediaries who respect the spirit and the letter of our laws and make life very difficult for those that do not.’
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