How taxpayers are affected by new transparency rules by EU Council

Taxpayers will have to report cross-border reportable arrangements where the first step of implementation is taken as of June and July 2018.

The scope of the cross-border arrangements to be reported is relatively broad and may lead to extensive reporting obligations by both intermediaries and – mainly corporate, but also individual – taxpayers. Reporting obligations for cross-border arrangements are triggered by certain hallmarks (or characteristics). These hallmarks target a relatively wide range of cross-border arrangements.

Cross-border reportable arrangements where the first step of implementation is taken after the entry into force of the Directive, which is expected to take place in four to six weeks, will have to be reported. The first reports, however, are not due until 31 August 2020 and are to be exchanged by 31 October 2020.

Scope of the Directive

With the Directive, the European Commission seeks to boost transparency and to tackle what it sees as aggressive cross-border tax planning. The Directive imposes a new obligation on EU-based tax consultants, banks, lawyers, and other intermediaries to disclose any cross-border arrangement that contains one or more features or “hallmarks,” if they are identified as intermediaries for the purposes of the Directive. The geographical scope of the new reporting requirements comprises arrangements within the EU, as well as between Member States and third countries.

The hallmarks cover a broad range of structures and transactions, including certain deductible payments which are taxed at a rate of zero or nearly zero when received and intercompany transactions which meet specific transfer pricing hallmarks, such as any transfer of hard-to-value intangibles. Some of the hallmarks will only trigger reporting requirements when they also fulfil the main benefit test.

In addition to details of the hallmarks met, a disclosure will include the names of intermediaries and relevant taxpayers, their place of residence and tax identification (TIN) number together with summary information on the arrangement itself.

If the intermediary is protected by legal professional privilege, then the obligation to disclose is transferred to any other intermediary which can disclose, and if not, then to the taxpayer. The taxpayer will also have the obligation to disclose where there is no intermediary or where intermediaries are outside EU jurisdiction. Following the reporting of the arrangements, the information about the arrangements specified by the Directive will be automatically exchanged between Member States.

The content of the adopted Directive corresponds to that agreed by ECOFIN on 13 March 2018.