The Directive amends Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation. This step is one of many at the EU level to increase tax transparency, including the automatic exchange of information on financial accounts, advance cross-border tax rulings and country-by-country reporting of multinational enterprises.
Intermediaries or the taxpayers themselves have to report cross-border arrangements to the tax authorities. Intermediaries are persons that design, market, organise, make available for implementation or manage the implementation of a reportable cross-border arrangement. These include tax advisors, accountants, lawyers, financial advisors or others who provide tax advice. Member States may opt to exclude certain intermediaries from the reporting obligation due to a legal professional privilege (e.g. confidentiality of tax advisors and lawyers). In this case, the intermediaries must notify other intermediaries or the taxpayer about their own reporting obligation. In case intermediaries are not involved (in-house tax schemes) or may not be held responsible (due to a professional privilege or a non-EU intermediary), the taxpayer itself must report the arrangement.
A reportable cross-border arrangement is one with a cross-border element that contains at least one listed hallmark indicating a potential risk of tax avoidance.
The general guideline for such hallmarks is whether the main benefit (or one of the main benefits derived from an arrangement is the obtaining of a tax advantage ("main benefit test").
Generic hallmarks (Category A):
(i) agreed confidentiality yin regard to the arrangement and its tax advantage;
(ii) fee amounts that relate to the tax advantage; and
(iii) standardised arrangements for more than one taxpayer.
Specific hallmarks (Category B):
(i) tax loss utilisation arrangements;
(ii) income conversion arrangement schemes; and
(iii) round-tripping of funds arrangements.
Other specific arrangements contain – in certain cases irrespective of meeting the main benefit test – per se a potential risk of tax avoidance due to a tax advantage. Such arrangements are related to cross-border transactions (Category C) based on:
(i) deductible cross-border payments not being sufficiently taxed in the hands of the payment recipient (profitshifting to low-tax jurisdictions);
(ii) double deductions on the same asset in more than one jurisdiction;
(iii) double taxation relief of income or capital in more than one jurisdiction; and
(iv) value mismatch in regard to the compensation for the transfer of assets.
Other arrangements may be used to (Category D):
(i) circumvent automatic exchange of information rules regarding financial l accounts; or
(ii) avoid the identification of beneficial owners through the use of offshore letterbox companies or similar intransparent structures.
Arrangements may also concern transfer pricing issues by (Category E):
(i) using unilateral safe harbour rules;
(ii) involving the transfer of hard-to-value intangibles between associated enterprises;
(iii) involving an intragroup cross-border transfer of functions, risks or assets resulting in the transferor reducing its projected annual EBIT for a three-year period by more than 50 %.
The intermediary, or alternatively, tax-payers themselves are obliged to file information that is within their knowledge, possession or control on reportable cross-border arrangements with the competent authorities.
The filing has to be made before its implementation, within 30 days at the earlier of the availability, readiness or first step of implementation.
Penalties are for the Member States to decide, but must be effective proportionate and dissuasive.
This article was up to date as at the date of going to publishing on 10 December 2018.