This political agreement appears to be in line with action 12 of the OECD Base Erosion and Profit Shifting (BEPS) project which already resulted in a similar implementation in other EU Member States (UK, Ireland and Portugal). The directive ensures that all EU Member States share the same supervision of intermediaries’s activities and that they cooperate in preventing aggressive cross-border tax planning.
Following the agreement, Mr Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs, indicated: “This agreement is a further step towards more openness and better cooperation, facilitating fairer and more effective taxation throughout the EU”.
The new measures
The new rules provide that tax intermediaries (e.g. tax lawyers, accountants, tax and financial advisers, banks and consultants) will be obliged to report complex cross-border tax planning arrangements to their national tax authorities. Such obligation will shift to the taxpayer when the intermediary is not located in the EU or is bound by professional privilege or secrecy rules.
The information will be exchanged automatically every three months with the other Member States’ tax authorities through a centralised database. The European Commission shall also have access to certain information in order to monitor the implementation of the rules.
These measures shall bring a quicker response to risks of harmful tax practices while enabling better targeted audits and preventing abuse. The exchange of information across EU Member States shall also provide more efficiency in fighting tax avoidance wherever the tax planning is marketed or designed.
How will the new rules work in practice?
A list of “hallmarks” has been established, which correspond to features or characteristics in a tax planning arrangement that could potentially enable tax avoidance or abuse.
Such hallmarks include, e.g., arrangements:
- that involve cross-border payments which are deductible at source to a recipient resident in a no-or low-tax country;
- that enable an asset to benefit from the same depreciation in more than one jurisdiction;
- that involve the use of cross-border losses to reduce tax liability;
- that involve companies with no substance.
Any tax arrangement that includes such hallmarks will need to be reported by the intermediary (or taxpayer – as appropriate) within thirty days as from the day on which the arrangement is made available, is ready for implementation or after the first step has been implemented – whichever occurs first.
There will be a standard format for the exchange of this information, which will include, amongst other things, details on the intermediary, the taxpayer(s) involved and features of the tax arrangement.
The exact nature of the penalties for intermediaries failing to comply with these proposed rules is still unknown and will be left as a national competence of each Member State. These could include, for example, fines or administrative sanctions. Beyond national sanctions, the main risk for intermediaries may also be found in reputational aspects.
Entry into force?
The Directive has to be implemented into national law of all Member States, so that the obligations under this Directive shall become applicable as from 1 July 2020. The first exchange of information under this Directive should take place by 31 October 2020.
Tiberghien Luxembourg remains committed to monitoring the progress of the new EU transparency rules implementation within Luxembourg (and the other Member States). If you would like more information, then please contact your trusted adviser at Tiberghien Luxembourg or contact any of the authors of this publication.