On 21 June 2017, the European Commission (EC) adopted a proposal for a Council Directive on the mandatory automatic exchange of information in the field of taxation in relation to so called “reportable cross-border arrangements”. The proposal accordingly provides for mandatory disclosure of cross-border arrangements by intermediaries or taxpayers to the tax authorities and mandating automatic exchange of this information among Member States. Its stated objective is to enhance transparency, reduce uncertainty over beneficial ownership and dissuade intermediaries from designing, marketing and implementing harmful tax structures.
Mandatory disclosure for cross-border arrangements
The proposal applies to cross-border arrangements, i.e. an arrangement or series of arrangements in either more than one Member State or a Member State and a third country.
Such arrangements become reportable by intermediaries (or in certain cases by the taxpayers themselves), if they bear at least one of certain generic or specific features (called “hallmarks” and including but not limited to the conversion of income into lower-taxed revenue streams, deductible cross-border payments between related parties where the recipient is resident in a zero or low tax jurisdiction, situations where the intermediary is entitled to receive a fee fixed by reference to e.g. the amount of tax advantage derived, the use of jurisdictions with weak regimes of enforcement of anti-money laundering legislation for identifying the beneficial ownership of legal entities et al).
An intermediary is any person being responsible vis-à-vis the taxpayer for designing, marketing, organising or managing the implementation of the tax aspects of a cross-border arrangement. An intermediary may also be a person who directly or indirectly provides material aid or advice with respect to any of the above activities. Intermediaries are covered by this proposal if incorporated/governed by the laws/resident/registered in an EU Member State.
Timing-wise, Member States will need to take the necessary measures to require intermediaries and taxpayers to file information on reportable cross-border transactions that were implemented between the date of the formal adoption of the proposal by the Council and 31 December 2018. The provisions of the proposed measure are set to apply as per 1 January 2019 with the first information being disclosed by the end of the first quarter of 2019 (being 31 March 2019).
The Commission’s proposal will now be sent to the Council and the European Parliament. The Directive needs to be formally adopted by the Council by unanimous vote, after consultation of the European Parliament.
For more detailed information, please refer to the PwC Newsalert from our EUDTG network.