Mandatory Disclosure Rules: Five Key Questions For Insurers

The Mandatory Disclosure Rules (MDR) arose from the ambitious anti-tax avoidance project on Base Erosion and Profit Shifting (BEPS) that the OECD launched in 2015.

The MDR Directive, also known as DAC 6, is the latest EU initiative regarding the automatic exchange of tax information. Aimed at identifying harmful tax practices and further increasing tax transparency, the MDR will affect various intermediaries (including insurers) and their policyholders involved in cross-border arrangements.

Considering that, in 2018, roughly 80% of collected premiums in Luxembourg were derived from life insurance contracts with policyholders outside of the country, the MDR could lead the Luxembourg insurance business to over-disclose.

Below are the five essential questions about the MDR that insurers need an answer to.

1. What are the key dates?

   The MDR Directive must be transposed by Luxembourg by 31 December 2019 and will generally be applicable from 1 July 2020 onwards. However, retroactive application is foreseen. This means that intermediaries (or taxpayers) will have to report cross-border arrangements implemented between 25 June 2018 and 1 July 2020. This information must be reported by 31 August 2020.

2. How will it work?

   Luxembourg intermediaries (or taxpayers) will have to report predefined cross-border arrangements they assist (or benefit from) if these arrangements satisfy at least one of the features (referred to as "hallmarks") listed in the MDR Directive.

   These arrangements must be reported to the Luxembourg Tax Authorities within 30 days from the day the arrangement is made available or is ready for implementation by the taxpayer. In turn, the Luxembourg Tax Authorities must share this information with all other EU Member States through a centralized database on a quarterly basis. Additionally, some of this information will be disclosed to the EU Commission.

3. Is an insurer an intermediary?

   The reporting obligation will apply to all Luxembourg intermediaries unless they are protected by a legal privilege (e.g. attorney-client privilege), assuming this option is in the draft law.

   An insurance company can be an intermediary if it is a promoter or service provider of a reportable arrangement.

   Regarding the term "promoter," according to the MDR Directive, an intermediary is "any person that designs, markets, organizes or makes available for implementation or manages the implementation of a reportable cross-border arrangement."

   Regarding the term...