Political Agreement Reached On EU Proposal Setting New Transparency Rules For Intermediaries

Yesterday, the EU Finance Ministers reached a political agreement on the Proposal for a Council Directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (the "Directive Proposal").

Our tax alert provides an overview of

what will need to be reported who will be subject to the new reporting duties when the reporting will have to be performed What will need to be reported under the Directive Proposal?

The Directive Proposal aims at the disclosure, by EU intermediaries, of potentially aggressive tax planning arrangements of a cross-border dimension.

Therefore, in order to be subject to mandatory reporting, the arrangement has to:

be cross-border; and be a potentially aggressive tax planning arrangement. An arrangement is considered as cross-border if, subject to certain conditions, it concerns either more than one EU Member State or, an EU Member State and a third country.

The Directive Proposal does not provide us with any precise definition of the concept of aggressive tax planning. Instead, the thinking is that it would be more effective to capture potentially aggressive tax arrangements through compiling a list of features and elements of transactions that present a strong indication of tax avoidance or abuse.

As a result, cross-border arrangements containing at least one of the characteristic or features that present an indication of a potential risk of tax avoidance, as listed in Annex IV of the Directive Proposal (the "Hallmarks"), are considered as reportable. The Hallmarks are classified in 5 categories:

General Hallmarks linked to the main benefit test; Specific Hallmarks linked to the main benefit test; Specific Hallmarks related to cross-border transactions; Specific Hallmarks concerning automatic exchange of information and beneficial ownership; and Specific Hallmarks concerning transfer pricing. Most of the listed Hallmarks are quite broad and do not, per se, capture aggressive tax planning or tax avoidance only.

Therefore, in order to be taken into account, they must fulfil a main benefit test. This test will be satisfied if "it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage". This main benefit test has the merit of not being subject to...

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