UK and International Tax news

EC Agrees On Mandatory Disclosure Requirements For Intermediaries

Thursday 7th June 2018

On 25 May 2018, ECOFIN adopted the EC’s proposal from June 2017 which provided for rules aimed at requiring intermediaries to automatically disclose information on potentially aggressive tax planning arrangements.

These Council Directive rules will amend Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation.

The directive targets intermediaries such as tax advisors, accountants and lawyers that design and/or promote tax planning schemes who will be obliged to report these structures to their tax authorities. In turn, EU member states will exchange this information with each other, further increasing scrutiny around the activities of tax planners and advisers.

Recent media leaks such as the Panama and Paradise Papers have exposed how some intermediaries actively assist companies and individuals to escape taxation, usually through complex cross-border schemes.

Cross border tax planning schemes can bear certain characteristics or ‘hallmarks’ that indicate a risk of tax avoidance or evasion. Such hallmarks can include the use of cross border losses to reduce tax liability, the use of special preferential tax regimes, or arrangements through countries that do not meet international good governance standards. Intermediaries that design or provide schemes bearing any one of these key hallmarks will now have to report these schemes to the tax authorities before they are used.

Member states will automatically exchange the information they receive on the tax planning schemes through a centralised database, giving them early warning on new risks of avoidance and enabling them to take measures to block harmful arrangements and carry out audits more effectively. The requirement to report a scheme does not necessarily imply that it is harmful, only that it merits scrutiny by the tax authorities.

Member states have also agreed to implement effective and dissuasive penalties for those companies that do not comply with the transparency measures, creating a powerful new deterrent for those that encourage or facilitate tax abuse.

The new reporting requirements will enter into force on 1 July 2020, with EU member states obliged to exchange information every three months after that. The first exchange will take place by 31st October 2020.

If you would like more details on the new disclosure requirements, please contact Keith Rushen on 0207 486 2378.

 

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