On May 25, 2018, the EU Economic and Financial Affairs ministers adopted the European Commission's proposal from June 2017 on new transparency rules for intermediaries that design or sell potentially harmful tax schemes.
Ministers had reached political agreement on the European Commission's proposal on March 13 of 2018.
Intermediaries are firms or persons, such as consulting firms, banks, lawyers, tax advisors, accountants, etc. which can help their clients to set up schemes to reduce their tax bills.
Most services provided by intermediaries are legitimate. However, recent cases, such as the Panama Papers, exposed the role that some of these intermediaries may play in international tax avoidance and evasion by designing schemes that are specifically set up to help their clients escape taxation.
The proposal is part of the Commission's ambitious agenda to enhance tax transparency in the EU with the aim to tackle tax abuse and ensure fairer taxation.
How would the proposed measures work in practice?
The Commission proposal aims to provide tax authorities with information about existing potentially aggressive tax planning schemes. In this way, they can scrutinize intermediaries' activities and increase their effectiveness in tackling aggressive tax planning.
Intermediaries will have to report any cross-border arrangement that contains one or more of the following characteristics, which might indicate that the arrangement is set up to avoid paying taxes.
The arrangement has to be reported if it bears at least one of the indicators - "hallmarks" - outlined in the proposal. Examples include arrangements that:
involve a cross-border payment which is deductible at source to a recipient resident in a no-or low-tax country.
involve a jurisdiction with inadequate or weakly enforced anti-money laundering legislation.
are set up to avoid reporting income as required under EU transparency rules.
circumvent EU information exchange requirements for tax rulings.
have a link between the intermediary's fee and the amount of the tax advantage from the arrangement, provided that the main benefit of the arrangements is to obtain a tax advantage.
ensure that the same asset benefits from depreciation rules in more than one country.
enable the same income to benefit from tax relief in more than one jurisdictions.
do not respect EU or international transfer pricing guidelines.
The Member State in which the arrangements are reported must automatically share this information with all other Member States, in a standard format, through a centralised database and on a quarterly basis.
The Commission will have limited access to the information exchanged between Member States, in order to monitor the implementation of the rules.
You can read more practical details on how the proposal will operate in this memo.
The proposal is submitted to the European Parliament and the European Economic and Social Committee for consultation and to the Council for adoption. It is foreseen that the new reporting requirements would enter into force on 1 January 2019, with the Member States obliged to exchange information every 3 months after that.