Global menu

Our global pages

Close

DAC 6 to give teeth to BEPS in the EU - New disclosure rules for advisers and clients on cross-border transactions

  • United Kingdom
  • Tax planning and consultancy

10-07-2018

The latest amendment to the EU directive on administrative co-operation (“DAC”), adopted on 25 May 2018, requires Member States to implement legislation to enforce new disclosure rules. The disclosure rules appear to be directed towards assisting tax authorities in member states to tackle cross border tax avoidance schemes and, in particular, to enforce the various OECD Base Erosion and Profit Shifting (“BEPS”) reforms which are currently being implemented in member states including the UK.

Member States have until 31 December 2019 to enact implementing legislation. Regarding Brexit, if a transitional period is agreed as expected then the UK is likely to be required to implement the directive.

The rules work by requiring disclosure of details of arrangements to the relevant member state tax authority where any one of certain “hallmarks” apply to the arrangements in a similar manner to the UK’s existing Disclosure Of Tax Avoidance Schemes (“DOTAS”) rules but may go further in some areas.

The hallmarks fall into two categories. In some cases the mere presence of a hallmark will make “arrangements” (very broadly defined) disclosable and in other cases one of the main benefits of the arrangement must be a tax benefit.

Marketable arrangements will require periodic reports from the promoter.

Specific hallmarks automatically requiring disclosure include:

• recipient of a tax deductible payment is not resident in any jurisdiction (or is resident in a “non-cooperative” jurisdiction)

• deductions for depreciation or double taxation are claimed in more than one jurisdiction

• material differences in the amount treated as payable/receivable for an asset transfer in different jurisdictions

• a range of hallmarks linked to avoidance of automatic exchange of information provisions and non-transparent legal or beneficial ownership

• a range of hallmarks linked to transfer pricing arrangements.

Where the main benefit or one of the main benefits of the arrangements is expected to be a tax advantage then further hallmarks apply including (in summary):

• confidentiality agreements

• fees related to the amount or existence of a tax advantage

• standardised documentation

• loss buying

• where tax deductible payments are made to associated enterprises:

o conversion of income to capital or other revenue with reduced or zero tax

o circular transactions without primary commercial functions

o payment to jurisdiction with zero or almost zero tax rate

o payment benefits from tax exemption or preferential tax regime where received

Who must disclose?

If there is an adviser or intermediary responsible for the arrangements then that intermediary should disclose (to the tax authorities of its own member state) unless it is protected by legal or other professional privilege (as under national law). If so protected then the intermediary must notify other intermediaries or else the client of their obligation to disclose. The taxpayer does not also need to disclose provided it has proof of disclosure by an intermediary.

If there is no intermediary involved or if the only intermediary declines to make the disclosure under legal professional privilege then the taxpayer must disclose the arrangement (in its own jurisdiction).

There are strict short time limits for disclosures.

Automatic Exchange of Information

Member States will automatically exchange the information disclosed to them under this directive.

Reporting

The exact details of the reporting requirements and the form of report required may vary according to member states implementations but may be influenced by the standard forms to be adopted by the Commission for exchange of information between member states.

To read the text of the amending Directive (COUNCIL DIRECTIVE (EU) 2018/822 of 25 May 2018), click here.

For more information contact

< Go back

Print Friendly and PDF
Subscribe to e-briefings