In its fight for fair taxation and increased tax transparency, the EU Commission recently introduced new tax reporting obligations (also known as "mandatory disclosure rules") which could affect any EU intermediary or taxpayer involved in cross-border arrangements or transactions.
The most pressing feature of these changes is the one that makes the rules effective retroactively. This means that reportable arrangements done between 25 June 2018 (the new rules' date of entry into force) and 1 July 2020 will have to be reported by August 2020.
So, taxpayers and intermediaries: are you ready now to identify and record cross-border transactions you'll make tomorrow? Because they may have to be reported to authorities after the go-live date two years from now. If you answered no, then now is the time to act!
How do the rules work?
EU intermediaries (or taxpayers) will have to report, to their local tax authorities, certain cross-border arrangements that they design or promote if these transactions bear any of the features or "hallmarks" defined by the new rules. For example, certain cross-border financing arrangements with tax-exempt entities or corporate reorganisations involving the transfer of intangibles might need to be reported. Then, the Member States given this information must automatically share it with all other EU Member States via a centralised database (and, for certain aspects of the information, with the EU Commission).
Who will be concerned?
In practice, the reporting obligation applies to all intermediaries resident or established in the EU, unless protected by a legal professional privilege. In the latter case, the reporting obligation will be shifted to the taxpayers. As the new rules currently lack precise definitions, the scope is potentially very wide, applying to a broad range of tax professionals (such as tax advisors and lawyers) and financial institutions (such as banks and insurance companies). Indeed, the reporting may also be required by persons who are not primarily engaged in the provision of tax services including, for example, corporate service providers, fund managers, etc. In-house teams (of a company within a taxpayer group) could additionally be considered intermediaries in certain situations.
As the rules will start applying soon, here are some of the questions you should seek answers to (probably sooner rather than later):
- Will your company be considered as an "intermediary" subject to the new reporting obligations?
- In which cases will the reporting obligations be shifted to the taxpayer?
- Will your transactions meet one of the hallmarks and thus be considered reportable?
- Do you have the right internal control framework and processes in place to start tracking reportable transactions?
- What are the possible consequences of inaccurate reporting or failure to report?
- What actions must be taken if it can be anticipated that a transaction will have to be reported?
What should you do now?
Until further guidance is issued by the local tax authorities, which should happen when they introduce these rules into their local legislations, uncertainties on how to interpret the broad terms of the new rules will remain.
Nevertheless, taxpayers and intermediaries should already start maintaining lists of potentially reportable transactions, so they can assess them under the new rules (when more clarity is given on how to do so) and be better prepared to report in 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.