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New EU rules on reporting aggressive tax planning

In late June, the European Commission released a draft of new rules imposing the duty to inform tax administrators of tax planning schemes. It is yet another EU initiative to tackle tax avoidance and evasion.

The draft directive imposes a duty on intermediaries to report any potentially aggressive tax planning scheme in which they are involved as a part of carrying out their profession. The duty is limited to cross-border arrangements, i.e. situations involving more than one member state or a member state and a third country.

Intermediaries are generally understood to be entities who assist taxpayers in designing, organising or implementing tax planning structures or transactions with a cross-border element. In practice, these will be for instance tax and legal advisors, providers of accounting services or banks. Where there is no intermediary (or an intermediary is seated outside the EU), the duty to report will be with the taxpayer using the tax planning scheme.

The directive does not directly define aggressive tax planning. Instead, it lists a transaction’s characteristic features indicating tax avoidance. If the transaction, structure or tax treatment shows at least one of the listed hallmarks, it has to be reported to the tax administrator. These include for instance: payments to countries with zero taxation, circumvention of the EU automatic information exchange duty, using jurisdictions with absent or insufficient anti-money laundering legislation, or the failure to comply with international transfer pricing rules.

The reporting of a scheme does not necessarily imply that the arrangement is harmful, but only that it merits scrutiny by the tax authorities. Member states will then have the duty to exchange the information obtained with other member states every three months, using a centralised database. The directive has to be passed unanimously by all member states. The proposed effective date of the new rules is 1 January 2019.