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New transparency rules for tax intermediaries

Jul 27, 2018
Niamh Gaffney explains the ins-and-outs of the EU Tax Intermediaries Directive.

The EU Tax Intermediaries Directive became effective from 25 June 2018 and obligates EU member states to enact domestic legislation to require taxpayers or their advisers (intermediaries) to disclose details of certain cross-border arrangements to their local tax authority. The Directive also provides that these details can then be shared by the local tax authority with their European counterparts. 

The purpose of the Directive is to allow member states’ tax authorities to obtain comprehensive and relevant information about “potentially aggressive tax arrangements”, with a view to allowing the authorities to close loopholes, undertake risk assessments and/or carry out tax audits. 

Although the Directive is similar to our existing domestic mandatory disclosure regime, there are some significant differences. The categories of reportable transactions are very broad, covering diverse arrangements, some of which do not have any tax motivation. It is widely envisaged that a very significant number of transactions may become reportable annually to the Irish Revenue Commissioners once these provisions take effect. 

The Directive must be enacted into Irish domestic law by 31 December 2019, with first reports due on or before 31 July 2020. However, due to its retroactivity, the Directive is relevant immediately. 

So, what is in scope?

The Directive applies to “reportable cross-border arrangements”. A cross-border arrangement is, according to the Directive, “an arrangement concerning either more than one member state or a member state and a third country”. Therefore, where any arrangement is put in place involving more than one jurisdiction, the provisions of the Directive should be considered. 

A cross-border arrangement becomes reportable where the arrangement satisfies at least one of the “hallmarks” set out in Annex IV of the Directive. 

What is a hallmark?

A hallmark is a characteristic or feature of a cross-border arrangement which, according to the Directive, presents an indication of a potential risk of tax avoidance. A key point to note is that some hallmarks will give rise to a reporting requirement, even where no tax avoidance motive is present within the arrangement in question.

What is an intermediary? 

In Ireland, an intermediary is likely to be a tax or accounting firm, a law firm or other advisor working in Ireland with clients on cross-border transactions. 
Where there is no intermediary, the intermediary has legal professional privilege, or if the intermediary is not resident in an EU member state, the onus is on the taxpayer to report to Revenue.

When is reporting required?

The Directive requires cross-border arrangements to be reported to Revenue within 30 days beginning after the arrangement is made available, ready for implementation or the first step in the implementation has been made. 

The 30-day time limit commences from 1 July 2020. However, reportable arrangements, the first step of which was concluded on or after 25 June 2018, are to be reported by 31 August 2020. 

Details to be reported 

The Directive requires a significant amount of information to be reported in relation to each reportable arrangement, including an identification of the taxpayers and intermediaries, a summary of the arrangement including the date of the first step, an indication of the hallmarks which apply, the relevant national legislative provisions, and the value of the arrangement.

The Directive outlines that the penalties for non-compliance “shall be effective, proportionate and dissuasive”. 

What next? 

From 25 June 2018, all new cross-border arrangements should be considered in light of the hallmarks and a decision taken as to whether or not a particular arrangement is likely to be reportable under the Directive. 

For reportable transactions, relevant details should be recorded and stored, ready for reporting to Irish Revenue, in whatever format they prescribe, in August 2020.

Niamh Gaffney is a Director in the Tax and Legal department in Deloitte.