New mandatory disclosure of cross border tax-planning arrangements

Jun 11, 2018

New EU rules requiring the disclosure of tax planning arrangements come into force on 25 June 2018.  Although the EU Council Directive, known as “DAC 6” applies from July 2020, transitional measures mean that transactions that fall within the scope of a “cross border tax planning arrangement” as indicated by pre-determined “hallmarks” are reportable where the transaction is first implemented between 25 June 2018 and July 2020.  This cross border mandatory reporting is in addition to the requirements under the domestic Irish Mandatory Disclosure Regime. 

What information?

Reportable transactions are cross border arrangements that involve either more than one EU Member State or a Member State and another country and that contain at least one of the hallmarks set out in the EU Directive.  Essentially a hallmark is a characteristic or a feature of a cross-border arrangement that indicates a potential risk of tax avoidance.  Such indicators can be either a generic hallmark or a specific hallmark.  An example of a generic hallmark is: where the taxpayer complies with a condition of confidentiality which may require them not to disclose how the arrangement could secure a tax advantage.  A specific hallmark example is an arrangement which converts income into capital, gifts or other categories of revenue which are taxed at a lower rate of tax or exempt. 

Some of the hallmarks are linked to a main benefit test.  This test will be satisfied if it is established that the main benefit, or one of the main benefits, is that a person may reasonably expect to derive a tax advantage from an arrangement.  

Some, but not all, of the hallmarks are similar to those which are a part of the Irish Mandatory Disclosure Regime.  However, unlike the Irish regime, the EU Directive does not provide for any exclusion.  (If you want to read more about the Irish Mandatory Disclosure Regime, the Revenue have published guidelines on their website).  

There is no guidance from the EU or Revenue on interpreting the hallmarks, any such guidance is unlikely to be published before 2019.  

When?

Transactions will be first reportable in August 2020.  This is because the Directive applies from 1 July 2020 and the reports are due within 30 days beginning on the earliest of:

  1. the day after the arrangement is made available for implementation or
  2. The day the arrangement is ready for implantation or
  3. The day the first step in the implementation of the arrangements has been made.

It is important to note, that as mentioned above, under transition measures, transactions implemented from 25 June 2018 will be reportable in August 2020.  

The information to be reported is detailed in the EU Directive. The information will be reportable to the Irish Revenue who will then share that information with their EU counterparts.  We expect that the Irish Revenue will produce a form/template that will capture all necessary details reportable. 

Irish legislation to transpose the EU Directive into national law is not expected until 2019 (Finance Act 2019). 

Who?

Generally it is the “intermediary” (advisor) who has an EU presence (resident, incorporated, permanent establishment or registered with a professional association related to legal, taxation or consultancy services, in a Member state) who is responsible for reporting the transaction.  Per the EU Directive an intermediary is defined as “any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement. 

The reporting obligation moves to the taxpayer concerned in the transaction where there are no external advisors, or the intermediary does not have an EU presence or the EU based intermediary can waive their obligation on the grounds of legal professional privilege. 

Next

We will be making representations to Revenue at the TALC forum on the development of guidance on this new EU mandatory disclosure of tax planning arrangements and the format of the prescribed form to capture the detail information reportable.  We will also engage on any draft legislation if made available for our consideration. 

You will need to review your own cases to determine if you are involved as an intermediary or taxpayer in a reportable cross border tax planning arrangements which is first implemented from 25 June 2018.  Information reportable on such transaction will need to be submitted to the Irish Revenue in August 2020. 

The background and full text of the EU Directive (DAC 6) is available here. 

We will keep you informed of any developments via Chartered Accountants Tax eNews.