Reporting Aggressive Tax Planning in EU

In March 2018 the Council of the European Union reached a political agreement on amending Council Directive 2011/16/EU. This Directive set up mandatory automatic exchange of information in the field of taxation when it comes to cross-border transactions. The goal of this amendment is that intermediaries in such cross-border transactions will be required to report potentially aggressive tax planning arrangements.

Who will be likely required to report?

Under this draft amendment the "intermediary" means any person (i.e., individual or legal person or entity without legal personality) that carries the responsibility vis-à-vis the taxpayer for designing, marketing, organising or managing the implementation of reportable cross-border arrangements provided that the intermediary has a EU nexus and may include, among others, lawyers, accountants, tax, and financial advisors.

If the intermediary has no EU-nexus or is bound by professional privilege or secrecy rules, the obligation to report the tax arrangement may shift to the taxpayer.

What arrangements will be reportable?

There is no clear-cut definition of the "aggressive tax planning arrangements" in the amendment, but there is a list of "hallmarks" that serve as indicators of tax avoidance or abuse. These include arrangements:

  • that involve a cross-border payment to a recipient in a zero-tax or low-tax country;
  • that enable deductions for the same depreciation on an asset to be claimed in more than one jurisdiction;
  • that allow several taxpayers to claim relief from double taxation in respect of the same item of income in multiple jurisdictions.

Entering into force

The new reporting requirement is expected to enter into force on 1 July 2020. The first exchange is planned to take place by 31 October 2020. At the same time, if the amendment is finally adopted the reporting may cover some periods retroactively (i.e., making the tax aggressive arrangements reportable after the date of the amendment's adoption, but before its formal entry into force).

Ukrainian perspective

The amendment was developed on the basis of Action 12 of the OECD Base Erosion and Profit Shifting ("BEPS") initiative. Ukraine undertook to implement the so-called minimum standard (i.e., mandatory BEPS steps that shall be implemented by each country participating in Inclusive Framework Program). This BEPS Action 12 is not included into this minimum standard. At the same time Ukrainian business groups with the EU presence shall carefully review and approach their EU related arrangements and structures. 

For further information please contact Asters' partner Constantin Solyar, and associates Iryna Pavliuk and Iryna Gordiyuk.

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