On March 13th 2018, the European Council reached a political agreement on the extension of the Directive on administrative cooperation (hereafter “the Proposal”). In substance, persons that are directly or indirectly involved in setting up of cross border arrangements (hereafter the “Intermediaries”) will be obliged, as from July 1st 2020 onwards, to disclose every cross-border arrangement as soon as it contains one or more of the indicators listed in the Proposal.
It should be noted that the obligation will have a retroactive effect and will cover all the reportable cross-border arrangements that have been implemented after the entry into force of the Proposal (most likely in the coming months).
The aforementioned indicators, so-called “hallmarks”, are listed in the Annex of the Proposal. A “hallmark” is defined as a “characteristic or feature of a cross-border arrangement that presents an indication of a potential risk of tax avoidance". For some of these hallmarks, the Proposal foresees that the arrangement is only reportable, if additionally to the presence of the hallmark, one of the main reasons of the structure was to obtain a tax advantage (the so-called “main benefit test”).
Under certain conditions the Intermediaries will not be subject to the reporting obligation, e.g. because they are non-EU intermediaries. In addition thereto, the Proposal provides for the possibility to exclude from the reporting obligation Intermediaries that are subject to professional secrecy rules (e.g.: lawyers). In those cases, the burden to disclose the arrangement is shifted to the taxpayer himself.
The information collected by the tax administration will then be shared through a central directory with all the other Member States in order to “enable their authorities to be able to promptly react against harmful tax practices and to close loopholes through enacting legislation.” Furthermore, the EU legislator expects that those reporting obligation, will have a deterring effect on those promoting aggressive tax planning schemes.
It is debatable to what extent the amendment is in line with EU primary Law. Following the principle of proportionality “the action of the EU must be limited to what is necessary to achieve the objectives of the Treaties”. By generally presuming that every arrangement that fulfils one of the criteria is potentially abusive and worth to be reported, one could consider that the Proposal places a disproportionate burden on the Intermediaries/taxpayers. In addition, the very broad scope of what could be considered a “reportable cross-border arrangement” will create significant legal uncertainty.