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Intermediaries – last piece of the BEPS puzzle

Another day, another anti-BEPS legislation. On 21 June, the European Commission proposed ways to increase transparency over companies or professionals that design or promote tax planning arrangements with a cross-border element. They are referred to as “intermediaries” and include lawyers, accountants, tax and financial advisers, banks and consultants. In order to translate Action 12 of the OECD’s BEPS action plan into EU law, the Commission proposed yet another revision of the directive on administrative cooperation in the field of taxation.

The Commission wants intermediaries to report to their tax authority any cross-border arrangement bearing one or more of the ‘hallmarks’ defined in the annex, within five days of giving such an arrangement to their client. The proposal goes beyond the scope of OECD recommendations as it also introduces automatic exchange of the reported information between EU member states. Public disclosure though, which was listed as a policy option in the prior public consultation on the matter, did not make it to the final proposal.

The ‘hallmarks’ (summarised on p.2 here) are features in a transaction that may enable tax abuse or avoidance – like enabling an asset to be subject to depreciation in more than one jurisdiction, or using jurisdictions which appear on the upcoming EU blacklist of tax havens. The ‘hallmarks’ also aim at transactions processed through jurisdictions with no corporate tax, or with a zero rate or a statutory tax rate lower than half of the average statutory corporate tax rate in the EU. Let’s not forget though that over the past year, all references to ‘no or low tax rates’, or to effective tax rate thresholds, were deleted from legislation like the Anti-Tax Avoidance Directive and from the blacklisting criteria, essentially to accommodate those EU countries with low tax rates. The ‘hallmark’ format may sweeten the pill. Not sure this will survive Council negotiations however; same with the proposed article which would empower the Commission to amend the list of ‘hallmarks’ via delegated acts.

In cases where the intermediary is either not based in the EU or bound by professional privilege or secrecy rules, the reporting responsibility lies with the individual or company receiving the advice. And what if there is no intermediary? – arrangements designed in-house are also covered and must be reported by the taxpayer who uses them. The nature of the “effective, proportionate and dissuasive” penalties for those who do not respect the reporting requirements is being left for each member state to decide.

The objectives? – primarily enable tax authorities to react more quickly to risks of tax abuse; ultimately deter intermediaries from designing and marketing aggressive tax arrangements.

With this legislation, most of the OECD BEPS initiatives have now been translated into EU actions, whether through legislative proposals, recommendations, or cooperation in the Code of Conduct Group on Business Taxation and Joint Transfer Pricing Forum. The proposal will be submitted to the Council for adoption by unanimity, and to the Parliament for consultation only. Experience shows that member states are (relatively) keen negotiators for pieces of legislation inspired by OECD BEPS actions. However Estonia remains cautious in the country’s Council Presidency work programme, and rightly so – “we will launch discussions,” Estonia writes, i.e. ‘don’t expect an agreement within the next six months.’

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