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EU mandatory tax disclosure rules take effect

HMRC have released interim guidance for agents on the new EU Mandatory Disclosure Rules and new reporting requirements for intermediaries, which apply from June 2018.

Under the new mandatory EU tax disclosure rules, information will be exchanged between member states on a quarterly basis. Intermediaries will first have to report by 31 August 2020, on any arrangements where the first step has been taken, after the directive enters into force on 25 June 2018.

Broadly, the EU directive on administrative cooperation applies to intermediaries who design, market, organise, or makes available for implementation (or who manage the implementation of) a reportable cross-border arrangement. The directive also covers those who provide aid, assistance or advice where they can be reasonably expected to know that this is what they have done. If the intermediary is located outside the EU or is bound by professional privilege or secrecy rules, the obligation to report passes to the taxpayer.

Intermediaries are required to report any cross-border arrangement (covering all direct taxes) if it bears the ‘hallmarks’ defined in the directive. The hallmarks cover a broad range of structures and transactions, including certain deductible payments which are taxed at a rate of zero or nearly zero when received and intercompany transactions which meet specific transfer pricing hallmarks, such as any transfer of hard-to-value intangibles.

Intermediaries must report to the relevant tax authority within 30 days of when the arrangement is made available, is ready for implementation or has been implemented – whichever occurs first, or of when the aid, assistance or advice is provided.

Intermediaries are not expected to carry out additional due diligence and will only have to report information which is in their knowledge, possession or control.

Further details on how member states should interpret ‘reasonably expected to know’ can be found in the OECD’s commentary on the mandatory disclosure rules. HMRC state that they will assess the consequences of this directive for the UK and will issue further guidance as appropriate.

For further information, see the OECD Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures.

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