On May 25, 2018, the Council of the European Union adopted a Directive whereby a new reporting obligation for cross border tax structures was introduced (EU Directive 2018/822). The notification must be done as from July 1, 2020 but also constructions where the first step of implementation is taken as from June 25, 2018 (i.e. the date of entry into force of the directive) must be reported. EU Member States have until December 31, 2019 to convert the directive into their national legislation.
The new reporting obligation must be seen as the extension of the automatic exchange of information within the EU to tackle aggressive cross border tax planning.
Which tax structures must be reported?
Only cross-border arrangements or a series of arrangements must be reported. This means that the arrangement must concern more than one Member State or a Member State and a third country.
Further some hallmarks need to be fulfilled. Some hallmarks trigger the reporting obligation themselves while for others also the main benefit test must be fulfilled. This last test is met when the main benefit or one of the main benefits is the obtaining of a tax advantage which can reasonably be expected from the arrangement taking into account all relevant facts and circumstances.
Examples of the first category are:
Examples of the second category are:
Who must report?
The reporting must be done by an intermediary that has sufficient links with a Member State (f.e he is a tax resident of that State or he has a permanent establishment in that State).
An intermediary is defined as ‘any person that designs, markets, organizes or makes available for implementation or manages the implementation of the reportable cross-border arrangement’ as well as ‘any person that undertakes to provide, directly or by means of other persons, aid, assistance or advice’ regarding the activities as mentioned before.
In practice it concerns accountants, tax consultants, lawyers, banks and other intermediaries.
If there are more than one intermediaries, each intermediary must report unless he can prove that the reporting obligation has been done by another intermediary.
In case an intermediary is protected by law to disclose information or in case there is no intermediary, the tax payer himself must do the reporting.
What information needs to be reported?
The information to be reported includes amongst others the identification of the parties and intermediaries, the hallmarks, a summary of the tax structure, the value of the cross-border arrangement, national provisions that form the basis for the structure, Member States affected by the arrangement, ….
When the reporting must be done?
The reporting must be done within 30 days starting on the day after the arrangement:
For arrangements as from June 25, 2018, the reporting must be done before August 31, 2020.
The EU Member States will then exchange the reported structures on a quarterly basis.
With this Directive, the EU implements a new reporting requirement with a vast and yet vague scope, therefore increasing the risk of cross-border tax disputes.