Mandatory disclosure for intermediaries

On 13 March 2018, the EU Economic and Financial Affairs Ministers adopted the European Commission’s proposal of June 2017, amending Directive 2011/16/EU. The amendments are in regards to mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements in order to disclose aggressive tax planning arrangements. The aim of the Directive is to enhance tax transparency and combat aggressive tax planning.

Intermediaries or taxpayers will have an obligation to report details of their arrangements if any one of the hallmarks detailed in the Directive are triggered. Member States will need to transpose the Directive into their national legislation by 31st December 2019, while the first reporting is expected in 2020. Penalties for non-compliance will exist. Below we analyse details of the Directive.

Who has an obligation to report?

The obligation of disclosure concerns natural and legal persons who are identified as intermediaries. In the case where an intermediary is not used, or where the intermediary is located outside the EU, the obligation to disclose falls on the taxpayer.
The term intermediary is explicitly defined in the Directive as “any person that carries the responsibility vis-à-vis the taxpayer for designing, marketing, organising or managing the implementation of the tax aspects of a reportable cross-border arrangement, or series of such arrangements, in the course of providing services relating to taxation”. The definition goes on to clarify that an intermediary also means any such person that undertakes to provide – directly or by means of other persons to which it is related – material aid, assistance or advice with respect to the above mentioned activities.

When is reporting necessary?

A cross border arrangement is reportable if it meets one of the hallmarks defined in the Directive. The hallmarks are divided into general hallmarks and specific hallmarks, and the ones which fall within category B of the Directive will only be triggered if the main benefit test is met, whereby the main purpose of an arrangement (or a series of arrangements) is to obtain a tax advantage.

The Category B hallmarks include (i) arrangements where the taxpayer uses losses to reduce tax liability, including transfer of those losses to other jurisdictions; (ii) conversion of income into capital, gifts or other types of income which are taxed at lower tax rates; and (iii) the use of interposed entities with no real commercial function through which funds are round tripped and/or cancelled off.

The remaining hallmarks which trigger reporting are split into various categories as listed below:
Category A – General Hallmarks
1. When the involved taxpayer undertakes a confidentiality condition which may require them not to disclose how the arrangement could secure a tax advantage in relation to other intermediaries or tax authorities
2. When the intermediary is entitled to a fee which is fixed to either the amount of tax saving or to whether a tax advantage is achieved
3. When standardised forms which do not require to be tailor-made are used

Category C – Cross-border transactions
4. Deductible payments between related parties when no or low (i.e. half than standard EU tax rate) tax is paid in the country of the receiving party
5. When payment benefits from tax exemption or preferential tax regimes
6. When hybrid mismatches exist
7. When the same asset is allowed to be depreciated in more than one jurisdiction
8. Double taxation relief claimed in more than one jurisdiction
9. There is a transfer of assets with a material difference in the amount treated as payable in consideration for those assets in the jurisdictions involved

Category D – Specific hallmarks concerning automatic exchange of information agreements in the Union
10. Use of jurisdictions which are not bound to automatic exchange of information
11. Reclassification of types of income to avoid automatic exchange of information
12. Use of legal entities or structures which are not captured by automatic exchange of information
13. Use of jurisdictions with weak enforcement rules in relation to anti-money laundering procedures, including jurisdictions with lack of rules for identifying beneficial owners

Category E – Specific hallmarks concerning transfer pricing
14. Arrangements which do not conform with arm’s length principles or with OECD transfer pricing guidelines
15. Arrangements which fall within the scope of automatic exchange of information on advance cross-border rulings but which are not reported

What information is reportable?

The information will be reportable using a standard format which is to be developed by the Commission (expected by the end of 2019) and will include, amongst others, details on the intermediary, the hallmark met, the taxpayer involved, and the tax scheme. The competent authority receiving the reported information will exchange the information with the involved Member States under automatic exchange of information on an annual basis.

When will reporting be due?

Reporting will be due within thirty days from the day after the arrangement (i) was made available for implementation, (ii) was made ready for implementation or (iii) when the first step for implementation took place, whichever occurs first.

Timing and Penalties

Member states have an obligation to transpose the Directive into their local legislation by 31st December 2019, whilst the first reporting should be made between Member States by 31st October 2020.

The proposed legislation leaves it to Member States to lay down the penalties applicable against the violation of the national rules that transpose the Directive into local legislation. Member States are expected to take all measures necessary to ensure that the penalties shall be effective, proportionate and dissuasive.


The Directive is expected to have a significant impact on information exchanged between Member States. As the Directive can be broad in many of its provisions, guidelines are expected to be issued before the entry into force date. We will closely follow any further developments and will issue further alerts on this subject.

Maria Nicolaou

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