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EU adopts Mandatory Disclosure Rules for tax advisors as from 2020

Tax advisors and other intermediaries who advise on tax should exchange information about certain advice with the tax authorities from 2020 onwards. This obligation stems from a directive which will enter into force on 25 June 2018. The mandatory exchange of information applies to cross-border transactions that meet certain hallmarks. These hallmarks should indicate certain undesirable tax planning. The European rules build on other European transparency rules and anti-abuse measures, with the aim of preventing tax avoidance. EU Member States must have implemented the rules by 31 December 2019 in their laws.

What does this mean to you?

If you are advised on cross-border transactions with one of the listed characteristics, your advisor may need to exchange information about this transaction with the tax authorities. Only in certain cases will you have to report yourself, for example if you do not make use an advisor but do cross-border transactions that meet one of the hallmarks. The aim of the EU is to allow member states to adjust their legislation if necessary, so that unwanted tax planning can be prevented. It is not the intention that the position of individual taxpayers be further investigated based on this information.

Hallmarks of transactions for which information must be exchanged

Intermediaries and - in some cases - taxpayers will have to exchange information on cross-border transactions with certain characteristics. It must therefore be a transaction involving at least one EU Member State and another state (inside or outside the EU). This may concern transactions with consequences for profit taxes or other direct taxes, for example consequences of salary splits. Information is only needed about transactions that meet certain characteristics.

These characteristics occur, for example, with transactions where a tax-deductible payment is made to a company in another jurisdiction, where

  • The recipient of the payment is, according to the tax laws, not established is any jurisdiction; or

  • The recipient of the payment is established in a country where no or very little profit tax is levied; or

  • The payment in the country of the recipient is exempt from profit tax; or

  • The payment in the country of the recipient is subject to a particularly advantageous tax.

For the hallmarks mentioned above, information exchange is only mandatory if the tax advantage is the main objective or one of the main objectives of the transaction. For a number of other hallmarks, it is not necessary for the main objective or one of the main objectives to achieve a tax benefit. This applies, for example, to transactions where transfer prices are determined for hard-to-value intangible assets.

Exchange of information

If information is to be reported, this must be done within 30 days after the transaction has been advised or can be set up. When a Member State has received this information, it will be exchanged automatically with other EU Member States involved in the transaction.

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