New draft tax rules see the EU tighten the net on cross-border tax planning. In this short article, we explore the proposals and the impact on clients, advisors and intermediaries.
In a manner reminiscent of the Disclosure of Tax Avoidance Schemes (DOTAS) and other more recent UK tax avoidance measures, the EU Commission has recently announced draft rules which, when adopted, will mean that financial advisors and other professionals face heavy fines if they are found to have helped individuals or companies cut their tax bills by using “aggressive tax planning schemes”.
Under the proposals, advisers will be required to notify EU authorities about schemes that move a client’s wealth to low tax jurisdictions such as the Cayman Isles, Malta or other jurisdictions such as the Channel Islands.
The obligation to report a cross border scheme bearing one, or a number of EU identified hallmarks will fall on:
- The intermediary who supplied the cross-border scheme for implementation and use by the company or individual
- The company or individual receiving the advice where the intermediary providing the cross-border scheme is not based in the EU, or where the intermediary is bound by professional privilege or secrecy rules
- The company or individual implementing the cross-border scheme where it is developed by in-house tax consultants or lawyers.
Key hallmarks identified by the EU include the use of losses to reduce tax liabilities; the use of special beneficial tax regimes, and/or arrangements with countries that do not meet international good governance standards.
Member states will automatically exchange information about notified schemes to provide early warnings to tax authorities, who can take appropriate measures to ensure that domestic tax revenues are not put at risk. It is accepted, however, that the requirement to report a cross border scheme does not imply that it is aggressive tax planning.
Penalties for those who do not comply with the reporting rules will be set by each member state and those penalties are expected to be at a sufficiently punitive level to encourage full compliance with the transparency measures.
All intermediaries are covered by the rules and details of every cross-border arrangement, containing one or more hallmarks, must be reported to the intermediary’s home tax authority within five days of it being made available to the individual or company. Where the intermediary is outside the EU, the individual or company using the scheme is obliged to make the notification to the appropriate tax authority.
The new rules are expected to come into force from the 1st January 2019, and the exchange of centrally held information between member states will be made every three months after that. Separately, the UK is already consulting on its own reporting regime for intermediaries who help establish offshore structures that might be capable of being utilised for tax evasion purposes, even though the structure may be for a legitimate commercial purpose.
Exchange of information between tax authorities is a growing issue for all intermediaries and clients with structures and assets held outside jurisdictions in which they are resident. We plan to continually revisit this area and to update our clients over the coming months.
If you have any concerns or would like clarification on any aspect of this growing area of compliance, please get in touch with your usual Trident Tax advisor or if you are contacting us for the first time, please contact your nearest Trident office.