IAFEI Quarterly - 37th Issue

International Working Committees

Arrangements with features of categories (i) and/or (ii)

fall under the Proposal’s scope provided that their prin-

cipal foreseeable implication is tax-related (main bene-

fits test). Category (iii) includes a set of identified strong

indicators of tax avoidance and aggressive tax planning,

e.g. arrangements involving entities without tax resi-

dence or exploiting mismatches of different national

tax laws. Finally, category (iv) refers to features indica-

ting intention to circumvent legislation on automatic

exchange of information.

Primary reporting obligation is imposed on EU tax inter-

mediaries

. Tax intermediaries are defined very broadly,

apparently with a view to catching all professionals that

might assist to the realization of the suspicious arran-

gements

. Hence any person (i) responsible towards a

taxpayer for the “design, marketing, organization and/

or management” of suspicious arrangements or (ii) ma-

terially assisting with the above activities may qualify as

intermediary under the scope of the rules. It is clarified

that where several persons are equally liable to repor-

ting as intermediaries, the main obligation shall lie with

the one(s) assigned with the arrangement’s design and/

or implementation.

However, there are cases of tax intermediaries that

either fall outside the scope of the Proposal or can be

exempted from the respective obligations. As said abo-

ve, the new rules are limited to EU tax intermediaries.

Consequently, persons that are not sufficiently con-

nected with any EU Member State, under one of the

four criteria provided in the Proposal, do not have re-

porting obligations. Furthermore, persons qualifying as

intermediaries but enjoying legal professional privilege

in their Member State have the right to waive the di-

scussed obligations. Where no intermediary has repor-

ting obligations, either for one of the above reasons or

because the suspicious arrangement is designed and

implemented without involvement of tax professionals,

the reporting duty falls on the relevant taxpayer.

It is questionable whether the Proposal is fit for the

purposes assigned thereto. The most alarming question

arising upon its reading refers to the definition of “ar-

rangement”. Despite the fact that the Proposal’s whole

essence is the reporting of arrangements, no clear de-

limitation of the term is given. Similar question-marks

emerge in relation to other core parts of the Propo-

8 The proposal explicitly limits the obligations to intermediaries incor-

porated / residents / registered / based in an EU Member State (art. 1

para. 1 point 21 of the Proposal).

9 According to Working Document accompanying the Proposal, the

term is envisaged to include “consultants, lawyers, financial and in-

vestment advisers, accountants, financial institutions, insurance inter-

mediaries, agents establishing companies or any other type of person

involved in the design of structures potentially leading to tax avoidan-

ce”. Cf. European Commission, Commission Staff Working Document

Impact Assessment (SWD 2017(236)), June 2017.

sal. Indicatively, it is arguable when an arrangement is

made available by the intermediary to the taxpayer for

implementation, thus triggering reporting obligations.

Similarly, clarifications are indispensable for the appli-

cation of the main benefits test. From the above arises

a clear and direct risk of tax uncertainty, with harmful

implications for the function of the Single Market and its

attractiveness to foreign investment. In addition, such

measures could be held to undermine existing rules on

tax professionals’ conduct (e.g. professional codes of

conduct) as well as their intrinsic professional ethos.

Another weak point of the Proposal relates to the ex-

tent compliance therewith may be enforced. Firstly, it

is not clear how Member States (and the Commission)

will verify fulfillment of disclosure obligations, especially

to the extent they refer to arrangements not revealed

otherwise (e.g. through Country-by-country reporting).

Secondly, monitoring the success of the regime shall be

especially challenging taking into account lack of data

on arrangements not disclosed. Most importantly, ta-

xpayers willing to take the risk linked with aggressive tax

planning can always address to non-EU intermediaries,

not covered by the regime. From this perspective, the

regime could drive demand and offer of tax consulting

services outside the EU without actually reducing ag-

gressive tax planning in the Single Market.

Additionally, the Proposal risks to undermine the posi-

tive implications connected with and expected from co-

operative compliance programmes, increasingly adop-

ted around the EU. It has been repeatedly verified that

cooperation between tax authorities and taxpayers can

enhance significantly tax compliance in a globalizing tax

arena

. Successful cooperation though pre-requires

mutual transparency and trust as well as fair allocation

of administrative and compliance burden between the

parties. Nevertheless the measures envisaged in the

Proposal introduce unbalanced new burdens for ta-

xpayers and their advisers while building on generalizing

assumptions as regards the latter.

Concluding, fairness in taxation is not only about fair

distribution of tax burden but also – or more – about

establishment of fair procedures and respect of ta-

xpayers’ rights. Uncertainty over tax obligations and

unbalanced allocation of rights and responsibilities are

not compatible with fair and effective tax systems. De-

spite its merits, we are not entirely convinced that the

Proposal will be able to reach its said goals, at least at its

current form. It might be more prudent to first evaluate

the effects of legislation already adopted for the enhan-

cement of transparency and then proceed therewith, if

necessary.

10 OECD, Cooperative Compliance: A Framework, From Enhance Rela-

tionship to Cooperative Compliance, 2013.