The practical uncertainties are multiplying. The reporting obligation for cross-border tax arrangements raises numerous questions.
Prof. Dr. jur. Klaus von Brocke examined the topic in detail for nwb.
The directive is addressed to the Member States
It has by now become widely known in practice that the EU Reporting Directive has, since 25 June 2018, imposed certain documentation obligations in view of a reporting duty as of 31 August 2020. From an EU law perspective, it is already questionable how a directive addressed to the Member States can produce legal effects to the detriment of the taxpayer prior to the legislative act of transposition. To date, the only recognised principle is the so-called immediate or direct effect of a directive provision, which allows EU citizens to invoke provisions that are favourable to them. Not only are intermediaries and the relevant taxpayers confronted with a multitude of indeterminate legal concepts, but the directive also merely sets a minimum standard, with Member States being free to enact more extensive disclosure obligations within the framework of national transposition. In addition, those affected must deal with a further 26 possible variants of transposition, given that the subject matter concerns cross-border tax arrangements.
Novelty of the sanctions
Admittedly, this compounded problem has always existed with directives in the area of direct taxation. However, in the case of the favourable tax directives (Parent-Subsidiary Directive, Merger Directive, Interest and Royalties Directive) as well as the less favourable ones (CBCR Directive), non-compliance with the directive's requirements has not been subject to criminal or administrative fine sanctions. The situation is well known to be different under the Reporting Directive. It is therefore to be welcomed that, at least at present, the German legislator does not, in the current draft bill of 30 January 2019, provide for any sanctioning of incorrect or entirely omitted reporting in respect of tax arrangements whose first implementation step takes place between 25 June 2018 and 1 July 2020. However, as described, this is not sufficient if only one's own state refrains from imposing sanctions for the pre-effective period. The other Member States are equally in focus, and the deterrent example of Poland may not remain an isolated case.
Poland as a deterrent example
Not only has the Polish legislator already activated the reporting obligations as of 1 January 2019, but the partly very draconian penalties and the broadened scope of application have led to the following: first, when in doubt, everything is reported, and second, a number of companies are already considering scaling back or entirely abandoning their activities. In particular, the requirement that the advisor (not just the advisory firm) be reported personally and provide a signature has caused deep uncertainty within the advisory profession. As far as can be seen from a survey of the national transposition proposals published to date — among others those of France, the Czech Republic, Slovakia, the Netherlands, Sweden, Cyprus and Lithuania — Poland is the negative outlier. It is therefore to be hoped that this negative special case will remain just that and not find further imitators.
The Netherlands as a shining example?
In contrast, the somewhat more liberal and pragmatic approach of the Dutch legislator is to be assessed very positively. Within the framework of a general preliminary review, it is up to the Dutch intermediary to independently assess, for purposes of the reporting obligation, whether an arrangement constitutes a potentially aggressive tax arrangement. In my view, this is consistent with the purpose of the directive and, on a reasonable view, would also lead to a sound handling of the scope of the hallmarks, functioning effectively as an initial pre-filter for arrangements that may be subject to reporting.
The problem remains: pressure to act amid considerable uncertainty
Irrespective of the various draft laws in circulation, the addressees of the directive — by which I mean the affected taxpayers and advisors — remain obliged to act, review and, where applicable, document already now, in an iterative interplay with the progressing legislative activities of the Member States involved in a tax arrangement. One thing is certain: many companies see themselves as collateral damage in a development leading to BEPS and the Reporting Directive, which demands enormous resources and coordination with their respective advisors.
Conclusion
The Reporting Directive opens new chapters of European law in many respects. While, on the one hand, this provides a fertile new field of activity for advisors and lawyers, on the other hand it constitutes a considerable expenditure of cost and time for taxpayers. The immense uncertainties in the pre-effective period — caused by the minimum standard, linguistic and legal ambiguities, and the 27 different transposition variants — would have been avoidable, but are now reality and must be overcome until a reasonably legally certain handling is achieved. An entirely different question is how these considerations can be addressed in terms of process. That topic is reserved for a further blog post.
Source: www.nwb-experten-blog.de
published on 27 May 2019 by Prof. Dr. jur. Klaus von Brocke
Frequently asked questions
Frequently asked questions
When does the documentation obligation for cross-border tax arrangements under the EU Mandatory Disclosure Directive apply?
The EU Mandatory Disclosure Directive (DAC6) has triggered certain documentation duties as early as 25 June 2018, even though the actual reporting obligation only needs to be fulfilled by 31 August 2020. This creates a so-called look-back period during which taxpayers and intermediaries must review and document relevant arrangements, even though the national implementing legislation has not yet been fully enacted.
Does the German ministerial draft provide for sanctions during the retroactive reporting period?
No, the German ministerial draft dated 30 January 2019 does not provide for sanctions for incorrect or omitted reporting of tax arrangements whose first implementation step occurs between 25 June 2018 and 1 July 2020. However, this does not protect against possible sanctions imposed by other Member States whose laws may also apply.
Why is Poland considered a cautionary example regarding implementation of the reporting directive?
Poland activated reporting obligations as early as 1 January 2019, introduced draconian penalties and broadened the scope of application. In addition, the individual advisor must be reported personally and provide a signature. This creates considerable uncertainty and is prompting companies to scale back their activities in Poland or to report everything as a precaution.
How do the Netherlands regulate the reporting obligation, and where lies its pragmatic approach?
The Netherlands requires a general preliminary review by the intermediary: the intermediary independently assesses whether an arrangement constitutes a potentially aggressive tax arrangement within the meaning of the Directive. This prefilter allows for a pragmatic handling of the hallmarks and reflects the spirit and purpose of the Directive, without overburdening advisors and taxpayers with blanket reporting.
What practical problems arise from the 27 different national implementations?
The Directive only sets a minimum standard, allowing each Member State to impose further-reaching disclosure obligations. For cross-border arrangements, intermediaries and taxpayers may therefore need to observe up to 27 different national rules with vague legal terms in parallel. This causes significant legal uncertainty, high coordination and resource costs, and the risk of diverging sanction regimes.