OECD publishes discussion draft on mandatory disclosure rules
Many tax authorities lack comprehensive and relevant information on potentially aggressive or abusive tax planning strategies (ATP) of tax payers. For this particular reason, the OECD has recently published recommendations for setting up mandatory disclosure rules (MDR).
There is no definition of ATP in this new discussion draft. Instead, there are recommendations about the transactions that should be reportable to the tax authorities in a country by virtue of the adoption of an MDR by that country. Countries that do not have existing MDRs are to be encouraged to adopt them.
The OECD has a focus on international tax schemes. In the international context, the OECD has opted for a domestic reporting regime for arrangements which incorporate a cross-border outcome that ‘involves a domestic taxpayer’.
So-called “hallmarks” are used as tools to identify the features of schemes that tax administrations are interested in. They are generally divided into two categories: generic and specific hallmarks. Generic hallmarks target features that are common to promoted schemes, such as the requirement for confidentiality or the payment of a premium fee. Generic hallmarks can also be used to capture new and innovative tax planning arrangements that may be easily replicated and sold to a variety of taxpayers. Specific hallmarks reflect the particular or current concerns of tax authorities, and can therefore target areas of perceived high risk such as the use of losses, leasing and income conversion schemes.
The draft recommends that MDRs include a mixture of generic and specific hallmarks, but that if a transaction has any one hallmark it should be disclosed to the tax authorities.
Promoters, advisers and other intermediaries would be expected to provide information within their knowledge, possession or control.
The discussion draft envisages that the taxpayer might be required to have an equal reporting obligation with the scheme’s promoter but that a country may dictate that the obligation applies to the taxpayer only if the promoter is prevented from disclosing the scheme. There is also an exemption from a taxpayer having to make a disclosure where, in either case, it is not a party to the arrangement and where the cross-border outcome does not arise within the same controlled group or where the taxpayer is a party to the arrangement.
If a taxpayer has insufficient information to provide a ‘clear, accurate and comprehensive understanding’ of an arrangement, it is proposed that it must identify the parties who it believes to hold the ‘missing information’.
Interested parties still can comment to the draft until April 30, 2015. It will be critical to see how straightforward and simple new MDRs finally will be. Vague or unclear “hallmarks” can create significant uncertainty and an additional compliance burden. It furthermore seems that the proposal in this discussion draft are also partly covered in other proposals of the OECD and for instance the recent announcement of the tax transparency package proposal to be introduced by the European Commission.back to overview