Notification requirements for tax arrangements

The EU and national legislators cast their nets

At the latest with the OECD's BEPS initiative ("Base Erosion and Profit Shifting"), the debate about tax avoidance tactics and profit shifting to countries with a tax rate close to zero has moved into the public eye. The tax structuring of Google and Co. or Cum-Ex transactions are no longer discussed in a small circle of experts, but in public. The resulting political pressure was finally yielded to at the European and national level - to an extent that seems as astonishing as it is excessive.

On 25 May 2018, the member states adopted an EU directive on the obligation to report cross-border tax arrangements. The aim is to identify tax avoidance tactics at an early stage in order, on the one hand, to close existing regulatory gaps through legislative measures and, on the other hand, to be able to intervene in the assessment process of affected taxpayers. Furthermore, the tax authorities hope for a deterrent effect. Since the taxpayer must be named in the notification, the taxpayer is to be deterred from taking appropriate measures in the first place. The last motive in particular is subject to considerable criticism.

The so-called intermediaries, i.e. tax advisors, lawyers, auditors, banks or family offices, who have participated in the structuring of the transaction, are primarily required to report. The taxpayer himself is only secondarily obliged to report. Since the legislator does not (yet) know the tax arrangement to be reported, the duty to report is formulated in abstract terms in order to cover as many arrangements as possible. The vagueness of the law resulting from the wording, which poses considerable problems for the legal practitioner, is therefore both intentional and inherent in the system. As a result, a large number of tax measures are reportable that would never be described as "tax structuring" or "tax model" in common parlance. On the contrary, even numerous "everyday arrangements" or "routine transactions" may be reportable, which is why the day-to-day business of many tax advisors is affected to a large extent.

The added value resulting from such a comprehensive notification - i.e. the gain in information - for the tax authorities must be doubted. For a large number of the reportable arrangements, there is neither a need nor an opportunity to intervene in the legislative procedure or the assessment process. Unimpressed by the massive criticism, the current draft bill defies the massive criticism and is anything but mitigating. As the explanatory memorandum to the bill points out, the reporting obligation for cross-border arrangements will be interpreted rather broadly.

To make matters worse, an extension of the notification obligation to purely national arrangements is also being discussed, so that the circle of those affected would be significantly expanded and every advisor and taxpayer would finally be allowed and forced to deal with the stylistic blossoms of the law. It is to be hoped that the legislator will at least wait for an initial evaluation of the disclosure requirement for cross-border arrangements before extending it to national arrangements.