21 March 2018
9 March 2018
The OECD hopes the new rules, known as mandatory disclosure rules (MDRs), will make it more difficult for the above parties to facilitate tax evasion on behalf of their clients. Governments are already making the preparations to transpose the rules into domestic legislation.
The rules will work in tandem with the automatic exchange of CRS information and provide authorities with a method of identifying taxpayers who do not declare assets and income.
International Tax Review spoke exclusively to Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration, ahead of the release of the rules, which were subject to consultation.
Today, Achim Pross, head of the international cooperation and tax administration division at the same organisation, discuss the new rules in depth with ITR.
International Tax Review: How close are these new rules to the MDR aspects of BEPS Action 12?
Achim Pross: We released the rules earlier today. They are built with Action 12 technology, using the same infrastructure, the same conceptual approach. But they have been adapted to reflect the fact that, consistent with the request in the G7 Bari declaration, they are targeting CRS avoidance arrangements and certain offshore structures, rather than general tax avoidance structures that are typically in focus of mandatory disclosure rules. You could say we have brought together BEPS Action 12 with our work on the CRS and transparency.
ITR: What are the implications for intermediaries?
AP: That depends. The rules use a functional definition, so it depends on what you do, not who you are. So it will affect people that either market or design CRS avoidance schemes or opaque offshore structures. We spent a lot of time with lots of countries gathering stakeholder input to make these two categories of reportable transactions broad enough so that they have the desired effect, but focused enough that they avoid unnecessary compliance costs and avoid swamping tax administrations with vast quantities of not very relevant information.
So intermediaries that market or design such arrangements will know what they do and they are clearly covered by the rules. That is the intention. However, the rules also cover service providers, a defined term, which is met where the person combines an objective element of providing assistance with a knowledge component which links to the type of services they perform. So we are not saying simply because you may have done something that assisted the structure in some way you already become an intermediary. That would not be workable.
If the arrangement falls within the defined categories and you are an intermediary with respect to the arrangement, then there are detailed rules on where you need to disclose as well as when you need to disclose and what you need to disclose. There are also exemptions for attorney client privilege and duplicative reporting. But of course attorney client privilege only goes so far. Not every intermediary is entitled to it and even where it applies it does not apply to everything that happens between an attorney and a client.
ITR: Is there widespread political appetite for the MDRs?
AP: Yes, it was initiated by the G7 and many countries are now actively considering implementing these rules. The EU is in advanced discussions on implementing them together with the implementation of BEPS Action 12 more broadly via a revision to the Mutual Assistance Directive. And if you look at the CRS, it has a chapter 9, which requires countries to have effective anti-abuse provision and here the MDRs can clearly play a role.
There is a lot of interest and we’ll see significant interest over time. These new rules will not go onto the shelf.
ITR: Will FATCA hold back this project?
AP: Not at all. This is about CRS avoidance and opaque offshore structures, and if you are in any country where these rules are applicable, then you are subject to the MDRs. You can’t simply escape the rules by having one aspect of your supply chain elsewhere.
ITR: Is there anything else you would like to add?
AP: One question we have heard is: does it make sense to introduce mandatory disclosure obligations in situations where taxpayers may already seek to avoid tax reporting obligations. Our answer is yes, largely for two reasons: Firstly, the obligations are imposed on intermediaries and the experience of tax administrations and our experience in working with them shows that the supply chain for the structures in focus here typically relies on a number of intermediaries that are susceptible to the imposition of reporting obligations. And second there is a significant part of the high-net-wealth segment that uses offshore structures and that spends significant resources to avoid outright non-compliance with tax obligations including those imposed by the implementation of MDRs. And of course, the rules are also intended to have a compliance behavioural impact.
The above article was published on www.internationaltaxreview.com on March 9 2018 and has been republished with the approval of the Publisher.