European Union: European Commission Proposes New Advisor Disclosure Obligation For Aggressive Tax Planning

Last Updated: August 23 2017
Article by Alev Fanny Karaman and Stanley C. Ruchelman

In the current context of tax transparency, fair and effective taxation, and global tax good governance, the European Commission (the "Commission") recently pushed existing disclosure obligations one step further. On June 21, 2017, it published a proposal for a Council Directive (the "Proposal") amending Directive 2011/16/EU dealing with automatic exchange of information in the field of taxation (the "Directive").1 The Proposal requires certain intermediaries, including tax lawyers, to report certain potentially aggressive tax arrangements.

The Proposal comes in the context of B.E.P.S. Action Plan 12 (Disclosure of Aggressive Tax Planning) and the fact that certain financial intermediaries and tax advisors – as revealed again by last year's Panama Papers scandal – presumably assisted clients in hiding wealth in offshore jurisdictions.

In the press release announcing the proposal, the Commission's Pierre Moscovici stated:2

We are continuing to ramp up our tax transparency agenda. Today, we are setting our sights on the professionals who promote tax abuse. Tax administrations should have the information they need to thwart aggressive tax planning schemes. Our proposal will provide more certainty for those intermediaries who respect the spirit and the letter of our laws and make life very difficult for those that do not. Our work for fairer taxation throughout Europe continues to advance.

Currently, E.U. Member States are not required to exchange information when they are made aware of tax avoidance or tax evasion plans. The Proposal aims at changing this by scrutinizing intermediaries (such as lawyers, accountants, and bankers) and requiring them to disclose potentially aggressive tax planning arrangements that contain a cross-border element. This disclosure would be done by a timely automatic exchange of information. According to the Commission, only uniform action would provide the appropriate level of disclosure to prevent abusive tax planning involving intermediaries. Consequently, the scope of existing automatic exchange of information between tax authorities must be extended.

At the E.U. level, Ireland, Portugal, and the U.K. already have mandatory disclosure rules in place.

In an attempt to keep compliance costs as low as possible, only the minimum necessary framework for disclosure will be established. The Commission cites the following examples:

  • The rules set out clear reporting responsibilities to avoid double reporting.
  • The common rules are limited to addressing potentially aggressive tax planning schemes with a cross-border element within the E.U.
  • There will be no publication requirement of the reported tax schemes, only automatic exchange between Member States.
  • Penalties for non-compliance will be established under the provisions that implement the Directive into national law and will remain under the sovereign control of Member States.

Member States will retain jurisdiction to decide how to pursue cases of illegitimate arrangements, but the exchange of information will be automatic.3 The first reports would be due by March 31, 2019.4


Since tax planning evolves, the Commission chose not to define what constitutes a potentially aggressive tax arrangement. Instead, it identified certain hallmarks of potentially aggressive tax plans. These hallmarks describe aspects of transactions that present a strong indication of tax avoidance or abuse. If a hallmark exists, the plan must be reported to the tax authorities.5

Annex IV6 lists five types of hallmarks (with the two first only taken into consideration if the plan meets the "main benefit test" discussed below):

  • Generic Hallmarks. These hallmarks include (i) arrangements entered into to take advantage of confidentiality; (ii) arrangements under which intermediaries are entitled to a fee linked to the tax advantage provided for by the arrangement, or to the absence thereof; and (iii) arrangements that are based on the use of standardized forms that need not be adapted to every single taxpayer.7
  • Specific Hallmarks Which May Be Linked to the Main Benefit Test. These include (i) arrangements triggering the use of losses, (ii) arrangements converting the nature of an income flow from ordinary to another low-taxed category, and (iii) certain circular transactions that result in offsetting certain income flows.8
  • Specific Hallmarks Related to Cross-Border Transactions. These hallmarks include (i) arrangements that entail a deductible payment made to a recipient that will not be taxed on receipt, (ii) depreciation deductions taken in more than one jurisdiction on the same asset, (iii) items of income for which more than one taxpayer can claim double-taxation relief, and (iv) arrangements containing transfers of assets to other jurisdictions that reduce the amount payable in consideration of the assets.9
  • Specific Hallmarks Concerning Automatic Exchange of Information Agreements in the E.U. This category targets arrangements circumventing automatic exchanges of information, resulting in unreported income in the taxpayer's country of residence.10
  • Specific Hallmarks Concerning Transfer Pricing. These include arrangements that do not conform to the arm's length principle or the O.E.C.D.'s transfer pricing guidelines. They also include arrangements that fall within the scope of existing automatic exchange of information provisions concerning advance cross-border rulings but that are not reported or exchanged.11

The "generic hallmarks" and the "specific hallmarks which may be linked to the main benefit test" are taken into account only when the main benefit of an arrangement is to obtain a tax advantage (the "main benefit test"). This occurs:

* * * if it can be established that the advantage is the outcome which one may expect to derive from such an arrangement, or series of arrangements, including through taking advantage of the specific way that the arrangement or series of arrangements are structured.

Plans that exemplify the various hallmarks include the following:12

  • Plans that involve a cross-border payment to a recipient resident in a no-tax jurisdiction
  • Plans that involve a jurisdiction with inadequate or weakly enforced anti-money laundering legislation
  • Plans that are set up to avoid reporting income as required under E.U. transparency rules
  • Plans that circumvent E.U. information exchange requirements for tax rulings
  • Plans that have a direct correlation between the fee charged by the intermediary and the tax savings from the arrangement
  • Plans that result in depreciation deductions to be claimed on the same asset in more than one country
  • Plans that enable the same income to benefit from tax relief in more than one jurisdiction
  • Plans that do not respect E.U. or international transfer pricing guidelines


Intermediaries are responsible for reporting a potentially aggressive plan, if they designed, marketed, organized, or managed the transaction while providing tax-related services. In addition, in order to be an "intermediary," an advisor must have a contact with the E.U. This means that the advisor must meet at least one of the following criteria:13

  • Incorporated in, and/or governed by the laws of, a Member State
  • Resident, for tax purposes, in a Member State
  • Registered with a professional association related to legal, taxation, or consultancy services in at least one Member State
  • Based in at least one Member State from where the person exercises their profession or provides legal, taxation, or consultancy services

Intermediaries can be individuals or legal entities, including entities that have no legal personality.

In certain circumstances, the obligation to report is shifted to the taxpayer. This will occur when (i) the intermediary is not able to disclose the information because of a privilege enjoyed by the taxpayer, such as the attorney-client privilege of confidentiality; (ii) the intermediary has no European presence; or (iii) the plan is designed in-house. In any such fact pattern, the disclosure obligation shifts to the taxpayer.14 When this shift occurs due to a privileged situation, the intermediary must inform the taxpayer of this shift in responsibility.15


In order to effectively deter implementation of aggressive tax plans, the disclosure obligation must be made at an early stage, ideally prior to implementation of a disclosed plan.

The required timing varies depending on who is subject to the disclosure obligation:

  • If the intermediary must report the plan, the reporting must be made within five days, beginning on the day after the plan becomes available to a taxpayer for implementation or the first step in a series of arrangements has been implemented.16
  • If the reporting obligation is shifted to the taxpayer, the disclosure must occur within five days, beginning on the day after the reportable plan, or the first step in a series of arrangements, has been implemented.17


The disclosure will be made using the common communication network developed at the E.U. level. To ensure a standardized disclosure obligation throughout the E.U., a standard form would be created.18

The items of information that are expected to be exchanged include the following:19

  • The identification of intermediaries and taxpayers, which should include the name, country of tax residence, taxpayer identification number, and (where appropriate) persons associated with the intermediary or taxpayer
  • Details of the hallmarks that make the cross-border arrangement reportable
  • A summary of the content of the reportable cross-border arrangement, which should include a reference to the name by which the arrangement is commonly known and a description of the relevant business activities or arrangements, excluding (i) disclosure of a commercial, industrial, or professional secret, or of a commercial process or (ii) disclosure that is contrary to public policy
  • The date of implementation of the arrangement or the date of commencement of the first step in a series of such arrangements
  • The national tax provisions that enable the tax advantage
  • The value of the transaction
  • The other Member States that are affected by the plan
  • The names and identifying information of any person in another Member State that is likely to be affected by the reportable cross-border arrangement or series of such arrangements


Sophisticated corporations understand that a business transaction originating in the tax department or at a meeting with outside tax advisors can suffer from the appearance of an absence of economic substance, as the steps are laid out by tax advisors and not business people. The Proposal adopts that approach.

In principle, it is one thing to give tax advice regarding a plan that is taking place for operational reasons and another for a tax advisor to orchestrate the entire transaction. In practice, no one yet knows where the line will be drawn between an aggressive tax plan and an acceptable tax plan where the advice explains two choices for implementation: one that yields higher taxes and one that achieves greater tax savings.


1. Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.

2. European Commission, "Commission Forges Ahead on New Transparency Rules for tax planning intermediaries," news release, June 21, 2017.

3. Proposed new article 25a of the Directive.

4. New Article 8aaa.4 added to Section II of Chapter II of the Directive.

5. Article 1(b) of the Proposal, as amending Article 3 point 19 of the Directive.

6. Article 1(b) of the Proposal, as amending Article 3 point 20 of the Directive.

7. Annex IV (A) of the Proposal.

8. Annex IV (B) of the Proposal.

9. Annex IV (C) of the Proposal.

10. Annex IV (D) of the Proposal.

11. Annex IV (E) of the Proposal.

12. European Commission, "Questions and Answers on New Tax Transparency Rules for Intermediaries," June 21, 2017.

13. Article 1(b) of the Proposal, as amending Article 3 point 21 of the Directive.

14. Proposed new Article 8aaa.2 added to Section II of Chapter II of the Directive.

15. Id.

16. Id.

17. Id.

18. Proposed new Article 20(5) of the Directive.

19. Proposed new Article 8aaa.6 added to Section II of Chapter II of the Directive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions