Obligation to report cross-border constructions
On December 17th, 2019, the Senate adopted the bill for the implementation of the EU directive for reporting cross-border constructions. The bill requires intermediaries to report cross-border constructions that are used for tax avoidance to the Tax Authorities.
Cross-border constructions consist, for example, of structures that extend over several jurisdictions that are known for their favourable tax regimes or the reduction of the tax burden of a taxpayer. By introducing such a reporting obligation, the Tax Authorities are in possession of complete and relevant information about potentially aggressive cross-border tax constructions. Among other things, this makes a better risk assessment possible. The goal of the government is to prevent (a part of) the tax avoidance with this measure.
Introduction of new law
The reporting obligation starts on July 1st, 2020. This means that from that day, intermediaries, such as tax advisors, must report certain cross-border constructions to the Tax Authorities. The new law will be applied for the first time to cross-border constructions subject to a reporting obligation of which (a) the first step of implementation was taken on or after 25 June 2018 or (b) were made available for implementation or are ready for implementation on or after 1 July 2020.
For intermediaries who can invoke the legal withholding law, such as notaries, the same legal framework applies to the (tax) withholding law in Article 53a of the General Act on Government Taxes. This means that if the civil-law notary invokes the legal (tax) right of non-disclosure, he must inform other relevant intermediaries that they must also report the construction. The civil-law notary requires this only to be made known to intermediaries who know that they are involved in the same reporting structure.
The new law follows a series of previously taken measures by the Tax Authorities to improve fiscal transparency. The question is whether this measure contributes to this improvement.