In December, the OECD issued a public consultation document, requiring mandatory disclosure rules to combat CRS avoidance and offshore structures. Comments are due January 15, 2018.
The consultation document is prepared in response to the Bari Declaration, issued by the G7 Finance Ministers on 13 May, 2017. It calls on the OECD to start “discussing possible ways to address arrangements designed to circumvent reporting under the Common Reporting Standard or aimed at providing beneficial owners with the shelter of non-transparent structures.”
The Declaration states that these discussions should include consideration of “model mandatory disclosure rules inspired by the approach taken for avoidance arrangements outlined within the BEPS Action 12 Report.” The consultation document sets forth at the end of the document model legislation.
The reason for the consultation document is that the International Consortium for Investigative Journalists (ICIJ) has shown, especially through the publication of the Panama Papers and the Paradise Papers, certain professional advisers continue to design, market, or assist in the implementation of offshore structures and arrangements that can be used by non-compliant taxpayers to circumvent the correct reporting of relevant information to the tax administration of their jurisdiction of residence.
Due to these continuing offshore structures and arrangements and in response to the mandate from the G7 Finance Ministers, the OECD is currently considering a range of approaches that could be taken to address arrangements designed to circumvent or attempt to circumvent the CRS (“CRS Avoidance Arrangements”) and the use of non-transparent offshore structures to conceal actual beneficial ownership (“Offshore Structures”). Such approaches include measures focussed on improving intelligence for tax administrations within the existing information exchange and legislative framework (e.g. improved collaboration through JITSIC,as well as the use of group requests and spontaneous exchanges of information), as well as policy measures, such as additional regulatory intervention or additional disclosure obligation.
The proposed model rules contained in the consultation require an Intermediary (or taxpayer) to disclose certain relevant information to its tax administration regarding CRS Avoidance Arrangements an d Opaque Offshore Structures. Disclosures of such information can assist tax administrations in gathering intelligence on schemes that are being used or marketed to taxpayers in their respective jurisdictions. In addition, the model rules were designed to facilitate the spontaneous exchange of information where the information provided by Intermediaries relates to one or more specific Reportable Taxpayers.
It is contemplated that such information would be spontaneously exchanged with the tax administration(s) of the jurisdictions in which the concerned Reportable Taxpayer is resident for tax purposes pursuant to the applicable international legal instruments. The modalities, timing and form of the information to be spontaneously exchanged will be further defined in an operational agreement.
A mandatory disclosure regime contains five key elements:
(a) A description of the arrangements that are required to be disclosed (i.e. the hallmarks of a disclosable scheme).
(b) A description of the persons required to disclose such arrangements (i.e. the Intermediaries that are subject to reporting obligations under the rules);
(c) A trigger for the imposition of a disclosure obligation (i.e. the point in time when an obligation to disclose crystallises under the rules)
(d) A description of what information is required to be reported (including any exceptions from reporting).
(e) Appropriate penalties for non-compliance.
The hallmarks are very broadly worded.
In some cases the requirement to report is retroactive to July 15, 2014, the date the CRS became effective.
The consultation paper says the requirements respect legal professional privacy, but it appears narrowly defined.
Because the model law has penal provisions, the consultation paper has important potential consequences.
A fuller discussion of the consultation paper will appear in the January 2018 issue of the International Enforcement Law Reporter.