EUROPEAN COMMISSION Brussels, 21.6.2017 SWD(2017) 236 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a COUNCIL DIRECTIVE amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements

{COM(2017) 335 final}

{SWD(2017) 237 final}



Table of Content 1.Introduction 2.Policy context 2.1.Initiatives taken by the EU 2.2.Initiatives taken by EU Member States and third countries 2.3.Scope of the envisaged initiative 3.Problem Definition, Drivers and Consequences13 3.1.Problem Definition13 3.2.Drivers23 3.3.Consequences25 3.4.Examples on income flows that leave the internal market untaxed26 4.Why The European Union Should Act29 5.Scope of this impact assessment32 6.Objectives33 6.1.General Objectives33 6.2.Specific Objectives33 7.Policy options34 7.1.Personal scope36 7.2.Material scope37

7.3.Exchange of information41 8.Analysis of impact44 8.1.Baseline scenario: No EU policy44 8.2.Action is undertaken to enact the mandatory disclosure of potentially aggressive cross-border tax planning arrangements45 8.3.Personal Scope45 8.4.Material Scope48 8.5.Exchange of information54 9.Comparison of options59 9.1.Personal scope59 9.2.Material scope61 9.3.Exchange of information63 9.4.The Preferred Option65 10.Analysis of Impacts of the preferred policy option67 11.Choice of the legal instrument70 11.1.Commission Recommendation (non-binding instrument)70 11.2.EU Code of Conduct for intermediaries (non-binding instrument)70 11.3.EU Directive (binding instrument)71 12.Monitoring and Evaluation71 13.Glossary73 Annex 1:Procedural Information77

Annex 2:Stakeholder consultation80 Annex 3:Consultation Strategy87 Annex 4:Who is Affected by the Initiative and How90 Annex 5:Directive on Administrative Cooperation in the Field of Taxation (DAC)92 Annex 6:Mandatory Disclosure Rules: OECD BEPS Action 1293 Annex 7:Regimes in Place in Ireland, Portugal and the United Kingdom95

1.Introduction Tackling tax avoidance and evasion is among the political priorities in the EU, with a view to creating a deeper and fairer single market. In this context, the Commission has presented in recent years a number of initiatives in order to promote a fairer tax system. Enhancing transparency is one of the key pillars in the Commission's strategy to combat tax avoidance and evasion. In particular the exchange of information between tax administrations is crucial in order to provide them with the necessary information to exercise their duties efficiently. Recent leaks, including the Panama Papers, have highlighted how certain intermediaries appear to have actively helped their clients to make use of aggressive tax planning schemes in order to reduce the tax burden and to conceal money offshore. Whilst some complex transactions and corporate structures may have entirely legitimate purposes, it is also clear that some activities, including offshore structures, may not be legitimate and in some cases, may even be illegal. Different and complex structures, often involving a company located in a jurisdiction which is low tax or non-transparent, are used to create distance between the beneficial owners and their wealth with a view to ensuring low or no taxation. Certain taxpayers use shell companies registered in tax/secrecy havens and appoint nominee directors to conceal their wealth and income by hiding the identity of the real owners of the companies (beneficial owners). The Commission Staff Working document on Corporate Income Taxation in the European Union as well as the Commission staff working document prepared for the Anti-Tax Avoidance Package, provide evidence on profit shifting and base erosion practices. Given the nature of tax avoidance and evasion, the impact on total tax loss is difficult to measure. A recent study commissioned by the European Parliamentary Research Service found that corporate income tax revenue loss from profit shifting within the EU amounted to about EUR 50-70 billion in 2013. The UK reported that the overall cost of tax avoidance was GBP 2.7 billion in 2013-14. Several calls have been made to the EU to take the lead in this field and further investigate the role of intermediaries. In particular, the European Parliament has called for tougher measures against intermediaries who assist in tax evasion schemes. Member States at the informal ECOFIN Council of April 2016 invited the Commission to consider initiatives on mandatory disclosure rules inspired by the OECD/G20 Base Erosion and Profit Shifting (BEPS) Action 12, with regard to introducing more effective disincentives for intermediaries who assist in tax evasion schemes. In May 2016, the Council presented conclusions on an external strategy and measures against tax treaty abuse. In this context, the ECOFIN invited “the Commission to consider legislative initiatives on Mandatory Disclosure Rules inspired by BEPS Action 12 of the OECD project in order to introduce more effective disincentives for intermediaries who assist in tax evasion or avoidance schemes”. With the aim to enhance transparency, the OECD/G20 Action 12 recommends countries to introduce a regime for the mandatory disclosure of aggressive tax planning arrangements but does not define any minimum standard for member countries to comply with. Instead, the recommended actions are drafted as alternatives without pointing to preferred options. The final report on Action 12 was published as part of the set of BEPS actions in October 2015. The report stresses that the lack of timely, comprehensive and relevant information on the aggressive tax planning strategies is one of the main challenges faced by the tax authorities worldwide. The set of BEPS measures, as recommended by the OECD, has been endorsed by the G20 and most EU Member States have committed, in their capacity as OECD members, to implement them. Furthermore, the current G20 President, Germany, has identified tax certainty as one of the main themes. Providing tax administrations with timely information on the design and use of potentially aggressive tax planning schemes supplies them with an additional tool to take appropriate measures against certain tax planning schemes, which ultimately increases tax certainty and is fully compatible with the G20 priorities. The July 2016 Communication on further measures to enhance transparency and the fight against tax evasion and avoidance outlined the Commission's assessment of the priority areas for action in the coming months, at EU and international level. Increasing oversight of intermediaries was identified as one of the areas for future action. Indeed, Lux Leaks and the Panama Papers have demonstrated that the role of intermediaries in the area of aggressive tax planning has not been addressed in a comprehensive fashion. The European Parliament (EP) and EU Finance Ministers (ECOFIN) are pushing for swift action. In fact, Member States adopted EU legislation for the automatic exchange of foreign account information according to the Common Reporting Standard (CRS) and also implemented several of the BEPS Actions on Transparency and Fairer Taxation through common rules. It is now critical to ensure that these instruments are actually applied and bring positive results as well as that they are not circumvented. It is therefore critical to act on time and make use of the existing momentum. Deferring this initiative to a later stage would risk that it would be out of context or no longer useful. 2.Policy context 2.1.Initiatives taken by the EU Aggressive tax planning includes taking advantage of the technical features of a tax system or of mismatches in the interaction between two or more tax systems for the purpose of reducing the overall tax liability of a taxpayer or group of companies. A key characteristic of these practices is that they usually involve strictly legal arrangements which however contradict the intent of the law. Aggressive tax planning may also benefit from weaknesses in compliance frameworks or even extend to measures resulting in tax evasion.

A number of initiatives at the EU level, which aim at tackling tax avoidance by improving the coherence of tax systems and increasing tax transparency, have been adopted in recent time or are still under consideration. Some of these initiatives represent a direct response to – and go even beyond – the new international standards developed by the G20/OECD with the BEPS project. All of these initiatives aim to clamp down on aggressive tax planning. None of these measures specifically addresses the role of intermediaries in aggressive tax planning. This issue is one of the remaining elements for finalising our agenda on implementing BEPS in a coordinated fashion in the EU. Only some of the initiatives are aimed at gathering information that could be used for detecting and countering aggressive tax planning and where certain intermediaries could help to assist in the detection and response. However, the use of information would only be possible with considerable time delay. Therefore, further efforts concerning the existing information tools or in the field of coherence do not represent a direct alternative to an instrument which would target the intermediaries directly and would ensure that information is available to tax authorities early in the process, in the best case before the potentially 2.1.1.Anti-Tax Avoidance Directive At EU level, the efforts to tackle aggressive tax planning and implement the anti-BEPS measures led to the Anti-Tax Avoidance Directive of 12 July 2016 (ATAD). ATAD focuses on legally-binding measures aimed to create a minimum level of protection for the internal market against corporate tax avoidance. Furthermore, on 21 February 2017, the Council agreed its position on rules aimed at neutralising 'hybrid mismatches' in the interaction of the tax systems between Member States and/or between the system of a Member State and that of a third country. The agreed directive is the latest of a number of measures designed to prevent tax avoidance, mainly by large companies. It seeks to prevent taxpayers from exploiting mismatches between two or more tax jurisdictions for the purpose of reducing their overall tax liability. Such arrangements can result in a substantial erosion of the taxable bases of corporate taxpayers in the EU. 2.1.2.Directive on Administrative Cooperation (DAC) EU Member States have agreed that their tax authorities cooperate in order to apply their taxes correctly to their taxpayers and combat tax fraud, tax evasion and tax avoidance. Council Directive 77/799/EEC was the first response to the need for enhanced mutual assistance in the field of taxation. This was replaced by Council Directive 2011/16/EU , which is the essential piece of legislation on administrative cooperation in the field of taxation ('DAC'). The DAC establishes useful tools for better cooperation between tax administrations in the European Union, such as exchanges of information on request, spontaneous and automatic exchanges, and the participation in administrative enquiries, simultaneous controls or notifications of tax decisions amongst tax authorities. The Directive was recently amended several times as a result of which its scope was significantly extended to also cover: automatic exchange of financial account information; exchange of information involving cross-border tax rulings and advance pricing arrangements; and country-by-country reporting requirements for multinational enterprise groups operating in the EU. The most recent amendment to the DAC was legally adopted on 6 December 2016 and ensures that tax authorities have access to beneficial ownership information gathered in the context of anti-money laundering. The DAC was adopted in 2011 and Member States started applying its rules on 1 January 2013, with the exception of the provisions on the automatic exchange of information, which followed on 1 January 2015. Under spontaneous exchange, a country provides its treaty partner(s) with information about likely tax evaders if it happens to uncover such information during its own audits. Automatic exchange consists of a periodic exchange of information of pre-defined content from the authorities of one country to the authorities of another regarding the income of residents of the second country. In the case of cross-border tax rulings and advance pricing arrangements, the exchange is to all other Member States and the Commission. When it comes to the latter, the disclosed information is subject to certain limitations. The exchange is usually in electronic form and takes place on a mutually agreed periodic basis. Information exchange on request is a response by one country to a request for information by another country. 2.1.3.Extension of the DAC to financial account information (DAC 2) DAC 2 amended Directive 2011/16/EU, in order to include a mandatory automatic exchange of financial account information in the field of taxation. Section VIII(D)(4)(c) of the Directive stipulates that the European Commission publishes a list of jurisdictions with which there is an EU agreement in place to provide Member States with financial account information to the standard mentioned in the extension of the Directive. The list currently comprises the Swiss Confederation , the Principality of Liechtenstein , the Republic of San Marino , the Principality of Andorra , the Principality of Monaco and Saint-Barthelemy . 2.1.4.Extension of the DAC to information on cross-border tax rulings and advance pricing arrangements (DAC 3) DAC 3 amended Directive 2011/16/EU, in order to extend further the automatic exchange of information; that is, to cross-border rulings and advance pricing arrangements in the EU. This amendment was aimed at discouraging the engagement in potentially aggressive tax planning schemes in the EU by requiring the automatic exchange of information on advance cross-border tax rulings in the EU. However many aggressive tax planning schemes do not involve the issuance of a ruling and are therefore not subject to this requirement. Some Member States do not operate an advance tax ruling practice or their practice is very limited. Furthermore, taxpayers do not seek tax rulings from the authorities in connection with all structures they put in place. Finally, tax rulings may relate only to a specific transaction or a limited part of a tax planning scheme, which, if looked at individually – i.e. outside the full picture - would possibly not give rise to suspicion. Consequently, a substantial portion of aggressive tax planning schemes are neither reported nor exchanged. 2.1.5.Extension of the Directive on Administrative Cooperation to country-by-country reporting (DAC 4) DAC 4 lays down an obligation for reporting revenues, profits before tax, taxes paid or accrued and the number of employees to tax authorities on a country-by-country basis. It should be noted that only large multinationals with a total consolidated group revenue exceeding EUR 750 million in the preceding financial year are captured by this reporting obligation. In addition, country-by-country reporting may not allow authorities to identify specific cases of aggressive tax planning. Thus, although the provided information may give an indication of certain BEPS-related risks, the set of high-level information that is given to the tax authorities does not usually include details of specific tax planning schemes. However, such reporting is confined to corporate income tax, and it is unlikely to bear direct effects on intermediaries as long as the ultimate responsibility for tax liabilities remains with the taxpayers. 2.1.6.Access to Information on Beneficial Ownership (DAC 5) Recent media leaks, known as the Panama Papers, revealed how secret companies and accounts can be used to hide income and assets offshore, often for tax evasion and other illicit purposes. Although important progress has already been made at EU level to tackle such practices, especially through the series of initiatives on transparency, it was found that there are still gaps in the tax framework and this need to be addressed in order to prevent tax abuse and illicit financial flows. For this purpose, tax authorities must know the ultimate beneficiary behind a company, trust or fund. Yet, this information is not always available throughout the EU. The Commission proposed legislation in this field whereby tax authorities can have access to national anti-money laundering information, particularly with regard to beneficial ownership registers and due diligence controls. The relevant legislation took the form of an amendment to the DAC. These amendments to the DAC aimed to reinforce the measures introduced by the Fourth Anti-Money Laundering Directive. 2.1.7.Revision of the fourth AML Directive with targeted amendments and Panama Communication In the context of the fight against tax avoidance, money laundering and terrorism financing, the Commission proposed to further reinforce EU rules on anti-money laundering, to counter against terrorist financing and increase transparency on the beneficial ownership of companies and trusts. 2.1.8.EU list of non-cooperative jurisdictions

In the External Strategy for Effective Taxation , the Commission set out a new EU listing process to identify and address third-country jurisdictions that fail to comply with tax good governance standards. Member States have endorsed this initiative and called for a first EU list to be ready within 2017. The new listing process is part of the EU's political priority to fight against tax evasion and avoidance and promote fairer taxation, both in Europe and beyond. The EU needs stronger instruments to tackle external tax avoidance and deal with third country jurisdictions which refuse to play fair. A single EU list should be expected to carry much more weight than the current patchwork of national lists, and will have an important dissuasive effect on third country jurisdictions that operate harmful tax regimes. It will also be clearer and fairer for businesses and third country jurisdictions, as it will be transparent, objective and aligned with international tax good governance standards. Recently, the Commission presented the scoreboard of its pre-assessment of all third-country jurisdictions for tax purposes. This was the first step in the new EU listing process. On the basis of the scoreboard results, Member States are meant to decide on the third-country jurisdictions to be screened against tax good governance criteria in greater detail. The screening began in early 2017. 2.1.9.EU financial market sectorial legislation EU law in the area of financial regulation already contains certain existing or forthcoming reporting requirements which are - to some extent - relevant for aggressive tax planning structures. This includes the Market Abuse Regulation, the Prospectus Regulation and MiFID2, which could result in reporting requirements regarding tax planning. However, they only apply in precise circumstances and could be usefully completed by a more horizontal legislation. Public country-by-country reporting (public CbCR), a proposed amendment to the Accounting Directive, may be seen as a deterrent to aggressive tax planning schemes. It is thus likely to create a disincentive for intermediaries. So far, public CbCR is mandatory for EU banks and the extractive and logging industry. In April 2016, the Commission proposed to expand it to very large companies in all the other sectors. However, like for DAC4, such reporting is unlikely to bear direct effects on intermediaries as long as the ultimate responsibility for tax liabilities remains with the taxpayers. The Audit Regulation ensures that auditors do not provide tax services during their audit mandate. It does not lay down any obligations for auditors to identify aggressive tax planning schemes and does not regulate auditors when they provide services such as tax advice to non-audit clients. Overall, the EU has made great progress on tax transparency in recent years. With those measures in place, Member States should be in a better position to increase the collection of revenues where taxpayers try to avoid or evade taxes. However, the tax instruments available in the EU are not sufficient. In particular, they do not explicitly require that Member States collect timely information on tax avoidance and evasion schemes from intermediaries. Neither is there an obligation to exchange that information, where relevant, with other Member States. The DAC contains a general obligation for tax authorities in EU Member States to spontaneously communicate information to the other EU tax authorities in certain circumstances. This would include a loss of tax revenue in a Member State or savings of tax resulting from artificial transfers of profits within groups of companies. Yet, such exchange would only occur after aggressive tax planning schemes have been implemented. At present, Member States do not hold this information a priori. Having said this, if the relevant information were received prior to the implementation of aggressive tax schemes, it would enable Member States to take appropriate measures timely. The current legislative framework (both in the EU and within the national context) is not designed to ensure that tax administrations receive timely information about potentially aggressive tax planning schemes which are readily available for implementation or already in use by taxpayers. This is critical regardless of whether a scheme is purely national or of a cross-border dimension. It is therefore necessary to complement the current framework with an additional tool, to ensure the ex-ante flow of information. 2.1.10.Initiatives taken by the OECD In July 2013 the OECD published its Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan) identifying fifteen actions to counter against base erosion and profit shifting in a comprehensive manner. The Action Plan set deadlines to implement these actions. One of the proposed actions is BEPS Action 12 on mandatory disclosure rules. Based on the final report on BEPS Action 12, mandatory disclosure offers tax administrations a number of advantages over other forms of disclosure, as it requires both taxpayers and promoters to report information early in the tax compliance process. In addition, the OECD report points out that "countries that have introduced mandatory disclosure rules indicate that they both deter aggressive tax planning behaviour and improve the quality, timeliness and efficiency in gathering information on tax planning schemes allowing for more effective compliance, legislative and regulatory responses". BEPS Action 12 is not a minimum standard like some other elements of the OECD Action Plan. Instead, it allows countries the freedom to introduce elements from amongst the options given in the final report. A minimum standard could result in a more consistent application in the EU or worldwide. Furthermore, mandatory disclosure is not included in the scope of the multilateral instrument (i.e. Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS - more than 100 jurisdictions committed to it in November 2016, for the purpose of swiftly implementing a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises). Finally, BEPS Action 12 is not part of the BEPS Inclusive Framework either. As such, it is not subject to a review process looking at its implementation by member countries. 2.2.Initiatives taken by EU Member States and third countries Ireland, the UK and Portugal operate mandatory disclosure regimes in response to existing practices of aggressive tax planning which are enabled and promoted by intermediaries. 2.2.1.The system in Ireland Ireland’s mandatory disclosure regime was first introduced in 2011, with some amendments made subsequently. The regime is intended to act as an early warning mechanism for "aggressive tax avoidance schemes". The regime provides that promoters or taxpayers, either in contemplation or implementation of certain transactions, shall give information, as specified by the Irish Revenue relating to any transactions that give rise to a ‘tax advantage’ where one of the main benefits of the transaction is such tax advantage. 2.2.2.The system in the UK The disclosure of tax avoidance schemes (DOTAS) regime introduced in 2004 essentially requires promoters of certain types of tax avoidance schemes, or in some cases users of such schemes, to disclose them to HMRC. The regime has been subject to several changes over the time that it exists. Its scope has gradually been broadened and so, it now covers the whole of Income Tax, Corporation Tax, Capital Gains Tax, and certain arrangements relating to Stamp Duty, Land Tax and Inheritance Tax. The regime also applies, with necessary modifications, to National Insurance contributions and Value Added Tax. In the Budget of March 2015, the Government announced a package of measures to ensure that the DOTAS regime keeps pace with the current avoidance market. As part of this, the Government launched a consultation on the detail of changes to strengthen the DOTAS hallmarks and the results were published in February 2016. New changes are expected in regard to the Indirect Tax Avoidance Disclosure Regime and penalties for enablers of abusive tax planning arrangements in line with measures recently published on 5 December 2016. Her Majesty's Revenue and Customs (HMRC) found that additional revenue of between GBP 225 million and GBP 650 million a year had been collected against what would have been achieved without disclosures made under DOTAS.

2.2.3.The system in Portugal The Portuguese Mandatory Disclosure Regime is based on the UK regime and was put in place in 2008. The Portuguese authorities have received almost 100 reports on tax schemes from intermediaries (promoters) since their mandatory disclosure regime was introduced. They reached a peak between 2009 and 2011. Around 25% of reports came from users, who are obliged to report where the promoter is not resident in Portugal or is prevented by the rules of profession (e.g. lawyers), or the tax planning scheme is developed in-house. The definition of intermediaries is broad and covers corporations and individuals. Schemes under discussion are those, where 1) achieving a tax advantage (relating to income taxes) is a sole or main purpose, and 2) one of the following hallmarks applies: i) the participating entity is subject to a special regime or is tax exempt, ii) (hybrid) financial instruments and derivatives are involved, iii) there is a use of tax losses. If a reported scheme is considered abusive, it is published together with the provision of the law based on which it should be defeated. Some reported schemes were outside of the scope and others were not seen as problematic. Outside the EU, a number of countries have introduced national mandatory disclosure regimes, such as the USA, Canada, South Africa, India and Israel. Each of them has chosen a slightly different approach, which is yet in line with the objectives of BEPS Action 12. Existing national regimes for disclosure are confined to national tax bases. The obligation to report is therefore triggered by the question of whether a certain scheme could have an impact on the domestic tax base. Hence, for the time being, these national regimes do not cover cross-border schemes, which would potentially affect residents and the tax bases of other Member States. In France and Germany, there have been initiatives to introduce mandatory disclosure, but legislation has not (yet) been adopted for various legal reasons. Alternative disclosure instruments can be found in other Member States such as co-operative compliance or horizontal monitoring. Member States naturally endeavour to defend their own tax base and as a result look for information on schemes which seek to reduce the domestic base. However, from a cross-border perspective, there are loopholes in national regulations. A potential legislative initiative at EU level should not discourage or even substitute existing national systems, but rather build upon them and also consider the cross-border dimension of potentially aggressive tax planning structures. Thus, the EU internal market requires a greater degree of cooperation and therefore there is a need for monitoring cross-border schemes. Currently, Member States do not receive such information on a timely basis. 2.3.Scope of the envisaged initiative 2.3.1.Framework and aims This initiative complements the series of legislative acts that were passed at the level of the EU over the previous years in implementation of some of the conclusions in the context of the BEPS project of the OECD/G20 and the work of the Global Forum in the field of transparency. The main aim remains linked to curbing tax evasion and avoidance through capturing aggressive tax planning schemes. These schemes may have escaped the framework of anti-tax avoidance and transparency rules that the Member States adopted through Union legislation in the context of implementing BEPS and the CRS over the last couple of years. The initiative generally envisages that potentially aggressive cross-border tax planning schemes be disclosed to the authorities. The proposed rules do not presume the existence of tax avoidance. It is also considered whether the disclosure should be coupled with exchange of information. The disclosure should give the authorities the opportunity to investigate into these schemes and reach a conclusion on whether those should be acceptable or not. In return, the authorities would be expected to legislate in order to render the disclosed schemes that they have found to be unacceptable illegitimate. The ultimate aim of the proposed rules is to discourage the availability of such schemes for taxpayers altogether. 2.3.2.Link to OECD/G20 Action 12 of the BEPS Project The envisaged initiative follows the recommended options of the OECD report on Action 12 but goes beyond a mere implementation of EU commitments under Action 12. The OECD report on mandatory disclosure does not lay down any minimum standard. In addition, the recommended actions are drafted as alternatives without pointing to preferred options. Therefore, only the fact that the proposed initiative lays down binding rules (in the form of a Directive) is a step further than the OECD Action 12. In addition, the disclosure is coupled with a proposed system for the automatic exchange of the disclosed data amongst tax authorities. This element comes on top of the OECD Action 12, which is limited to the disclosure of data. It is also worth mentioning that this initiative is meant to cover gaps in the CRS of the Global Forum, as it broadly applies within the Union under the Administrative Cooperation Directive. 2.3.3.Penalties On the consequences of non-reporting/penalties, the envisaged initiative treats this area as falling within the sovereign control of Member States. As the delineation of penalties remains outside the ambit of EU legislation, there will not be any detailed assessment of options in this respect. Member States would only undertake to ensure that effective and dissuasive penalties be put in place. However, in addition to penalties posed at national level, due to the increased transparency the initiative creates disincentives for intermediaries to design and market new schemes plus reputational risks in case of non-compliance with a reporting obligation. It also creates disincentives for taxpayers to use potentially aggressive tax planning schemes that would have to be reported as well as disincentives to engage with intermediaries that carry a reputational risk triggered by non-compliance with the rules.

3.Problem Definition, Drivers and Consequences 3.1.Problem Definition The detected underlying problem is that certain tax planning schemes are being designed and promoted by intermediaries and used by taxpayers for the purpose of avoiding or evading taxes. Most services provided by intermediaries are legal and legitimate, but recent scandals have demonstrated that in many cases intermediaries design structures that play a significant role in devising and using aggressive tax planning schemes. According to one of the findings in a recent study issued by the European Parliament, the offshore structures cited in the Panama Papers were set-up for a broad range of motives, including: undesirable but legal tax planning, aggressive tax avoidance, illegal tax evasion, hiding and shielding assets, money laundering and crime financing. Figure 1: Problem Tree Source: European Commission (2017) 3.1.1.Design and use of aggressive tax planning schemes Aggressive tax planning is a major concern for the EU and internationally, given that it leads to losses of tax revenues for countries; for example, through schemes leading to double non-taxation. Aggressive tax planning is facilitated by disparities amongst national tax systems which, in their interaction, often suffer mismatches that lead to double non-taxation. In addition, taxpayers may also work out arrangements that take advantage of preferential tax regimes within a Member State, or beyond a single jurisdiction, and reduce their overall tax bills. Lack of transparency and the absence of an obligation to disclose potentially aggressive tax planning schemes create incentives, in particular for taxpayers engaged in cross-border activities, to set up structures that channel taxable profits towards low tax countries. The result is that certain – usually high-tax countries - see their tax bases being eroded. From an EU point of view, such a situation creates distortions in the internal market and jeopardizes its proper functioning as well as hampers the application of more growth-friendly tax policies at national level. Furthermore, it threatens the social contract at large, as honest taxpayers (individuals and companies) might become less inclined to comply with the rules. 3.1.2.Role of Intermediaries Taxpayers are rarely experts in the company or tax law of all jurisdictions which they use in structuring their business in a tax efficient way. They usually rely on intermediaries who assist them in the design of the most appropriate structure. These intermediaries include, amongst others, consultants, lawyers, financial (investment) advisors, accountants, solicitors, financial institutions, insurance intermediaries, and company-formation agents. Intermediaries advise clients on structuring their business, to reduce tax-related costs and they receive a premium fee as remuneration. It is also common that intermediaries design and/or market certain standard schemes to more users/clients. In this way, they make a profitable business out of facilitating tax optimisation, which sometimes may carry the characteristics of aggressive tax planning and lead to the avoidance of tax. The role of intermediaries in this process is of primary importance and the lack of disincentives only facilitates their behaviour. Aggressive tax planning schemes usually involve complex structures which are deployed across multiple jurisdictions and in particular, use offshore centres. These schemes take advantage not only of differences in the tax systems between jurisdictions but also of regulatory disparities. Furthermore, taxpayers may exploit the fact that jurisdictions often require divergent degrees of transparency, for example limited commitment to the international exchange of information through agreements for tax purposes. Planning these schemes therefore involves intermediaries with a wide knowledge that covers more than one tax system and several tax-related domains. 3.1.3.Evidence of the involvement of intermediaries in aggressive tax planning schemes There is a wide range of different types of intermediaries and geographic locations which intermediaries commonly use to set up opaque structures. These locations involve a number of jurisdictions, including offshore centres which are identified as hallmarks for tax evasion and avoidance. A current study seeks to analyse the main characteristics of the "go-betweens". These are the 'intermediaries', who advise clients to contact offshore service providers for setting up an offshore entity. The definition in the study for intermediaries is the following: "We understand intermediaries as a go-between for a client seeking an ultimate offshore service provider in order to create (and sometimes run) one or several offshore entities. These intermediaries are often unknown to the public but play a key role in the existence of shell companies in tax havens". The study provides data on where intermediaries are located by continent and also gives more details for Europe. Figure 2: Global distribution of intermediaries

Source: Study by the Greens/EFA Group (2017): "Usual Suspects? Co-conspirators in the business of tax dodging", p.9 Figure 3: Top 10 European countries where intermediaries operate Source: Study by the Greens/EFA Group (2017): "Usual Suspects? Co-conspirators in the business of tax dodging", p.10 The wide range of categories of intermediaries which vary from banks and company service providers to consultancies is outlined in the table below: Table 1: International intermediaries and the countries they operate in

(top 10 of 144 intermediaries)

Position Name Countries Number of offshore companies requested 1 United Bank of Switzerland Bahamas, Cayman Islands, France, Germany, Hong Kong, Jersey, Luxembourg, Monaco, Singapore, Switzerland, Taiwan, UK, US, Indonesia, Canada 13 285 2 Crédit Suisse Singapore, Switzerland, Taiwan, UAE, UK, US, Bahamas, China, Gibraltar, Guernsey, Liechtenstein, Monaco 11 347 3 Trident Corporate Services Bahamas, BVI, Guernsey, Jersey, Isle of Man 8 507 4 Offshore Business Consultant Ltd. Hong Kong, China, Unidentified 7 515 5 Orion House Services Belize, Hong Kong, Jersey 7 061 6 Prime Corporate Solutions Hong Kong, Luxembourg, Gibraltar 4 300 7 Citibank UK, Singapore, Jersey, Switzerland, Hong Kong, Indonesia, US, Bahamas, Jersey 3 393 8 G.S.L. Law & Consulting Russia, Cyprus, Unidentified 2 909 9 HSBC Singapore, Guernsey, Hong Kong, Isle of Man, Israel, Jersey, Lebanon, Luxembourg, Singapore, Switzerland, Taiwan, UK, US, Guernsey, Bahamas, Switzerland 2 882 10 Ansbacher Bahamas, Switzerland, British Virgin Islands 2 262 Source: Study by the Greens/EFA Group (2017): "Usual Suspects? Co-conspirators in the business of tax dodging", p.21 The increasing use of entities in offshore jurisdictions since 2000 is demonstrated in the recently published study by the European Parliament. Since 2000 there has been a surge in the number of entities registered in offshore jurisdictions which may be explained by increasing globalisation and digitalisation, which make it easier to establish and maintain offshore structures. Although this trend has decreased in recent years due to the financial and economic crisis and as result of several policy measures, including the adoption of more stringent anti-money laundering standards, global private wealth of high net value individuals is projected to rise at a compound annual rate of 6% over the next five years to reach United States Dollar (USD) 224 trillion in 2020 with accelerating digital innovation leading to new investment products in a wide range of geographic locations. Figure 4: Establishment of entities across time Source: International Consortium of Investigative Journalists (2016). According to this study the amounts of unpaid taxes and fines can be substantial: for France alone taxpayers involved in the Panama Papers already owed tax authorities EUR 1.2 billion in taxes and fines. The study underlined the broad range of intermediaries involved in the Panama Papers: Figure 5: Type of intermediary (share of entities) in Panama Paper Source: International Consortium of Investigative Journalists (2016). In order to create aggressive tax planning schemes, intermediaries propose complex structures involving many jurisdictions which often include offshore financial centres. The Second Review of the Savings Directive reflects the involvement of offshore centres as suitable locations for setting up intermediary entities within structures that involve legal entities and/or arrangements, like trusts, often using onshore financial centres. The analysis in the review on publically available statistics by the Swiss National Bank and aggregate statistics of the Bank of International Settlements (BIS), supplemented at the time with bilateral statistics from the BIS, obtained on a non-disclosure basis. Although the statistical data is no proof of facilitating tax evasion, the complexity of structures and indeed the evidence leaked in the Panama Papers show that the creation of such structures largely relies on the knowledge and skills of intermediaries. In its issue for 2010, the annual publication Banks in Switzerland by the Swiss National Bank encompasses some very detailed geographical and/or client breakdowns in 'Table 38 Fiduciary business, by country'. The definition of a fiduciary business, for the purposes of the report on Banks in Switzerland, can be found in the 1997 edition of the publication, which is not available in English. It follows that the definition is an unofficial translation. It is clear that a fiduciary business primarily consists of deposits from non-residents (fiduciary liabilities) which are afterwards re-deposited abroad in the name of the bank, but for the account of the depositor. Fiduciary liabilities are heavily represented in offshore centres. Eight countries which may be considered to be offshore centres list amongst the first 15 countries that represent an average of 67% of the fiduciary liabilities. Figure 4: Geographical breakdown of fiduciary liabilities 2002 - 2010 Source: Swiss National Bank ("Banks in Switzerland 2010)"

The same order and similar shares regarding the BVI, Panama and the Bahamas emerge from the data that features in the Panama Papers. Specifically, it appears that more than 113 000 offshore trusts and companies have been created in the BVI with almost 50 000 in Panama and around 17 000 in Bahamas. The International Locational Banking Statistics of the BIS includes quarterly data on assets and liabilities of domestic banks and branches of foreign banks in the 43 reporting countries.This is broken down on a bilateral basis per country of each counterparty. Nevertheless, it is not possible to differentiate between deposits from individuals, non-bank financial entities and commercial entities or other structures within the total amount of the non-bank balances . The analysis in the Second Review of the Savings Directive, based on a breakdown per counterparty jurisdiction, showed that the share of accounts of offshore non-banks in EU banks is around 20%. This amounts to around USD 1 trillion for 2007. Figure 5: Share of accounts of offshore non-banks in EU banks Source: Bank for International Settlements – 2001-2010 Quarterly data supplied by BIS on liabilities per offshore/onshore jurisdictions per domestic banks and foreign bank branches of reporting jurisdictions Some of those accounts would also be attributable to non-bank financial entities. BIS statistics on cross-border positions show that, based on aggregate data for all jurisdictions, broadly 50% of the liabilities are towards non-bank non-financial entities. 3.2.Drivers 3.2.1.Lack of timely information on aggressive tax planning schemes for Member States' tax authorities Countries around the world have been developing tax compliance strategies in order to be able to deal more effectively with aggressive tax planning. Usual tax compliance strategies based on the analysis of tax returns and conventional tax audits are not sufficient to ensure timely access to relevant information on the tax planning. The absence of a mandatory disclosure regime in most Member States presents no disincentive for intermediaries and users who remain enabled to design, market and use aggressive tax planning schemes. While some Member States provide for voluntary disclosure regimes at the domestic level, no similar instrument is envisaged for cross-border schemes. Furthermore, the entire BEPS Action Plan lacks a binding legal effect on the OECD member countries. It follows that OECD countries have to take measures to implement these actions through their domestic law, bilateral treaties, or a multilateral instrument. While the OECD has set up an Inclusive Framework to monitor BEPS implementation and participating countries have committed to implement the comprehensive BEPS Package, the peer review and monitoring process concerns only the four BEPS minimum standards. Action 12 does not constitute a minimum standard. It only takes the form of recommendations that allow for several options and approaches which may lead to substantially divergent disclosure regimes in different countries. Only 3 out of 28 Member States operate a mandatory disclosure regime. The analysis of their statistics reveals that the number of disclosures drastically decreased after the first years of introduction in the domestic context. UK HMRC DOTAS Direct Tax Disclosure was first launched in 2004 and received 503 direct tax disclosures for the 8-month period from 1 August 2004 to 31 March 2005. The number of notifications decreased to fewer than 10 in the 6-month period from 1 April 2014 to 30 September 2014. The reason for this decrease of disclosures has not been identified in detail by national authorities. This could be due to (i) fewer schemes being devised and used, which would be a success; or (ii) intermediaries engage in illegal activities, i.e. non-reporting is illegal; or (iii) intermediaries re-design the schemes that they market so that those are no longer subject to a mandatory disclosure. The remaining 25 Member States do not accommodate a mandatory disclosure regime and the OECD framework in connection with Action 12 does not create an obligation upon them to enact one. However, such circumstances lead to lack of transparency on the applied administrative practice. For instance, without receiving information on the elements of potentially aggressive tax schemes relevant to a particular multinational enterprise, activity or business, the affected Member States are unlikely to be aware of the impact that such schemes can have on their tax revenues. Consequently, they cannot react to them. 3.2.2. Differences amongst national frameworks on disclosure requirements A mandatory disclosure regime is only established in three EU Member States and while the main characteristics are rather similar, there are some differences between these three systems. In other areas, e.g. automatic exchange of tax rulings and CbCR, the adopted legislation is about to be transposed and enter into force but these areas capture a different type of information. The existing differences amongst national frameworks on disclosure prevent an efficient and coherent collection of information on aggressive tax planning schemes across the EU.

3.2.3.Neither effective nor transparent monitoring of compliance with existing law The complexity of existing tax laws contributes to ineffective and non-transparent monitoring. The lack of transparency facilitates aggressive tax planning and prevents the national authorities from gathering information on aggressive tax planning schemes and consequently, from levying tax on income taxable in their country. 3.2.4.Existing tax legislation may enable aggressive tax planning Aggressive tax planning consists in taking advantage of the technical features of a tax system or of mismatches in the interaction between two or more tax systems for the purpose of reducing the overall tax liability of a taxpayer or group of companies. A key characteristic of these practices is that they usually involve strictly legal arrangements which however contradict the intent of the law. Aggressive tax planning may also benefit from weaknesses in the compliance frameworks. A study published by the European Commission on Structures of Aggressive Tax Planning and Indicators has identified and examined seven common model aggressive tax planning structures in the EU: ·A hybrid finance structure ·A two-tiered intellectual property structure with a cost-contribution arrangement ·A one-tiered intellectual property structure with a cost-contribution arrangement ·An offshore loan structure ·A hybrid entity structure ·An interest-free-loan structure ·A patent-box aggressive tax planning structure As a matter of principle, these structures would fall within the definition laid down in the Commission's Recommendation on Aggressive Tax Planning. Since 2016, Member States have agreed to coordinate their policies in clamping down on aggressive tax planning. They thus adopted a set of anti-tax avoidance measures in the form of minimum standards (ATAD). This framework was complemented with more comprehensive rules on hybrid mismatches in 2017 (ATAD 2). Yet still, other features remain available at least for the foreseeable future and new ones may be developed in the meantime. 3.2.5.Insufficient beneficial ownership information (external factor) An entity with an anonymous beneficial owner enables aggressive tax planning schemes to be established in a way that they take advantage of mismatches between two or more tax and/or regulatory systems. Although measures have been taken in the meantime to allow national tax administrations access to information on the beneficial owner, this remains a weak point. Namely, intermediaries use their expertise to exploit the rules by setting up structures that make it burdensome or even impossible to identify the ultimate beneficial owner(s). In particular, aggressive tax planning schemes often use third-country jurisdictions and especially offshore centres where the regulatory framework on the identification of beneficial ownership and its enforcement are inadequate. 3.3.Consequences 3.3.1.Effects on Taxpayers (individuals and companies) Aggressive tax schemes disrupt the functioning of the internal market. Notably, the lack of transparency grants certain taxpayers a competitive advantage. This is, in particular, true for those companies and individuals that have the resources to make use of professional advice from experts that act as intermediaries in proposing aggressive tax optimisation schemes. On the other hand, companies that do not engage in aggressive tax planning schemes or shift profits to low-tax jurisdictions tend to suffer higher costs, as compared to those who benefit from aggressive tax planning schemes. The situation looks similar in the field of individuals. Those who can afford to lower their tax liability through expert tax advice tend to be wealthier than those who pay their fair share of tax. 3.3.2.Effects on intermediaries The absence of an obligation to disclose advice on aggressive tax planning schemes results in the creation of business and market opportunities for certain intermediaries. Whereas the large majority of intermediaries is engaged in business as usual, some of them are fully specialised and/or engaged in the design and promotion of aggressive tax planning schemes and offer their services on the market to taxpayers.

3.3.3.Effects on Member States and national tax administrations The tax administrations of Member States seek to prevent losses of tax revenue that result from aggressive tax planning schemes. However, with only insufficient information on the structure of such schemes, Member States end up in a position whereby they cannot respond effectively to the challenges in a globalised world and become less able to defend their tax base. Otherwise, attempts by tax administrations to improve tax collection may result in increasing administrative costs (e.g. introduction of complex anti-abuse measures). Thus, to enhance their tax revenues, Member States may engage in the design of complex counter-measures (such as special tax regimes to incentivise enterprises to shift profits towards their jurisdictions etc.). 3.3.4.Effects on citizens and society Citizens are indirectly affected, mainly in their capacity as individual taxpayers. Given that Member States lose tax revenues if multinational enterprises or wealthy individuals escape from paying their fair share of tax, States are inclined to make up for this loss by raising taxes through the least mobile tax bases; for example, income from employment. This results in unfairness. Recent press reports on the Panama Papers, but also on the use of aggressive tax planning structures by big multinational enterprises, have led to public criticism. There is a widely held perception that companies, in particular multinational enterprises, avoid contributing their fair share to the funding of public goods by artificially lowering their taxable income. This is made more acute in the context of the current austerity measures being imposed on countries that need to engage in fiscal consolidation. Many citizens feel that companies avoid taxes while they see themselves faced with increasing tax burdens. 3.4.Examples on income flows that leave the internal market untaxed Example 1 – No Withholding Tax – Zero Rate at Destination Company A, a franchisee of an MNE headquartered in a major trade partner of the EU, is tax resident in MS A which is a high-tax jurisdiction. Company A is licensed to use intellectual property (IP) of the MNE group via the group´s IP centre on an island in the Caribbean where corporate tax is at zero rate. To avoid paying the high withholding tax (WHT) of 15% on royalties from Company A to the group's IP centre in the Caribbean (due to the absence of a tax treaty), the group sets up a NewCo in an EU MS where outflows in the form of dividends, interest and royalties are subject to no WHT. Company A is no longer directly licensed for the use of IP from the Caribbean entity but instead via NewCo, which is given the function of sub-licensing the group IP across the EU. Company A pays royalties to NewCo. The Interest & Royalties Directive does not apply to the transfer between Company A and NewCo but there is a tax treaty which follows the OECD Model and provides for no WHT on royalties. Further, when NewCo passes the royalties to the Caribbean affiliate, there is no WHT because the MS where NewCo is tax resident has unilaterally abolished WHT on outflows. NewCo is taxable on the royalties that it receives from Company A but its tax base is significantly reduced by the fact that it pays out most of these amounts to its Caribbean affiliate. NewCo passes royalties tax-free to its Caribbean parent company where this income is taxable at zero rate. Who is liable to disclose Under a scheme of mandatory disclosure, the law firm which advised and possibly carried out the formalities for setting up NewCo would need to inform on the specifics of this scheme. The disclosure of the arrangement would have to be done in the Member State of NewCo if the intermediary has a presence (e.g. at least an office) there. If the intermediary advised from outside the EU (e.g. the third country where the MNE is headquartered) and collaborated with a local firm for the formation of NewCo, it would be for the local firm to report. In the event that the third-country intermediary only gave tax advice and sold the scheme to the MNE group but NewCo was set up by in-house lawyers, the obligation to disclose would be shifted to the taxpayer, i.e. NewCo. Relevant hallmarks

Generic: the scheme above could be a massively marketed scheme A massively marketed scheme would be designed by promoters/ tax experts with the aim to generally address situations whereby a third-country taxpayer wishes to mitigate/ eliminate its liability to withholding tax on royalty income in the EU. It would not look at the specific details of the corporate and business structure of the taxpayer. The scheme would be sold for a fee, which would vary depending on the services supplied by intermediary. For instance, the intermediary may only sell the scheme or may also be involved in tis implementation. The intermediary/ (taxpayer) may be in a position to prove that the creation of NewCo has a main aim other than obtaining a tax advantage, e.g. there is a need to centrally manage all EU franchise contracts for the MNE group and the actual activity of NewCo proves that it is actively involved in doing this. In such case, the scheme is not captured by the hallmark and does not need to be reported. In the opposite case, the fact that MNE group benefits from no or minimal withholding tax on the royalties that NewCo pays out of the EU is a clear tax benefit and should be sufficient to bring the scheme within the scope of the hallmark. Specific: zero taxation in the Caribbean. If the outbound royalty payments are subject to zero rate tax in the Caribbean, the scheme would be captured by hallmark C.1.b).ii It would suffice that one of these two hallmarks captures the scheme, for the purpose of making it reportable. Example 2 – Mismatch - Transparency/Non-Transparency of an Entity Company A is resident for tax purposes in third country A and licenses IP to entity B, a wholly-owned subsidiary, in EU MS B. Entity B is treated as transparent under the law of MS B but has opted to be considered as non-transparent for tax purposes from the viewpoint of third country A. Entity B sub-licenses the use of its IP to subsidiaries of the group in several MS. The subsidiaries pay royalties for the use of the IP back to entity B. MS B does not see a taxable presence of entity B in its territory (not even a permanent establishment, as most of the management of the licences takes place from abroad). Given the fact that MS B would not supply a tax residence certificate for transparent entity B, the franchisees will need to apply the tax treaty with third country A. It is assumed that all these applicable tax treaties follow the OECD Model and so provide for no WHT on royalties. From the point of view of MS B, the royalty payments are deemed to be paid to Company A, which is the only shareholder/partner of entity B. Third country A treats entity B as non-transparent, i.e. a company resident for tax purposes in MS B. Third country A would therefore not tax the royalties paid to B (unless it decided to apply controlled foreign company legislation on company A).

Who is liable to disclose Under a scheme of mandatory disclosure, the law firm which advised and possibly carried out the formalities for setting up entity B would need to inform on the specifics of this scheme. The disclosure of the arrangement would have to be done in the Member State of entity B if the intermediary has a presence (e.g. at least an office) there. If the intermediary advised from outside the EU (e.g. the third country where company A is resident for tax purposes) and collaborated with a local firm in MS B, it would be for the local firm to report. In the event that the third-country intermediary only gave tax advice and sold the scheme to company A but entity B was set up by in-house lawyers, the obligation to disclose would be shifted to the taxpayer, i.e. entity B. Relevant hallmarks Generic: the scheme above could be a massively marketed scheme; it would be sold for a fee. The observations made on generic schemes under Example 1 would also apply to the facts of this example. Specific: not subject to tax in the third country of destination. Considering that third country A treats entity B as non-transparent, it assumes that it is resident for tax purposes in MS B and has been subject to corporate tax there. Consequently, If the royalty payments are not taxable in the third country of destination, the scheme would be captured by hallmark C.1.b).i. In addition, there would be a mismatch as the same entity would be treated as transparent in the EU MS and non-transparent by the third country. Even if the scheme were not captured by the hallmark above referring to the level/ existence of tax liability, it would still fall within the scope of C.1.e) due to the mismatch. It would suffice that one of these two hallmarks captures the scheme, for the purpose of making it reportable. It should be clarified that reporting a scheme under the proposed Directive does not imply that the scheme(s) necessarily involve(s) arrangements of tax avoidance. The tax authorities will have to assess the disclosed details in combination with the tax file of the taxpayer concerned. The aim is that the tax authorities receive information about potentially aggressive tax planning schemes before these schemes are implemented and that this enhances their effectiveness in clamping down on tax avoidance. 4.Why The European Union Should Act Article 115 of the Treaty on the Functioning of the European Union (TFEU) is the legal base for legislative initiatives in the field of direct taxation. Although no explicit reference to direct taxation is made, Article 115 refers to directives for the approximation of national laws as those directly affect the establishment or functioning of the internal market. It follows that, under Article 115 TFEU, directives are the only available legal instrument for the Union. Based on Article 288 TFEU, directives shall be binding as to the result to be achieved upon Member States but leave the choice of form and methods to the national authorities. Given that the scope of the proposed rules is limited to direct taxes, it would not have been possible to refer to Article 113 TFEU on the harmonisation of legislation in turnover taxes. The lack of transparency facilitates activities of certain intermediaries involved in promoting and selling aggressive tax planning schemes. As a consequence of this, Member States suffer from the shifting of profits, which would otherwise be generated and become taxable in their territory, towards low-tax jurisdictions and often experience an erosion of their tax bases. In addition, such a situation should be expected to give rise to conditions of unfair tax competition against businesses that refuse to engage in these illegitimate activities. The ultimate outcome is to distort the operation of the internal market. Experience shows that national provisions against aggressive tax planning cannot be fully effective. The disclosure requirements under national rules would be limited to the domestic territory and therefore only deal with a single fragment of a cross-border scheme. In fact, such schemes usually involve numerous companies with tax residence in a variety of jurisdictions. Sometimes, when it comes to multinational groups, the taxpayer in a single jurisdiction may not even be fully informed of the structure of a scheme that stretches across the group. It would therefore be unrealistic to expect to receive the full picture of a cross-border scheme applying to a multinational group through placing an obligation of disclosure to a local subsidiary. In addition, if only part of a scheme becomes known to the authorities, it is very possible that the potentially harmful elements of the scheme escape.

Many of the structures devised to avoid taxes have a cross-border dimension while also capital and persons are increasingly mobile, especially within an integrated market, such as the internal market of the EU. The need for collective action at EU level to improve the current state of play has become apparent and can usefully complement existing initiatives in this area, in particular within the context of the DAC. This is all the more so, as existing instruments at national level have shown to be only partially effective in increasing transparency. Typical structure of aggressive tax planning arrangements A typical cross-border tax planning arrangement or a series of arrangements would involve a structure that engages more than one jurisdiction within the EU (and that possibly stretches even to third countries). In accordance with the proposed rules, the intermediary who carries the responsibility vis-à-vis the taxpayer(s) for designing and implementing the arrangement(s) shall file the requisite information with the tax authorities. In the business practice, it is usually the case that the intermediary exclusively deals with one taxpayer within a group; that is, the top company in the shareholding tree. It follows that in such cases, individual national measures oriented towards disclosing the domestically-focussed individual bits of a broader arrangement or series of arrangements would be impossible to apply. This is because there would be no presence of an intermediary in most of the subsidiary jurisdictions. Inevitably, it would be the intermediary who signed with the taxpayer that would have to disclose the EU-wide dimension of an arrangement(s). It can also occur that, depending on the specifics of a tax planning arrangement, lower-tier group companies with a predominantly domestic focus sign a contract with intermediaries. This would often refer to the local aspects of a broader cross-border scheme for a corporate group. In this context, although it could be possible to identify the intermediary related to the local aspect of the overall arrangement, one would normally need to have a global picture, in order to identify the contrived steps that make such a scheme illegitimate. Namely, if seen in isolation (e.g. State by State), the domestic dimension of a scheme is often unlikely to provide the authorities with sufficient input for assessing whether a part of a certain scheme should be acceptable or not. It therefore follows that a country-by-country notification of pieces in the puzzle, without knowledge of the full picture, would not fulfil the ultimate objective of this initiative, i.e. to clamp down on tax avoidance and evasion and consequently, improve the functioning of the internal market. On the contrary, a localised approach would exacerbate the fragmentation of the market. Example 1 In Example 1 under section 3.4, the intermediary (e.g. law firm which advised and possibly carried out the formalities for setting up NewCo) would need to inform the authorities about the specifics of this scheme, including by providing a summary of the facts. The disclosure of the arrangement will have to be done in the Member State of NewCo if the intermediary has a presence (e.g. at least an office) there. If the intermediary is not identifiable, in terms of physical presence in the EU, the responsibility for disclosure will shift to the taxpayer, i.e. the group member which signed the contract with the intermediary. In this example, it becomes obvious that a disclosure of solely the local aspects of the scheme (e.g. the situation in Member State A) would not suffice for identifying the tax-related motive behind the creation of New Co. Example 2 In Example 2 under section 3.4, the intermediary (e.g. law firm which advised and possibly set up the hybrid entity B) is most likely to carry the obligation of disclosing the relevant data of the entire scheme to the authorities. Assuming that the intermediary is based, or maintains a presence, in Member State B, the intermediary will need to notify the full picture to the tax authorities of that Sate. Thus, it will not be enough to disclose only the local aspects that solely pertain to Member State B. In fact, in such case, the authorities would be unlikely to trace the element of hybridity which is inherent in this scheme and leads to double non-taxation. Subsidiarity Both examples demonstrate that a country-by-country disclosure of fragments of the overall schemes would not supply the authorities with the necessary minimum of knowledge to identify an arrangement or a series of arrangements in their entirety and assess whether it is legitimate or not. Considering that the mandatory disclosure is aimed to inform tax authorities about schemes with a dimension beyond a single State, it would be necessary to embark on any such initiative through action at the level of the EU, in order to ensure a uniform approach to the identified problem. Thus, the internal market needs a robust mechanism to address loopholes in a uniform fashion and rectify existing distortions by ensuring that tax authorities receive appropriate information, on a timely basis, about aggressive tax planning schemes with cross-border implications. Uncoordinated action undertaken by Member States based on own initiative would create a patchwork of rules on the disclosure of schemes by intermediaries while it would perpetuate unfair tax competition between States. What is more, action on disclosure at the level of the EU would bring an added value, as compared to individual Member State initiatives in the field. This is because the proposal exclusively deals with cross-border situations, which is not the focus of the existing national regimes on mandatory disclosure. In fact, most of the aggressive tax planning schemes are structured to have a cross-border dimension or impact, as they have the aim of shifting taxable income towards low-tax jurisdictions. In this light, the EU is in a better position than any Member State individually to ensure the effectiveness and completeness of the system for this exchange of information. On this point, stakeholders confirmed at the consultation stage that the most interesting tax planning schemes for them are those with a cross-border element. It follows that the disclosure of potentially aggressive tax planning schemes at the level of the Union brings a definitive advantage into the equation: it allows tax administrations to obtain the full picture of a structure of cross-border transactions and its impact on the overall tax base. In addition, the automatic exchange of information among tax authorities increases the chances of identifying potentially aggressive tax schemes, as reportable information will be available to all Member States. It should also be considered that a common cross-border system for the internal market should be expected to gradually fix as a level-playing field which could complement national systems of disclosure. It is thus true that national rules of a purely domestic dimension may be circumvented if taxpayers moved activities and wealth to a jurisdiction without rules of disclosure. Proportionality The assessed policy response represents a proportionate answer to the identified problem since it does not exceed what is necessary to achieve the objective of the Treaties for a better functioning of the internal market without distortions. Indeed, the common rules will be limited to creating the minimum necessary common framework for the disclosure of potentially harmful arrangements: (i) The common rules are limited to addressing potentially aggressive tax planning schemes with a cross-border element. (ii) The imposition of penalties for non-compliance with the national provisions that implement the Directive into national law will remain under the sovereign control of Member States.

Leaving the decision on this element exclusively to individual national initiatives, or relying on the effectiveness of a soft-law initiative, would mean that some States could decide to act, while others not. This is notably so, given that BEPS Action 12 is not a minimum standard and implementation in the EU could therefore diverge substantially. Indeed, 39 out of 131 stakeholders replied in the public consultation that, in case there was no EU action, no transparency requirements would be introduced and 107 stakeholders stated that it is likely or very likely that differing transparency requirements would be introduced. Furthermore, the exchange of information on disclosed cross-border schemes would not be ensured if it were left to individual action by Member States. For all these reasons, introducing a reporting requirement at EU level linked with exchange of information could resolve the identified problems and contribute to improving the functioning of the internal market. This impact assessment evaluates whether there is a need for action at EU level and to what extent a harmonised approach is needed for the EU internal market. Like for other recent EU initiatives in this field, there are strong indications that if action is eventually taken, aggressive tax planning arrangements cannot be efficiently addressed within domestic legislation or through bilateral tax treaties. 5.Scope of this impact assessment This assessment looks into the possibilities of introducing mandatory disclosure rules with the objective to enhance transparency in the design and promotion of aggressive tax planning schemes. The term 'intermediaries' refers to any natural or legal person who is sufficiently linked to an EU Member State and is responsible for the design, marketing, organisation or management of a potentially aggressive tax planning scheme. The concept also includes those who provide assistance or advice in creating, developing, planning, organizing, marketing or implementing such a scheme. The term comprises consultants, lawyers, financial (investment) advisors, accountants, solicitors, insurance intermediaries, financial institutions, and company-formation agents known as Trust and Company Service Providers. The assessment discusses who should report to tax administrations and which types of taxes should be covered. Regarding the reportable schemes, the focus is on potentially aggressive tax planning structures, which implies that a reportable scheme may not necessarily be illegitimate or illegal. Whether a scheme is reportable depends on certain criteria referred to as 'hallmarks'. The composition of hallmarks is also under assessment. Another topic of analysis concerns the form and frequency of the exchange of information on disclosed schemes between Member States, i.e. whether the exchange should be spontaneous or automatic. Finally, the text discusses how this information should be exchanged. 6.Objectives Figure 6: Objectives of the policy intervention Source: European Commission (2017) 6.1.General Objectives The general objective of a potential initiative would be to improve the proper functioning of the internal market, which is currently undermined by the use of aggressive tax planning schemes, as these schemes result in market distortions and cause a lack of fairness. It is true that national corporate tax systems in the EU are not fully harmonised and Member States are – to some extent – free to provide exemptions and incentives for taxpayers. Yet, at the same time, it is widely agreed that there is an urgent need for curbing tax planning practices which take advantage of mismatches in the interaction between corporate tax systems, exploit beneficial tax regimes, or interpret the law in a way that was not envisaged by the legislators. In this context, it would be crucial to stand against the lack of transparency or uncertainty over beneficial ownership. If tax authorities receive more timely information about potentially aggressive tax planning schemes with a cross-border element, they should be able to take appropriate measures. 6.2.Specific Objectives 6.2.1.Fighting tax evasion and avoidance through identifying aggressive cross-order tax planning schemes In order to efficiently fight against tax evasion and avoidance, it is necessary to track potentially aggressive tax planning schemes and to respond to the tax risks they pose. The national authorities need to receive information on a timely basis – ideally, already before a scheme is implemented – and it is also crucial to identify the users and promoters of such schemes. It is then up to them to take immediate action such as changing the law in order to prevent the implementation of certain arrangements or to focus on certain arrangements in the context of upcoming audits. 6.2.2.Improving transparency and timely access to information on aggressive cross-border tax planning schemes

Transparency and access to the right information at an early stage should allow the authorities to improve the speed and accuracy of their risk assessment and make timely and informed decisions on how to protect their tax revenues. Ideally, information about a certain scheme should be obtained before this is implemented and/or used. Disclosure within a strict deadline would maximize the tax administration’s ability to assess the risk of schemes at an early stage and, if necessary, take appropriate actions to prevent a loss of tax revenue and/or increase the deterrent effect. 6.2.3.Creating a deterrent to the design and use of aggressive cross-border tax planning schemes It should be expected that the mandatory disclosure of potentially aggressive tax planning schemes would dissuade intermediaries from designing and marketing such schemes. When the national tax authorities receive information, they can take appropriate action to ensure that their tax legislation is sufficiently developed to tackle the disclosed schemes. Furthermore, dissuasive penalties in case of non-compliance are of high importance in ensuring an effective mechanism. Monetary sanctions are the most common, while some countries combine this with non-monetary sanctions. The main purpose of setting penalties is as deterrence. As far as more material sanctions for intermediaries involved in aggressive tax planning schemes, such as sanctions within professional regulation or increased publicity, are concerned, it should be left to the national level to deal with. 7.Policy options An initiative that addresses the identified problems would need to delineate the objectives it seeks to achieve and the mechanisms that can best bring these objectives into fruition. The challenge is how to design a proportionate system which would target the most aggressive forms of tax planning. The OECD report on BEPS Action 12 gives examples of the approaches taken by tax authorities in a number of jurisdictions around the world, including the three national mandatory disclosure regimes that exist in the EU, namely in Ireland, Portugal and the UK. The policy choices can in practice be drawn between a context where there is a (mandatory) disclosure of information on potentially aggressive tax planning arrangements to tax authorities and a context where there is no such obligation, i.e. the so-called status quo. The public consultation set out a list of policy options for stakeholders. Some of these options concerned the type of appropriate legal instrument for the proposed initiative. That is, whether legislation or a soft law act in the form of a Recommendation or Code of Conduct presents the optimal solution. Amongst the options that built on binding rules, the stakeholders were invited to mainly consider the possibility of agreeing a common framework for disclosing information to tax authorities or alternatively, of coupling the disclosure with an automatic exchange of the disclosed data across tax authorities in the EU. Following the consultations with stakeholders, it became clear that all of the available policy choices which involved binding rules would lead to a similar outcome. Thus, if there is a (mandatory) disclosure of data to the tax authorities, it always enables some form of exchange of information. This is because spontaneous exchanges form part of the general framework of the Directive on Administrative Cooperation. Therefore the exchange of information is present in distinct forms under all policy options that involve a disclosure of data. It was further considered that the only real comparison between policy choices could in practice be drawn between a context where there is an obligation to disclose information on potentially aggressive tax planning arrangements (coupled with exchange of information) and a context where there is no such obligation, i.e. the so-called status quo. In addition, the prospect for limiting the exchange of information to spontaneous exchanges would not appear consistent with the series of initiatives that the Commission has lately undertaken in the field of Transparency. Thus, the framework for information exchange, both in the rules that implement the common reporting standard in the EU and in advance cross-border rulings, involves automatic exchanges. In this context, it is necessary to assess the constituent elements of a policy choice consisting of a mandatory disclosure of reportable cross-border arrangements coupled with automatic exchange of information. The following questions appear mostly relevant: ·Who has to report? ·Which type of taxes is covered? ·What types of schemes should be disclosed, i.e. what is a reportable scheme? ·Which hallmarks should be used to identify reportable schemes? ·Should only new or also existing schemes be included? ·Should there be an exchange of information on disclosed schemes? ·What form and which means should be used for information exchange? Some questions will not be tackled by this impact assessment, as they precisely pertain to the way that Member States have organised their public administration and judiciary. These matters can be dealt with more effectively at national level: ·What should be the consequences of non-compliance by intermediaries or taxpayers? ·What should be the follow up by Member States after receiving reports?

·How should collected information be used? Table 2: Overview of Options Policy options concerning disclosure regime Baseline scenario No action Specific features Description of options Personal scope Subject of reporting obligation 1. Single requirement (only intermediaries or only users) 2. Double requirement (intermediaries and users) 3. Primary and secondary requirement (intermediaries or users) Material scope Type of taxes covered 1. All taxes 2. Direct taxes only Composition of hallmarks 1. Generic hallmarks 2. Specific hallmarks 3. Generic and specific hallmarks Timeframe 1. Only new schemes 2. New and existing schemes Exchange of information Form and frequency of

exchange of information 1. Spontaneous exchange 2. Automatic exchange Means for exchange of information 1. Compulsory publication in the Member State of disclosure 2. Direct exchange between Member States 3. Indirect exchange through a central directory Source:European Commission (2017) Under the baseline scenario, Member States that have a mandatory disclosure scheme (three Member States currently) could exchange information in the framework of the DAC if they considered that the information is relevant to other Member States (spontaneous exchange). As far as the alternatives to the baseline scenario are concerned, the assessment identifies a number of features relevant to the scope and content of the disclosure as well as to the possibility of information exchange. The available options for shaping each feature of a possible disclosure scheme are mutually exclusive, which implies that for each feature only one of the options can be chosen. Hence, the approach is to choose the preferred option for each feature individually. 7.1.Personal scope Two key players are involved in the implementation of tax planning schemes: (i) intermediaries, who design and promote the schemes and (ii) taxpayers, who use the schemes. There are different options regarding who should be required to report. For each of the key players, there can be three basic situations: they are never liable to report; or, they are always liable to report; or, they have to report under certain circumstances. According to the OECD report on BEPS Action 12 recommendation, countries adopting mandatory disclosure rules will need to decide whether or not they introduce a dual reporting requirement that applies to the intermediary and taxpayer (see the option under 7.1.2) or a reporting obligation that falls primarily on the promoter (see the option under 7.1.3). However, where the primary reporting obligation falls on the promoter it is recommended that the reporting obligation switches to the taxpayer where: •The promoter is offshore; •There is no intermediary; •The intermediary asserts legal professional privilege. Mandatory disclosure regimes, which exist in practice, usually rely on the role of both intermediaries and taxpayers. Nevertheless, a mandatory regime can be built around the role of only one key player, either the taxpayer or intermediary (see the option under 7.1.1) 7.1.1.Single requirement (only intermediaries or only users) Under this option, either only intermediaries or only users are subject to a reporting obligation. Intermediaries are identified through the activity they conduct regarding the tax planning, rather than through their affiliation to a certain professional group. Therefore, the concept of an intermediary should include a non-exhaustive list of certain professions, such as lawyers, tax advisers, accountants, wealth managers, bankers, company and trust service providers etc. At the same time, it should extend to anybody who is involved in the design, promotion and marketing of potentially aggressive tax planning schemes. Users are taxpayers who accept the advice received from intermediaries, in cases where an intermediary is involved, and implement such schemes. Users, in certain circumstances, develop potentially aggressive tax planning schemes without the involvement of intermediaries. Under this option, there would only be a single reporting requirement, either for the intermediaries, who design and market schemes, or for the users, who implement schemes. 7.1.2.Double requirement (intermediaries and users)

According to this option, the reporting obligation is jointly placed on both the intermediary and the user. This means that intermediaries have to report on schemes within the scope of the obligation and, in addition, taxpayers have to provide information about specific transactions (e.g. in their tax declarations), regardless of whether the intermediary has already disclosed these transactions. Accordingly, the intermediary's obligation to disclose would not be waived by the fact that the user will provide information on the same scheme. 7.1.3.Primary and secondary requirement (intermediaries and/or users) Under this option, a primary reporting obligation is put on intermediaries. However, in order to ensure that the schemes under discussion are reported in all situations, the reporting obligation should be shifted to the user of the scheme in one of the following scenarios: a) Non-EU intermediary: Where an intermediary of the scheme is not located in the EU, it may become impossible to ensure the intermediary's compliance. Therefore, the obligation to disclose potentially aggressive tax planning schemes would capture intermediaries who market, promote, sell, enable the set-up of such schemes and fulfil one of the following conditions: (i) they are incorporated or organised in a non-incorporated legal form in an EU Member State; (ii) they are registered with a professional association in an EU Member State; (iii) they maintain premises in an EU Member State from where they habitually exercise their activity related to tax planning. b) No intermediary: It may be that a scheme is developed by the user for internal use, for example an "in-house" scheme. This may be the case, for example, for large multinational corporations which have the necessary internal resources to devise such schemes. c) Intermediary bound with legal professional privilege or secrecy rules: Some intermediaries may not be in a situation to make a disclosure legally, due to specific legal constraints related to the domestic regulation of their profession. These issues commonly involve legal professional privilege and secrecy rules. In their contributions to the proposal a number of stakeholders noted the need for any proposal to uphold the professional secrecy/legal professional privilege to facilitate full and frank disclosure between those who need legal advice and their lawyers and safeguarding this in the public interests and also for taxpayers. It is also worthwhile mentioning that the clients have may have the choice to waive the right to legal privilege or secrecy. In such a case, disclosure may still be provided by the intermediary. Only in case of no waiver would the obligation to report be shifted to the user. Both scenarios ensure that the legal privilege or secrecy is not infringed upon and the reporting is secured at the same time. If none of the conditions in a) is fulfilled and in cases b) and c), the obligation to disclose should be shifted to the user of a potentially aggressive tax planning scheme. The user of the scheme should remain legally responsible for the disclosure obligations, including any default, regardless of whether the intermediary fulfils the necessary disclosure requirements. 7.2.Material scope 7.2.1.Type of taxes covered 7.2.1.1.All taxes A reporting requirement may concern schemes that relate to any type of tax. The OECD report on BEPS Action 12 indicated that jurisdictions which have introduced mandatory disclosure regimes have included a broad range of taxes; amongst them, income taxes and value added taxes. The sub option to cover all taxes will be discarded and not retained for the comparison of options later on. The prospect for covering all taxes would not seem justified as the exchange of information on VAT, customs duties, excise duties, as well as on social security contributions, is already covered by other legislative instruments on administrative cooperation, which specifically focus on these types of taxes. In theory, any type of tax or duty may suffer from aggressive tax planning. However, the problem definition shows that the concerns are related to international tax issues which are precisely linked to income taxes. On this premise, it is justified to focus on direct taxation. 7.2.1.2.Direct taxes This option excludes certain types of taxes and instead concentrates on direct taxation, notably personal and corporate income tax. 7.2.2.Object of reporting (hallmarks) When it comes to the object of reporting, there are two aspects to be considered. The first question is which tax planning schemes should fall under the scope of the proposal and the second question is what information should be reported and exchanged. This chapter outlines which schemes should be reported. Targeting the appropriate tax planning schemes lies at the heart of this transparency initiative. Tax authorities are likely to be interested in situations where loopholes or mismatches in the interaction of tax systems are exploited to obtain tax benefits. A disclosure regime needs to be designed in a way that there is legal certainty about the types of schemes or arrangements that should be disclosed to tax authorities. Here the question is which approach or which techniques could help target and capture the key information that tax administrations need in order to make informed policy decisions, while avoiding over-disclosure or undue compliance burdens on taxpayers and administrations. One crucial element in this exercise is the indicators or criteria which clearly identify the schemes that would have to be reported; these are the so-called hallmarks. It is sufficient that a tax planning scheme meets one of the hallmarks to be identified as potentially aggressive and become subject to reporting.

Definition of hallmarks in the BEPS Action 12 OECD report Hallmarks act as tools to identify the features of schemes that tax administrations are interested in. They are generally divided into two categories: generic and specific hallmarks. Generic hallmarks target features that are common to promoted schemes, such as the requirement for confidentiality or the payment of a premium fee. Generic hallmarks can also be used to capture new and innovative tax planning arrangements that may be easily replicated and sold to a variety of taxpayers. Specific hallmarks are used to target known vulnerabilities in the tax system and techniques that are commonly used in tax avoidance arrangements such as the use of losses. Existing national disclosure regimes use hallmarks (and sometimes also other filters) to target schemes in the tax authorities' interest. It should be stressed that the fact that a scheme is reportable does not automatically mean that it amounts to tax avoidance or tax evasion. Some of the hallmarks which have generally been linked to abusive tax transactions may also be found in legitimate transactions. Therefore, the disclosure regime seeks to identify potentially aggressive tax planning schemes and does not judge whether a scheme under disclosure is actually abusive or aggressive. Another important observation is that existing disclosure regimes are not designed to pick up all tax avoidance schemes. For the purpose of designing the EU disclosure regime, the primary target should involve potentially aggressive tax planning schemes with a cross-border element. The cross-border element would generally imply that the user and/or any of the intermediaries and/or any of arrangements/transactions in the scheme are not all linked to the same Member State. Intermediaries would have to identify the cross-border element and include it to their report. A key question is which hallmarks should be included in the EU disclosure regime. One approach could be to delineate them through major categories, i.e. generic and specific hallmarks. On that basis, one can identify three major options. 7.2.2.1.Generic hallmarks Under this option, the EU regime would include only generic hallmarks. These refer to the behaviour of intermediaries. They focus on marketing and the form in which advice on tax planning schemes is supplied. They target features which are common to mass marketed and standardised products, either existing or new and innovative. The following items include typical generic hallmarks used in a number of jurisdictions: ·"Premium fee” or “contingent fee” hallmarks: the amount that the client pays for the advice can be attributed to the value of the tax benefits obtained under the scheme. ·"Confidentiality" hallmarks where the promoter or adviser requires the client to keep the scheme confidential. ·"Standardized tax product" or "marketability" hallmarks intended to capture widely-marketed schemes. Generic hallmarks only become relevant where they additionally fulfil a minimum standard requirement that relates to whether the relevant schemes point to tax avoidance or their main benefit is to obtain a tax advantage. According to the OECD report on BEPS Action 12, most generic hallmarks in national regimes (with the exception of the United States) are designed on this basis. According to the OECD report on BEPS Action 12, it is recommended that generic hallmarks include a confidentiality and premium/contingent fee. A country may also wish to adopt additional generic hallmarks such as the one applying to standardised tax products. 7.2.2.2.Specific hallmarks Under this option, the EU regime would include only specific hallmarks. Specific hallmarks reflect the particular concerns of tax authorities, and target areas of perceived high risk, such as the use of losses, leasing contracts, the use of hybrid instruments and income conversion schemes. Those concerns include situations of double non-taxation. Some hallmarks specifically target cross-border schemes e.g. schemes involving entities located in listed third countries. Some other specific hallmarks do not draw any such distinction. Other sets of hallmarks specifically look at schemes aimed at separating legal from beneficial ownership or concealing them. Specific hallmarks also refer to the possibility of exploiting mismatches that result from the interaction of disparate national tax systems and may lead to double non-taxation (e.g. different rules on depreciation between two Member States may result in having the same asset depreciated in two separate jurisdictions; i.e. the State of the economic owner and that of the legal owner). The following set of specific hallmarks was listed for the purpose of the Commission's public consultation in November 2016. Set of specific hallmarks listed in the Commission's Public Consultation 1. Use of jurisdictions included in the (future) EU list of third country jurisdictions that fail to comply with tax good governance standards. 2. Use of certain legal arrangements/entities (trusts and similar) in jurisdictions that pose difficulties in identifying the beneficial owner. 3. Use of entities subject to zero taxation or less than a certain % (to be defined), including hybrid entities (i.e. entities that are treated as transparent by one country but as non-transparent by another country). 4. Schemes designed to circumvent the Common Reporting Standard (CRS) for automatic exchanges of financial account information. 5. Use of a group company in a low tax jurisdiction for intra-group financing of other group companies in high tax jurisdictions. 6. Use of group companies with very little substance that are nevertheless entitled to tax treaty benefits and through which large amounts of money flow. 7. A general artificial arrangement or an artificial series of arrangements created for the essential purpose of avoiding or evading taxation and which leads to a tax benefit. 8. A transfer pricing arrangement not in conformity with the arm's length principle and/or the OECD transfer pricing guidelines. 9. A profit allocation between different parties of the same group that it is not in conformity with the arm's length principle and/or the OECD transfer pricing guidelines. 10. A preferential treatment under the application of the national tax law that is not in line with the general application or interpretation of the law. The respondents to the public consultation ranked the hallmarks based on their relevance for classifying aggressive tax planning schemes in the following order: ·7. A general artificial arrangement; ·10. A preferential treatment under the application of national law; ·4. Schemes designed to circumvent the CRS ; and ·2. Difficulties in identifying the beneficial owners.

Hallmark 1. Use of future EU list of third country jurisdictions that fail to comply with tax good governance standards was considered by stakeholders to be less relevant. A specific consideration would be required for the hallmarks related to the EU list of third countries because the procedure leading to the establishment of the list has not yet been finalised and so the final list and other details are not known for the time being. There is also a group of specific hallmarks that targets arrangements which are designed to assist the evasion of tax by making it difficult to identify the beneficial owner of income and gains: ·The use of certain legal arrangement/entities (trusts and similar) in jurisdictions that pose difficulties in identifying the beneficial owner; ·Transactions designed to circumvent the Common Reporting Standard (CRS) for automatic exchanges of financial account information; ·Transactions that have the effect of obscuring or concealing the relation between legal and beneficial ownership, for example through the use of a power of attorney or nominees. 7.2.2.3.Generic and specific hallmarks Under this option, the EU regime would use a compilation of both generic and specific hallmarks and thus jointly cover both previous options. This option is the most comprehensive of the three available ones and combines the two basic concepts; that is, the effectiveness of b