eu mandatory disclosure regime - kpmg · —when the webcast is over, the webcast player will...

EU Mandatory disclosure regime —State of play and practical insights for financial services companies

12 September 2019

2© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any

authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

... with you today

Raluca EnacheSenior Manager

KPMG’s EU Tax Centre

T: +31 88 909 1465

E: [email protected]

Paul FreemanDirector, Tax

KPMG in the UK

T:+44 (0) 20 7694 4121


Mark SemplePartner, Tax

KPMG in the UK

T:+44 (0) 20 7311 1850

E:[email protected]

Peter GrantPartner, Tax

KPMG in the UK

T: +44 20 76942296


Tony ManciniPartner, Tax

KPMG in the Channel Islands

T:+441481741845


mailto:[email protected]







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authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.4© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any


Topics for discussion

Agenda1 Local implementation state of play

2 UK developments

3 Channel Island & other 3rd countries

4 Draft KPMG DAC 6 software solution

5 Next steps



DAC6 — state of play

DAC6 is adopted

Formal adoption by ECOFIN

DAC6 enters into force

MDR directive comes into force

State of play

3 countries have implemented the

rules

17 countries are discussing/in

process of approving draft legislation

Remaining 8: Draft bills expected

during the course of 2019

Automatic exchange

First exchange of information

between tax authorities

First deadline

Deadline to file retroactive information

May 25,

2018

June 25,

2018August 31,

2020

October 31,

2020Today

December

31, 2019

DAC6 becomes

effective

MDRs become applicable

Local implementation

Deadline for EU Member States

to implement DAC6 into local

law

July 1,

2020


authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.6© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any


EU-wide developments

European Commission

— Has published Implementation Regulation.

— Unique identification number to be

assigned to each reported arrangement.

— No further interpretation guidelines.

TAX3 Committee:

— Final report calls for reporting obligation to

be extended to purely domestic cases.



DAC6 implementation — the progress of implementation

1. Bulgaria

2. Ireland

3. Latvia

1. Belgium

(Draft legislation expected before

the end of the year)

2. Croatia

3. Greece

4. Malta

5. Romania

(Draft legislation expected autumn

2019)

1. Austria

2. Cyprus

3. Czech Republic

4. Denmark (public consultation

completed)

5. Estonia (public consultation

completed)

6. Finland (public consultation

completed)

7. France

8. Germany

9. Italy

10. Lithuania

11. Luxembourg

12. Netherlands (Draft legislation

published July 2019)

13. Portugal (Draft law subject to

public scrutiny)

14. Slovakia

15. Spain

16. Sweden

17. UK (public consultation deadline

October 11)

1. Poland (already applicable)

2. Slovenia (applicable as of July 1,

2020)

3. Hungary (applicable as of July 1,

2020)

No significant steps taken Draft legislation publishedDiscussions with

stakeholdersImplementation complete



Local implementation — highlights

‘Vanilla’ implementation

closely following directive

Approach still to be

established

Expanded scope, e.g.

including domestic

arrangements,

additional taxes



DAC6 implementation — penalties

0 200 400 600 800 1000 1200

Austria

Cyprus

Czech Republic

Denmark

Finland

France

Germany

Italy

Luxembourg

Netherlands

Portugal

Slovakia

Slovenia

Spain

Sweden

UK

Maximum penalty (EUR ‘000)

Penalty between EUR 30,000 and EUR 150,000

Penalty between EUR 150,000 and EUR 1.5 million

Penalty up to EUR 30,000

Penalty more than EUR 1.5 million

UK developments



We are here!

12 February 2019

S 84 FA 2019 gives Treasury power to implement DAC 6 (and other international disclosure regimes) by regulation.

Implementation phase Applies

Disclosable arrangements where the first step in implementation takes place during the MDR implementation phase covered by ‘catch up’ reporting once regime becomes applicable.

31 December 2019

Deadline to implement MDR locally

22 July 2019

Draft UK legislation published for a consultation ending 11 October. Consultation document indicates current policy approach in a number of key areas, but full draft guidance not yet published.

31 October 2019

Brexit?

Where are we?

Consultation

31 January 2020

Brexit deferred?

1 July 2020

MDR ‘live’ reporting begins

UK election?



UK draft implementation : Reporting obligation— Reporting obligations sits with employer rather than employee.

— Person assessing the reporting obligation must take account of information which

they know or which is available to them. No need to do “significant extra due

diligence” or carry out a detailed trawl through all information held by an

organisation, but HMRC will challenge cases of wilful ignorance or deliberate

compartmentalising of key data.

— HMRC takes the view that finance providers can be intermediaries.

— “…the DAC is wider than the code of practice on taxation for banks, and so the fact

that a bank is compliant with the code will not, in and of itself, mean that a bank

has no obligations under the DAC. For example, arrangements which meet

hallmarks under Category D may not have any tax effect, and so would not

necessarily contravene the code of practice on taxation for banks.”

— Where legal professional privilege applies, non-privileged information (e.g. names

of relevant parties) must still be reported.

— Arrangement reference numbers will be assigned to reported arrangements and

may need to be referenced in tax returns.

Remember — policy still evolving and approach may change



UK draft implementation : Branches

— Where do I report?

The consultation confirms that a non-UK resident company operating through a

UK branch should only need to report in the UK if there is no requirement in the

head office jurisdiction to report an arrangement the UK regards as disclosable.

— Is it cross-border?

The UK does not regard transactions between the UK branch and UK

counterparties as automatically meeting the “cross border” requirement to be

reportable. The UK view is that transactions must concern multiple jurisdictions

and those jurisdictions be of some “material relevance” to the transaction for it be

properly regarded as “cross border.”

Will UK approach be replicated by head office jurisdictions?

Non-UK

UK PE



UK draft implementation : “Tax Advantage”— Why do ‘tax advantages’ matter?

Many hallmarks are only met if the main benefit test is satisfied — i.e. that the main

benefit or one of the main benefits which, having regard to all relevant facts and

circumstances, a person may reasonably expect to derive from an arrangement is the

obtaining of a tax advantage. No definition of “tax advantage” is given in the Directive.

— When does a relevant advantage arise?

The draft UK regulations adopt a broad definition of tax advantage, similar to that used

elsewhere in UK tax legislation, but subject to an important exclusion for cases which

can “reasonably be regarded as consistent with the principles on which the relevant

provisions that are relevant to the reportable cross-border arrangement are based and

the policy objectives of those provisions.”

— Which advantages are relevant?

Draft UK rules potentially apply to advantages relating to taxes equivalent to those

within DAC levied by any jurisdiction — i.e. not restricted to UK/EU tax advantages.

Reliance on carve out to exclude ‘acceptable’ planning/products



UK draft implementation : Hallmarks

— Hallmark A(2) — no exclusion for ‘industry standard’ templates

— Hallmark B(2) — focus on ‘conversion’

— Hallmark C(1) — look through transparent entities

— Hallmark C(1) — ‘almost zero’ means less than 1%

— Hallmark C(1) — the relevant blacklist is the version in force when the reporting

obligation is being assessed

— Hallmark D — interpreted in line with OECD guidance

— Hallmark E — seeks disclosure of arrangements contrary to OECD TP

guidelines

UK interpretation of hallmarks given effect solely through guidance



UK draft implementation : Penalties

— Compliance failures can attract penalties equivalent to those under the UK

DoTas regime: in most cases up to £600 per day or up to £1 million if

determined by the First-tier Tribunal.

— Penalties may be reduced in ‘special circumstances’ but these do not include

ability to pay or the fact that there is no overall loss of tax

— Penalties may be reduced where there is a ‘reasonable excuse’, but this

excludes:

- a lack of funds to take action;

- reliance on another person; and

- reliance on advice given or procured by an intermediary, based on

incomplete/inaccurate facts, or which reaches unreasonable conclusions.



Brexit impacts— The UK is currently due to leave the EU on 31 October 2019 – before the

deadline to implement DAC 6 – although this may be extended.

— The consultation on the draft UK implementation states that the UK will

“continue to apply international standards on tax aimed at tackling avoidance

and evasion” but falls short of explicitly stating that it would seek to implement

DAC 6 in its current form regardless of the eventual form of Brexit.

— Transitional arrangements have been proposed which would mean the UK

broadly remains subject to EU law until 31 December 2020 – after DAC 6 has

begun to apply. HMRC expects that these transitional arrangements will

require the UK to implement DAC 6, but it is unclear that those arrangements

will be adopted.

— It is possible that DAC 6 could be implemented even in the event of a “no

deal” Brexit, as DAC envisages third countries may opt in to some aspects,

but there is no official confirmation as to whether the UK would pursue this.

— Even in the event that DAC 6 is not fully implemented in the UK, there is likely

to be pressure for the UK to adopt the provisions of Hallmark D –

corresponding to the OECD’s recommendations on mandatory disclosure

regimes.

— Following any transition specific agreement is likely to be required to ensure

that exchanges of information under DAC 6 could continue.

— Absent any agreement will duplicate reporting under UK and EU regimes be

needed in some cases? What taxes will be covered?

Channel Islands & other 3rd countries

19

Document Classification: KPMG Confidential

© 2019 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affil iated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Context

EU work on non-cooperative

jurisdictions Affected Jurisdictions Commitments Given

— Jersey

— Guernsey

— Isle of Man

— Cayman

— Bermuda

— Bahamas

— Barbados

— UAE

— Introduce economic substance

requirements from 1st January 2019.

— Permit access to company beneficial

ownership register for law enforcement

and tax authorities.

— Introduce MDR based on OECD work on

mandatory disclosure rules for the

Common Reporting Standard Avoidance

Arrangements and Opaque Offshore

Structures, by 31st December 2019.

— 92 countries assessed on three criteria:

1. tax transparency

2. good governance

3. real economic activity

— Countries assessed as non-cooperative

faced sanctions and blacklisting.

— Countries committed to making changes

to become cooperative avoided

blacklisting.

20© 2019 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affil iated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

OECD MDR on CRS Avoidance Arrangements and Opaque Offshore Structures— Model rules build on the principles in BEPS Action 12 and provide a framework for

national disclosure regimes

— Much more limited in scope than DAC6

— Similar to Hallmarks D(1) and D(2)

— Focus on schemes and arrangements to frustrate CRS reporting and on entities

and arrangements that have the effect of obscuring the beneficial ownership of

income and assets

— Intermediaries must disclosure details of arrangements meeting the set hallmarks

of “CRS Avoidance Arrangements” or “Opaque Offshore Structures”

— The disclosure needs to be made to the intermediary’s national tax authority

— The disclosure is required to be made within 30 days of implementation

— Similar definitions of intermediaries.


Draft laws to be written and enacted by 31 December 201901

Lack of clarity around what is an “opaque structure”02

Possible closer alignment of definitions with DAC603

Automatic exchange with EU Member States (plus UK)04

Issues ahead

KPMG DAC 6 software solution


A solution……. Classify, track and reportKPMG has developed DAC 6 software solution that will assist intermediaries and tax payers to determine whether their

organisation has any reporting obligations under this regime. The software will track the decision making process, allow local

DAC 6 hallmarks to be assessed and it will allow you to report arrangements to the tax authorities.

Why use a tool and not simply an excel spreadsheet?

There are a number of advantages to using a technology based solution

— We will provide a series of questions which will include bespoke or jurisdiction specific questions including

any domestic requirements, helping you determine whether an arrangement should be reported (or where

further information is required to determine this);

— A secure audit trail will show who did what and when and allow the decision making process to be

evidenced;

— Management will have a centralised view of the global status that indicates your organisations reporting

progress across all jurisdictions that you are active in. This is crucial for reporting arrangements within a 30

day timeline.

— Management information reporting and drill down analytics will help provide the ability to view or compare

different data sets to identify trends or risks associated with the reporting, including assessment by:

— arrangements reported,

— arrangements per tax, per jurisdiction, per hallmark.

How the solution works

25



The configuration of the account allows the Manager to enter information about the intermediary organisation, entities

and business units as well as the members of the group. Details of the users are also entered and their roles (or ability

to access/view data) will also be configured, for example:

Configuration of the Account

User: Can initiate an arrangement

and input basics

Editors Stages 1 & 2: Responsible for data input for

stage 1 and stage 2 analysis

Reviewer: Has the ability to review the

arrangements. This ensures

a “4 eyes review process”.

Intermediary: Allows intermediaries to

answer arrangement surveys,

allowing continuity with

reporting.


The solution encompasses ‘smart questionnaires’ which have been designed to take a user through a structured analysis

of the arrangement that needs to be reported. The questionnaire is dynamic and specific to the tax type and jurisdiction(s)

in question.

The structured process aims to:

— Determine based on the countries involved in the arrangement the questions that need to be

answered and which countries reporting is potentially required;

— Permits users to access ready made arrangements to help streamline your organization's

reporting obligations.

— Users can upload documents relating to the arrangement (e.g. where external advice that has

been received documenting whether an arrangement is reportable).

— The tool can be configured to mandate a secondary review of the conclusion reached for each

arrangement (or group of arrangements).

Arrangement analysis

27



Arrangement analysis

28



Arrangement Survey

29



Predefined Arrangements

30



Stage 1 Questionnaire

31



Stage 2 Questionnaire


Dashboard and landing pageThe management dashboard provides a centralized view of summary status highlighting any open actions across the

organization, business unit, user or jurisdiction (i.e. this will include arrangements not yet reported where they are

determined to be in-scope or those which are still unclassified).

The dashboard acts as a risk management tool and is configured to show how all arrangements are being progressed

within your organization, allowing action to be taken for those approaching deadline and not yet completed.

The dashboard shows the following:

— Jurisdictions where there are arrangements required to be reported.

— Progress bar indicator providing an overview of the in each jurisdiction.

— The dashboard visualizes the proximity to deadline and a breakdown of arrangements by their

progress in the reporting lifecycle.

— The dashboard contains a helpful internal messenger that allows you to contact other users within

your organization.

33



Dashboard

34



Chat function for easy exchange of information

Next steps



Next steps

— Perform risk review if not already

— Educate internal stakeholders

— Discuss with businesses affected

— Ensure up to date with all country developments

— Determine best use of technology solutions

— Formulate approach with

customers/counterparties/advisors

Questions?

Thank you

The proposals set out in this document do not constitute an offer capable of acceptance. They are in all respects

subject to satisfactory completion of KPMG's procedures to evaluate prospective clients and engagements,

including independence and conflict checking procedures, and the negotiation, agreement, and signing of a

specific engagement letter or contract. KPMG International provides no client services. No KPMG member firm has

any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does

KPMG International have any such authority to obligate or bind any member firm.

© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG

International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm

vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor

to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be

accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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