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Tax
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main (or one of the main) benefits of the arrangement is to obtain a tax advantage.
These hallmarks can be summarised as follows:
A. Generic hallmarks linked to the main benefit test: A.1. Arrangements where a taxpayer complies with a condition of confidentiality which may require them not to disclose how said arrangement could secure a tax advantage; A.2. Arrangements where the intermediary is entitled to receive a fee fixed to the amount of tax advantage derived, or whether or not an advantage is derived by a taxpayer;
A.3. Arrangements utilising standardised documentation and/or structure customised for implementation and available to more than one taxpayer.
B. Specific hallmarks linked to the main benefit test: B.1. Arrangements where contrived steps are taken by the participant to said arrangement for the purpose of acquiring a loss-making company, discontinuing the main activity of said company and then using its losses to reduce its tax liability; B.2. Arrangements which have the effect of converting income into other categories of revenue (e.g. capital or gifts) which are taxed at a lower rate or exempted from tax; B.3. Arrangements which include circular transactions resulting in the round-tripping of funds mainly through interposed entities without other primary commercial function.
C. Specific hallmarks related to cross-border transactions: C.1. Arrangements involving deductible cross- border payments made between two (or more) associated enterprises, where at least one of the following conditions are met:
1. The recipient is not tax resident in any jurisdiction;
2. The recipient is tax resident in a jurisdiction that taxes at the rate of zero (or almost zero);
3. The recipient is tax resident in a jurisdiction listed by the Organisation for
Economic Co-operation and Development as non-cooperative;
4. The payment is exempted from tax in the jurisdiction where the recipient is tax resident;
5. The payment benefits from a preferential tax regime in the jurisdiction where the recipient is tax resident. C.2. Arrangements where depreciation deductions are claimed in more than one jurisdiction on the same asset; C.3. Arrangements where relief from double taxation is claimed in more than one jurisdiction on the same item of income or capital; C.4. An arrangement where there is a material difference in the amount being treated as payable in consideration for the assets in the relevant jurisdictions involved.
D. Specific hallmarks concerning automatic exchange of information and beneficial ownership: D.1. Arrangements which undermine reporting obligations under EU legislation or agreements on automatic exchange of information, or which takes advantage of the absence of such legislation/agreements;
D.2. Arrangements involving non-transparent legal or beneficial ownerships that have little substance or are established in a jurisdiction other than that of the beneficial owner.
E. Specific hallmarks concerning transfer pricing: E.1. Arrangements involving the use of safe
harbour rules; E.2. Arrangements involving the transfer of hard-to-value intangibles; E.3. Arrangements involving intra-group cross- border transfer of functions and/or risks and/or assets if the projected earnings before interest and taxes (EBIT) during the three year period after the transfer, of the transferor(s) are less than 50% of the projected annual EBIT of such transferor(s) if the transfer had not been made.
Whilst the application of the hallmarks is expected to be clarified once domestic legislation is in place, it is evident that significant tax knowledge and judgement is expected to be needed to determine whether a reporting obligation arises.
Intermediaries or taxpayers will be required to disclose reportable cross-
border arrangements implemented in the period 25 June 2018 to 1 July 2020 to the Gibraltar Tax Authorities by no later than 31 August 2020, subsequent to which, all future reporting will be within 30 days (whichever occurs first) beginning:
A. On the day after the reportable cross-border arrangement is made available for implementation; or
B. On the day after the reportable cross-border arrangement is ready for implementation; or
C. When the first step in the implementation of the reportable cross-border arrangement has been made.
The provisions of this Directive aim to enhance transparency within the EU by promoting mandatory reporting between intermediaries and/or taxpayers and their local tax authorities. The information will be exchanged between EU tax authorities and may lead to further, targeted anti-avoidance measures being introduced.
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