Exchange of information on reportable cross-border arrangements
In order to provide European Union tax administrations with the information which is required to combat aggressive tax planning, Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU (DAC6) as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements was adopted.
It seeks to combat arrangements which are designed to take advantage of the differences in national regulations which result in a taxpayer receiving tax advantages that are not normally expressly provided for in national legislation, and to combat arrangements which result in the taxpayer concerned being able to avoid the automatic exchange of information on financial accounts or, by means of which, the taxpayer is able to avoid indicating the beneficial owner.
The reporting of potentially aggressive cross-border tax-planning arrangements and the automatic exchange of information will contribute to an environment of fair taxation and fair competition.
In order to comply with the requirements of DAC6 in Latvia, the Saeima (Parliament) has adopted amendments to Section 15 (10) of the Law on Taxes and Duties, and the Cabinet of Ministers has developed Cabinet Regulations No. 210 of 14 April 2020: Regulations for the Automatic Exchange of Information on Reportable Cross-Border Arrangements.
In accordance with the aforementioned regulation, a person who complies with Paragraph 3.5.1.2 of Regulations No. 210 shall qualify as an intermediary or as an ancillary intermediary: “having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement. Any person shall have the right to provide evidence that such person did not know and could not reasonably be expected to know that that person was involved in a reportable cross-border arrangement. For this purpose, that person may refer to all relevant facts and circumstances as well as available information and their relevant expertise and understanding;…”
Baltic International Bank SE, for its part, declares that it does not provide aid, support or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of reportable cross-border arrangements.
The Bank has taken a series of measures to determine the likelihood and assess the risks that may arise in the event of the Bank’s involvement in the implementation or enforcement of a reportable cross-border arrangement. Preventive measures have been taken, and customers, potential customers and business partners have been informed about compliance with DAC6 requirements. The Bank’s divisions that are in the position of the first line of defence have been identified and the knowledge of their employees in identifying the hallmarks of reportable cross-border tax-planning arrangements has been enhanced. The Bank’s processes related to the Common Reporting Standard for Automatic Exchange of Financial Account Information (CRS) and identifiable reportable hallmarks of cross-border tax-planning arrangements have been revised and supplemented.
A reportable cross-border arrangement means any cross-border arrangement that contains at least one of the hallmarks of potentially aggressive tax planning. The obligation to submit information to the State Revenue Service of the Republic of Latvia (hereinafter referred to as the SRS) on reportable cross-border arrangements rests primarily with intermediaries (for example, tax consultants or others persons involved in the establishment, sale and implementation of the arrangement).
“The Bank shall file information with the SRS that is within the Bank’s knowledge, possession or control (whichever occurs first) within 30 days beginning (as mentioned in Regulations No.210):
6.1. on the day after the reportable cross-border arrangement is made available for implementation;
6.2. on the day after the reportable cross-border arrangement is ready for implementation;
6.3. when the first step in the implementation of the reportable cross-border arrangement has been made.”
Other reporting deadlines and procedures are stipulated in Chapter 2 of Regulations No. 210: Procedures for the Exchange of Information on Reportable Cross-Border Arrangements.
After receiving the information in accordance with Sub-chapter 2.1 of Regulations No. 210, the SRS shall, by means of an automatic exchange, communicate the information specified in Section 25 of these Regulations to the competent authorities of all other EU Member States, in accordance with Commission Implementing Regulation (EU) 2019/532 of 28 March 2019, amending Implementing Regulation (EU) 2015/2378 as regards the standard forms, including linguistic arrangements, for the mandatory automatic exchange of information on reportable cross-border arrangements. The SRS shall send the information provided for in these Regulations to other countries or territories, complying with the scope and conditions set out in the international agreements concluded between the Republic of Latvia and the relevant countries or territories and in the agreements of the competent authorities.
In accordance with Regulations No. 210, the report must include the following basic information:
- the identification of intermediaries and relevant taxpayers, including their name and surname or company name, date and place of birth, residence for tax purposes, taxpayer identification number, the role of the reporting person in relation to the cross-border arrangement and, where appropriate, the information on the identity of the person associated with the relevant taxpayer;
- details of the hallmarks set out in Chapter 3 of these Regulations that make the cross-border arrangement reportable;
- a summary of the content of the reportable cross-border arrangement, including the name by which it is commonly known, if any, and a brief description in abstract terms of the relevant business activities or arrangements, without disclosing information that contains a commercial or professional secret, that relates to a commercial process or the disclosure of which would be contrary to public policy;
- the date on which the first step in implementing the reportable cross-border arrangement has been made or will be made;
- details of the regulatory framework that forms the basis of the reportable cross-border arrangement;
- the value of the reportable cross-border arrangement;
- the EU Member State of the relevant taxpayer and any other EU Member State (in regard to category D hallmark – also any other country or territory) which is likely to be concerned by the reportable cross-border arrangement;
- the identification of any other person in an EU Member State likely to be affected by the reportable cross-border arrangement, indicating to which EU Member States such persons are linked (in regard to category D hallmark, this subparagraph shall also apply in relation to any other country or territory).
The hallmarks of cross-border arrangements include the main benefit test and 5 categories of hallmarks: from A to E.
Category A – generic hallmarks linked to the main benefit test;
Category B – specific hallmarks linked to the main benefit test;
Category C – specific hallmarks related to cross-border transactions;
Category D – specific hallmarks concerning automatic exchange of information and beneficial ownership;
Category E – specific hallmarks concerning transfer pricing.
The conduct of the main benefit test and the hallmarks are described in Chapter 3 of Regulations No. 210: Hallmarks of Cross-Border Arrangements.
https://likumi.lv/ta/id/314037-noteikumi-par-automatisko-informacijas-apmainu-par-zinojamam-parrobezu-shemam (LV)
https://www.bib.eu/lv/oecd-crs (ENG)
List of hallmarks.
Data processing
Please be informed that your data will be processed and sent to the State Revenue Service in the manner prescribed by and for the purpose specified in Section 15 (10) of the Law on Taxes and Duties of the Republic of Latvia.
The information contained in this section of the website is for information purposes only. The information should not be regarded as legal or tax research, statement of opinion, recommendation or advice.
(ENG)
HALLMARKS
COUNCIL DIRECTIVE (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements, ANNEX IV
Part I. Main benefit test
Generic hallmarks under category A and specific hallmarks under category B and under points (b)(i), (c) and (d) of paragraph 1 of category C may only be taken into account where they fulfil the “main benefit test”.
That test will be satisfied if it can be established 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.
In the context of hallmark under paragraph 1 of category C, the presence of conditions set out in points (b)(i), (c) or (d) of paragraph 1 of category C can not alone be a reason for concluding that an arrangement satisfies the main benefit test.
Part II. Categories of hallmarks
A. Generic hallmarks linked to the main benefit test
1. An arrangement where the relevant taxpayer or a participant in the arrangement undertakes to comply with a condition of confidentiality which may require them not to disclose how the arrangement could secure a tax advantage vis-à-vis other intermediaries or the tax authorities.
2. An arrangement where the intermediary is entitled to receive a fee (or interest, remuneration for finance costs and other charges) for the arrangement and that fee is fixed by reference to:
(a) the amount of the tax advantage derived from the arrangement; or
(b) whether or not a tax advantage is actually derived from the arrangement. This would include an obligation on the intermediary to partially or fully refund the fees where the intended tax advantage derived from the arrangement was not partially or fully achieved.
3. An arrangement that has substantially standardised documentation and/or structure and is available to more than one relevant taxpayer without a need to be substantially customised for implementation.
B. Specific hallmarks linked to the main benefit test
1. An arrangement whereby a participant in the arrangement takes contrived steps which consist in acquiring a loss-making company, discontinuing the main activity of such company and using its losses in order to reduce its tax liability, including through a transfer of those losses to another jurisdiction or by the acceleration of the use of those losses.
2. An arrangement that has the effect of converting income into capital, gifts or other categories of revenue which are taxed at a lower level or exempt from tax.
3. An arrangement which includes circular transactions resulting in the round-tripping of funds, namely through involving interposed entities without other primary commercial function or transactions that offset or cancel each other or that have other similar features.
C. Specific hallmarks related to cross-border transactions
1. An arrangement that involves deductible cross-border payments made between two or more associated enterprises where at least one of the following conditions occurs:
(a) the recipient is not resident for tax purposes in any tax jurisdiction;
(b) although the recipient is resident for tax purposes in a jurisdiction, that jurisdiction either:
(i) does not impose any corporate tax or imposes corporate tax at the rate of zero or almost zero; or
(ii) is included in a list of third-country jurisdictions which have been assessed by Member States collectively or within the framework of the OECD as being non-cooperative;
(c) the payment benefits from a full exemption from tax in the jurisdiction where the recipient is resident for tax purposes;
(d) the payment benefits from a preferential tax regime in the jurisdiction where the recipient is resident for tax purposes;
2. Deductions for the same depreciation on the asset are claimed in more than one jurisdiction.
3. Relief from double taxation in respect of the same item of income or capital is claimed in more than one jurisdiction.
4. There is an arrangement that includes transfers of assets and where there is a material difference in the amount being treated as payable in consideration for the assets in those jurisdictions involved.
D. Specific hallmarks concerning automatic exchange of information and beneficial ownership
1. An arrangement which may have the effect of undermining the reporting obligation under the laws implementing Union legislation or any equivalent agreements on the automatic exchange of Financial Account information, including agreements with third countries, or which takes advantage of the absence of such legislation or agreements. Such arrangements include at least the following:
(a) the use of an account, product or investment that is not, or purports not to be, a Financial Account, but has features that are substantially similar to those of a Financial Account;
(b) the transfer of Financial Accounts or assets to, or the use of jurisdictions that are not bound by the automatic exchange of Financial Account information with the State of residence of the relevant taxpayer;
(c) the reclassification of income and capital into products or payments that are not subject to the automatic exchange of Financial Account information;
(d) the transfer or conversion of a Financial Institution or a Financial Account or the assets therein into a Financial Institution or a Financial Account or assets not subject to reporting under the automatic exchange of Financial Account information;
(e) the use of legal entities, arrangements or structures that eliminate or purport to eliminate reporting of one or more Account Holders or Controlling Persons under the automatic exchange of Financial Account information;
(f) arrangements that undermine, or exploit weaknesses in, the due diligence procedures used by Financial Institutions to comply with their obligations to report Financial Account information, including the use of jurisdictions with inadequate or weak regimes of enforcement of anti-money-laundering legislation or with weak transparency requirements for legal persons or legal arrangements.
2. An arrangement involving a non-transparent legal or beneficial ownership chain with the use of persons, legal arrangements or structures:
(a) that do not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises; and
(b) that are incorporated, managed, resident, controlled or established in any jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the assets held by such persons, legal arrangements or structures; and
(c) where the beneficial owners of such persons, legal arrangements or structures, as defined in Directive (EU) 2015/849, are made unidentifiable.
E. Specific hallmarks concerning transfer pricing
1. An arrangement which involves the use of unilateral safe harbour rules.
2. An arrangement involving the transfer of hard-to-value intangibles. The term “hard-to-value intangibles” covers intangibles or rights in intangibles for which, at the time of their transfer between associated enterprises:
(a) no reliable comparables exist; and
(b) at the time the transaction was entered into, the projections of future cash flows or income expected to be derived from the transferred intangible, or the assumptions used in valuing the intangible are highly uncertain, making it difficult to predict the level of ultimate success of the intangible at the time of the transfer.
3. An arrangement involving an intragroup cross-border transfer of functions and/or risks and/or assets, if the projected annual earnings before interest and taxes (EBIT), during the three-year period after the transfer, of the transferor or transferors, are less than 50 % of the projected annual EBIT of such transferor or transferors if the transfer had not been made.