New Challenges for Transboundary Transactions and Mandatory Disclosure Regime (MDR)

New Challenges for Transboundary Transactions and Mandatory Disclosure Regime (MDR)

Andra Casu, Associate Partner, Department of Fiscal and Legal Aid EY Romania and Alexandra Ovedenie, Advocate, Radu and Associates SPRL

Established under the international name of the "MDR Directive", acronym for the Mandatory Disclosure Regime (in the sense of a mandatory tax reporting regime), Directive (EU) 2018/822 amending Directive 2011/16 / EU aims at the mandatory automatic exchange of tax information on the cross-border modalities that are the subject of reporting and and provides for the implementation a deadline by the end of 2019 at Member State level.

The normative act introduces a new mechanism for reporting to the national tax authority cross-border transactions (called modalities) that meet certain criteria (called distinctive signs). The ultimate goal is to facilitate the identification by European tax authorities of potentially aggressive cross-border modalities, following an automatic exchange of information reported at national level.

Although European responses and discussions over new tax reporting obligations continue to be intense, involving debates and even negotiations between employers' organizations of the various types of reporting entities and national tax bodies that should manage and oversee reporting, in Romania, the echoes of the new requirements have not yet felt their presence.

Here are some of the key aspects of the new legislation - who, what and when to report, what are the "sensitive" points that deserve an analysis and increased attention in implementation, both from the national tax administration and from possible reporting entities.

Intermediaries required to report

The MDR Directive applies primarily to intermediaries who design, market, organize, make available for implementation, or manage the implementation of a cross-border mode that has one or more distinctive signs.

However, they are also obliged to report service providers who are directly or indirectly involved in that cross-border manner. They are defined as those who, given the relevant facts and circumstances and on the basis of available information, the relevant specialist knowledge and understanding needed to provide these services, know or it would be reasonable to know that they have undertaken to provide, directly or through other persons, help, assistance or advice on designing, marketing, organizing, making available for implementation or managing the implementation of a reportable cross-border manner.

In the absence of an intermediary in the transaction or the intermediary is exempted from reporting under a legal professional privilege, the reporting obligation rests with the relevant taxpayer.

The subject of reporting - cross-border ways showing distinctive signs

The MDR Directive is intended to report on cross-border ways that meet one or more of the distinctive signs listed in the Directive.

Reportable cross-border mode may mean one or more transactions, parts or steps in a transaction that involve entities from several Member States and / or third countries, ie, in a broad sense, participants in transactions or activities in different jurisdictions, or , separately, transactions that could have an impact on the automatic exchange of information or the identification of real beneficiaries

Even though the MDR Directive clearly speaks of cross-border transactions, there are already cases where Member States have implemented or are considering extending the reporting obligation to local transactions - see Poland, which has legislation MDR has been operational since early 2019, or Germany where implementation legislation is quite advanced at project level.

Reporting deadlines

The MDR Directive provides for it to be applicable from July 1, 2020, in the sense that the reporting obligations of intermediaries come into force.
Starting this date, reporters are required to report within 30 days, which begins to run differently depending on the type of reporting entity.

In addition, the MDR Directive also provides the so-called retrospective reporting, meaning that the rational cross-border modalities, the first implementation step of which took place between the entry into force of the Directive (25 June 2018) and the date of application of the Directive (1 July 2020) should be reported by 31 August 2020.

Instead of the conclusion - is it good news that we still have time to transpose the MDR Directive?

In the next six months, potential target reporters should already initiate an analysis of all types of transactions they are primarily involved in determining which of these transactions may show distinctive signs followed by an organizational implementation of an approach with regard, inter alia, to the allocation of responsibilities in the analysis and effective reporting.

In parallel, all transactions susceptible to distinctive signs and whose first implementation step was made between June 25, 2018 and July 1st, 2020 should already be analyzed from the perspective of the MDR Directive and then prepared to allow effective reporting at the latest August 31st, 2020.

In addition, the remaining time could be used to initiate proactive discussions at the level of professional organizations in collaboration with tax authorities to understand and clarify issues that were left unsolved by the MDR Directive.

These "gray" areas could be used as a positive maneuver to build an interpretation - preferably through clarification guides issued and validated by tax authorities as well.