OECD releases draft mandatory disclosure rules

Countries should require mandatory disclosure of certain tax planning strategies from both companies and tax advisers, the Organisation for Economic Co-operation and Development (OECD) recommended in a draft proposal issued on Thursday.

Action 12 of the OECD’s Action Plan on Base Erosion and Profit Shifting calls on the OECD and G20 countries to develop recommendations for mandatory disclosure rules that would provide tax authorities with comprehensive information on companies’ tax planning strategies. The new discussion draft gives an overview of mandatory disclosure regimes that are already used by various countries and recommends a set of rules for OECD countries to adopt. (Mandatory disclosure regimes already exist in the US, Canada, South Africa, the UK, Portugal, Ireland, Israel, and South Korea.)

The OECD has been advocating for countries to cooperate in preventing multinational companies from avoiding taxation. It says that one challenge countries face in this effort is “a lack of comprehensive and relevant information on potentially aggressive or abusive tax planning strategies.” In the OECD’s view, mandatory disclosure regimes should provide countries with this information from both companies and tax advisers.

The discussion draft lists three main objectives of a mandatory disclosure regime: “(i) obtaining early information about tax avoidance schemes; (ii) identifying schemes, and the users and promoters of schemes; and (iii) acting as a deterrent to reduce the promotion and use of avoidance schemes.”

Existing mandatory disclosure regimes generally require a transaction to be reported if it matches the description or “hallmarks” set out in the regime. Currently used hallmarks include confidentiality, where the promoter requires the client to keep the tax avoidance plan confidential, and contingent fees, where the amount the client pays is tied to the value of the tax benefits received. 

The discussion draft looks at various options for a mandatory reporting regime: transaction-based vs. promoter-based; who has to report; what has to be reported; when information must be reported; what other obligations should be placed on promoters; and what the consequences of noncompliance should be.

The OECD is asking for comments on the discussion draft by April 30th, and it will hold a public meeting on Action 12 in Paris on May 11th.

—Alistair Nevius (anevius@aicpa.org) is CGMA Magazine’s editor-in-chief, tax.