BEPS Action Plan Action 12: Disclosing Aggressive Tax Planning Arrangements

A number of countries, including Canada, require taxpayers to disclose certain aggressive tax planning. Action 12 is aimed at ensuring other countries adopt similar measures to assist taxing authorities’ efforts to identify emerging BEPS risks and quickly detect “aggressive” tax-planning trends.
Background
On March 31, 2015, the OECD released a Discussion Draft on Action 12 focussed on the design and implementation of mandatory disclosure rules.
The Final Report
The Final Report provides a general framework that is mainly aimed at enabling countries which do not already have mandatory disclosure rules to design a regime that adapts to their particular needs and circumstances. The recommendations in the Final Report do not represent a minimum standard and countries remain free to choose whether or not to introduce mandatory disclosure regimes. In fact, many countries, including Canada, have already introduced and enacted such regimes.
The Final Report sets forth the main objectives of mandatory disclosure regimes, which are to:
(a) increase transparency by providing the tax administration with early information regarding potentially aggressive or abusive tax planning schemes;
(b) identify the promoters and users of such schemes; and
(c) deter taxpayers from entering into such schemes.
The Final Report goes on to identify its recommendations as to the key design features of a mandatory disclosure regime, which can be summarized as follows:

Imposing a disclosure obligation on both the promoter of a tax scheme and the taxpayer participating in the scheme, or imposing a primary obligation to disclose on one or the other. The Final Report recommends that where the promoter has the obligation to disclose, the timeframe for disclosure should be linked to the scheme being made available to taxpayers, and where the taxpayer has the obligation, the timeframe should be linked to the implementation of the scheme.
Including a combination of generic and specific hallmarks. The existence of a hallmark should trigger a requirement to disclose. Generic hallmarks are generally features which are typical of or common to promoted schemes (e.g. confidentiality requirements or the payment of premium fees). Specific hallmarks target particular areas of concern (e.g. losses). Canada’s “reportable transaction” rules already make use of such hallmarks, requiring disclosure of transactions where at least two generic hallmarks are present.
Establishing a mechanism to track disclosures and identify repeat promoters or participants in tax schemes. For instance, in Canada a promoter of a tax shelter must acquire a tax shelter identification number before promoting the tax shelter, and must provide the CRA with the list of investors or participants. The Final Report recommends similar features to those already in place in Canada.
Introducing penalties (including non-monetary penalties, such as suspending the legal effectiveness of a scheme where it has not been disclosed). In Canada, such monetary and non-monetary penalties are already provided for as part of its existing mandatory disclosure regime.

The Final Report also provides certain recommendations for mandatory disclosure regimes that are aimed specifically at combatting international tax schemes which may involve multiple parties and tax benefits in different jurisdictions. In particular, the Final Report recommends that:
(a) countries develop hallmarks that focus on the type of “cross-border outcomes” that cause them concerns; and
(b) taxpayers that enter into intra-group transactions with material tax consequences be required to make reasonable enquiries as to whether a particular transaction forms part of an arrangement that includes a “cross-border outcome” that is specifically identified as reportable under their home jurisdictions’ mandatory disclosure regime.
In addition to the Canadian reporting requirements discussed above, it is worth nothing that, somewhat consistent with the concept of a “cross-border outcome”, Canada also requires the disclosure of certain foreign holdings (such as foreign affiliates, controlled foreign affiliates and the ownership of certain other foreign properties exceeding certain thresholds).