The mandatory disclosure regime (“MDR”) requires intermediaries (that are tax advisers and other service providers) to report certain cross-border arrangements to the Luxembourg tax authorities. The MDR is the transposition of DAC 6 that required the implementation of the MDR in all European Member States.
The MDR operates through a system of hallmarks that may trigger reporting obligations and the main benefit test (“MBT”) that functions as a threshold requirement for many of these hallmarks. As such, the MBT should filter out irrelevant reporting and enhance the usefulness of the information collected because the focus will be on arrangements that have a higher probability of truly presenting a risk of tax avoidance. When applicable, the MBT sets a fairly high threshold for reporting under the MDR.
It can be anticipated that potential reporting obligations under the MDR will become an integral part of each and every tax analysis and should be considered at an early stage. This will ensure that taxpayers can take into account potential reporting obligations in their decision as to whether or not to implement a certain cross-border arrangement. This on its own will achieve the desired deterrence effect as both intermediaries and taxpayers will need to carefully consider potential reporting obligations.
The MDR introduces some vague definitions and concepts that can, at times, make it difficult for practitioners to determine whether or not a specific cross-border arrangement is reportable. However, for taxpayers it is important that the reporting in Luxembourg and across Europe is as consistent as possible. Therefore, intermediaries and taxpayers have to allocate appropriate resources to ensure compliance with the MDR.
This book is a practical guide that analyses the scope and limits of the MDR in Luxembourg.