Mandatory Disclosure Regime: Be prepared for 1 July 2020.
On 21 March 2020, the Luxembourg Parliament approved the draft law implementing EU Council Directive 2018/822 (the Directive) on the Mandatory Disclosure Regime (MDR).
The purpose of the Directive is to flag cross-border situations (i.e. arrangements taking place between more than one Member State or between a Member State and a third country) deemed as potentially aggressive / abusive tax planning schemes and to enforce their disclosure to the local tax authority prior to (or shortly after) implementation. Such schemes shall be reportable if they meet at least one of the hallmarks set forth in the Directive, some of them being subject to the main benefit test (MBT) as an additional condition to trigger reporting obligations. Whereas the Principal Purpose Test introduced through BEPS Action 6 is a subjective test on the intention of the taxpayer to put in place a certain structure, the MBT is purely objective as it solely considers whether the main benefit ensuing from the cross-border arrangement was to secure a tax advantage not being in accordance with the object or aim of the applicable legislation. Interestingly enough, this approach seems to differ from the usual intention of the legislators to fight against the use of the subtleties of a tax system, or inconsistencies between two or more tax systems, in order to reduce tax payable……. read the article here