BEPS Action 12: Mandatory Disclosure Rules

In the article “BEPS Action 11: What is Tax Avoidance?”, research conducted by BEPS suggested that increasing the disclosure requirements for multinational corporations (“MNCs”) regarding tax avoidance could help reduce such practices. As a result, the OECD introduced Mandatory Disclosure Rules (“MDR”) as part of BEPS Action 12.

One of the reasons tax avoidance by MNCs has become so pervasive is because tax authorities have long been kept in the dark by these corporations and their tax intermediaries. If tax authorities could obtain timely and comprehensive information on tax planning activities and use this information to conduct risk assessments, audits, or even legislate in response, it would serve as a powerful weapon in the global fight against tax avoidance.

The goal of BEPS Action 12 is to establish an effective mandatory disclosure framework that ensures information about aggressive or abusive tax arrangements and structures is effectively communicated to tax authorities. At the same time, the framework aims to balance administrative costs for both tax authorities and taxpayers, avoiding excessive burdens on either side.

I. Design Principles of Mandatory Disclosure Rules

According to BEPS Action 12, mandatory disclosure rules should adhere to the following design principles:

• Clarity and Simplicity: The rules must be easy to understand.
• Cost-Benefit Balance: They should balance the benefits to tax authorities with the compliance costs for taxpayers.
• Accurate Identification: The rules should precisely identify tax planning arrangements that require mandatory disclosure.
• Flexibility and Dynamism: The framework should be adaptable to address emerging tax challenges.
• Increased Transparency: The rules should enhance transparency in tax matters.
• Deterrence of Aggressive Tax Arrangements: They should discourage taxpayers from engaging in aggressive tax planning and prevent tax intermediaries from promoting such arrangements.
• Clear Penalties for Non-Disclosure: The rules must establish explicit penalties for failing to disclose required information.