Action Item 12: Mandatory Disclosure Rules

November 2015

Organisation for Economic Co-Operation and Development (“OECD”) Issues Final Report On Action Item 12: Mandatory Disclosure Rules

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The Organisation for Economic Co-operation and Development (OECD), a non-governmental forum established to promote economic growth, has developed a 15-point action plan to shape “fair, effective and efficient tax systems.” The OECD’s project regarding base erosion and profit shifting (BEPS) has addressed issues arising from tax planning strategies that exploit gaps or mismatches in member countries’ tax rules.


This alert is one installment in a series of alerts on the release of the OECD/G20 Base Erosion and Profit Shifting Project (“the BEPS Project”).

On October 5, 2015, the OECD released the final report (the “Report”) of the BEPS Project. This alert discusses Action Item 12: Mandatory Disclosure Rules.

Background and Details

In an effort to address Base Erosion and Profit Shifting (“BEPS”) issues in a coordinated and comprehensive manner, the G20 finance ministers called on the OECD to develop an action plan to equip countries with instruments that will better align tax with economic activity. Action Item 12 of the BEPS Project gives tax authorities the ability to obtain early information on potentially aggressive or abusive tax planning strategies and their users. The key goal of Action Item 12 is to “react rapidly to close down opportunities for tax avoidance.”

The BEPS Project recognizes that one of the key challenges faced by tax authorities is lack of timely, comprehensive and relevant information on potentially aggressive or abusive tax planning strategies. A mandatory disclosure regime provides tax administrations with the tools to obtain information much earlier than through the submission of tax returns and tax audits. Early identification of changes in taxpayer behavior and the development of tax avoidance strategies, means that tax authorities will be able to respond and counter these threats by making timely and informed decisions on legislation, policy and regulation.

The key outputs identified by the Report of Action Item 12 are:
  • Recommendations for the modular design of mandatory disclosure rules;
  • A focus on international tax strategies and consideration of a wide definition of tax benefit to capture relevant transactions;
  • Designing and putting in place enhanced models of information sharing for international tax strategies.

The OECD recognizes in the report that existing strategies implemented by countries such as the United States, the United Kingdom and Canada have reported a great deal of success. Action Item 12 therefore draws on the experience of these existing strategies, and sets out recommendations for designing an effective disclosure regime to counter the BEPS concerns of each country. The Report proposes a modular approach to give tax authorities the flexibility to choose hallmarks and thresholds for disclosure which can be molded to fit around the specific needs of the tax system.  This will allow for maximum consistency between the OECD countries while being sensitive to the concerns of the domestic jurisdiction, as well as the costs for tax administrations and business.

Along with the concern for domestic strategies, Action Item 12 aims to provide a way to target cross-border strategies which involves multiple parties deriving tax benefits in different jurisdictions. It has been noted that existing strategies have received fewer disclosures in relation to international strategies, partly related to the way international strategies are structured, and can therefore operate below the relevant thresholds for disclosure. In response to this, the Report recommends that countries develop specific hallmarks to target cross-border BEPS outcomes that cause them concern, rather than target the mechanisms that are used to achieve them. In addition to this, taxpayers who enter intra-group transactions should be obliged to make inquiries to ascertain if the transaction has been specifically identified as reportable under the mandatory disclosure regime adopted by the home jurisdiction.

The Report also discusses the potential of the mandatory disclosure rules to act as deterrent and hence decrease the rate of BEPS in participating countries. Taxpayers who are considering entering into tax planning strategies will need to think carefully if they know that the strategy will need to be reported to the tax authorities and that they may also be subject to penalties if they fail to comply with their disclosure obligations. The market may also see a decrease in promoters offering such strategies given that the tax authority will be aware much earlier that the strategy has been developed and therefore the opportunity to implement the strategy itself could be short lived. 

With each jurisdiction drawing their focus towards collecting comprehensive and relevant information in relation to domestic and international tax strategies, there is potential for participating tax authorities to co-operate and share this information. By increasing collaboration and transparency on an international level, the proposals set out above aim to contribute to the fundamental goals of the BEPS Project.

BDO Insights

Mandatory disclosure rules will not be a new challenge for multinational companies as it is likely that they will have come across existing rules such as those implemented in the United States, the United Kingdom and Canada. Companies will however need to be aware that as more countries decide to adopt mandatory disclosure rules, intra-group transactions which were previously not reportable may now become exposed under the jurisdictions that have chosen to adopt the rules as set out in Action Item 12.

For more information, please contact one of the following practice leaders:

Robert Pedersen
International Tax Practice Leader


William F. Roth III


Bob Brown


Jerry Seade

Scott Hendon

Joe Calianno
Partner and International Technical
Tax Practice Leader

Monika Loving

Michiko Hamada
Senior Director

Brad Rode
  Chip Morgan