Criteria for cross-border arrangements

The regulation establishes the criteria for cross-border arrangements, specified in § 208 of the Tax Information Exchange Act, which refer to the potential risk of avoiding taxation, exchange of information on financial accounts or identification of the beneficial owner.

(1) The main benefit criterion is complied with if, taking into account all the relevant circumstances, getting a tax advantage is a reasonably expected main benefit or one of the main benefits resulting from the arrangement.

(2) In the case of the descriptions of arrangements specified in § 3 potential risk of tax avoidance can only be presumed if these cross-border arrangements comply with the main benefit criterion.

(3) The main benefit criterion in the case of the arrangement described in clause 3 (1) 7) cannot be considered to be in compliance merely due to the circumstances provided for in subsection 3 (2).

(1) The risk of tax avoidance is indicated by the following arrangements which depend on the main benefit criterion

1) an arrangement by which the relevant taxpayer or a person participating in the arrangement has undertaken a duty of confidentiality related to the tax advantage;

2) an arrangement for which the information provider is entitled to get remuneration or compensation, which is determined by the amount of the tax advantage resulting from implementation of the arrangement, or according to whether the expected tax advantage is provided by the implementation of the arrangement;

3) an arrangement with a standard structure which can be used by different taxable persons without any significant adjustments each time;

4) an arrangement implemented by a person who participates in the arrangement with the purpose to acquire a loss-making company, terminate its principal activity and use the losses of that company for reducing its tax liability, whereby the arrangement may also include transfer of losses to another country or jurisdiction or use of the losses for reduction of tax liability in an accelerated procedure;

5) an arrangement by means of which the income received is shown as an asset, gift or other income that is taxed at a lower tax rate or is exempt from income tax;

6) an arrangement with the purpose to reallocate resources, for example, through an association which has no substantial economic activity without any other principal commercial purpose or whose transactions have the effect of mutually offsetting, cancelling or any other similar effects;

7) an arrangement involving cross-border payments between related parties, which are treated as expenses related to business and in which at least one of the circumstances provided for in subsection (2) apply.

(2) In the case of transactions involving cross-border payments between related parties at least one of the following circumstances shall exist

1) the payee is a resident of a state or jurisdiction in which no tax is levied on profits earned or distributed by the undertaking or is taxed at zero or near- zero rate;

2) the payment is tax-exempt or is not included in the taxable income in the country of residence or jurisdiction of the payee;

3) there is a more favourable taxation regime established in respect of payment in the country or jurisdiction of residence of the payee.

The risk of tax avoidance is referred to by the following arrangements for cross-border transactions which are independent of the main benefit criterion

1) an arrangement involving cross-border payments between related parties, treated as business expenses, where the payee is not a resident in any country or jurisdiction or is a resident in such a country or jurisdiction which is entered in the European Union list of jurisdictions not involved in cooperation in taxation or who has been assessed by the Organization for Economic Co-operation and Development as non-cooperative;

2) an arrangement that takes into account the cost of depreciation of one and the same asset in more than one country or jurisdiction;

3) an arrangement by which elimination of double taxation in respect of the same income or the same property is applied for in more than one country or jurisdiction, which may result in the complete tax avoidance;

4) an arrangement that includes the transfer of assets, and where the cost of the transferred asset is reflected, to a significant extent, differently in different countries or jurisdictions.

The risk of tax avoidance is indicated by the following arrangements, which are independent of the main benefit criterion, related to the determination of the transfer price

1) an arrangement that allows the use of unilateral safe-harbour rules;

2) an arrangement that includes the transfer of intangible assets that are difficult to value, whereby the intangible asset that is difficult to value includes such intangible assets or rights related thereto in the case of which there are no reliable comparable transactions between the related parties upon their transfer and, during making the transactions the expected future cash flows or income projections from the intangible asset to be transferred or the assumptions used in the valuation of the particular intangible asset are extremely uncertain, making it difficult to estimate the ultimate return on the intangible asset at the time of its transfer;

3) an arrangement that enables by the transfer of the cross-border intra-group assignments, risks or assets to reduce the projected interest and pre-tax profit (EBIT) in the financial year of the transferor of tasks, risks or assets by more than 50% during three years following the transfer compared to the interest and pre-tax profit under the condition where the transfer would not have happened.

(1) The risk of avoiding the exchange of information on financial accounts is indicated by an arrangement which may complicate or impede the exchange of information on financial accounts provided for in the Tax Information Exchange Act or which exploits the lack of a legal basis necessary for the exchange of information on financial accounts.

(2) The following arrangements may indicate to the risk of avoiding the exchange of information on financial accounts

1) the use of such an account, product or investment that is not a financial account or that is not intended to be used as a financial account but which has substantially similar features to the financial account;

2) the transfer of a financial account or assets to such country or jurisdiction or exploiting a country or jurisdiction which has not committed itself to the exchange of information on financial accounts with the country of residence of the relevant taxable person;

3) reclassification of income and assets into such products or payments with regard to which the regulation on the exchange of information on financial accounts does not apply;

4) the transfer or transformation of a financial institution or financial account, or of assets held on such an account, into a financial institution or financial account or an asset with regard to which the regulation on the exchange of information on financial accounts does not apply;

5) the use of such legal persons or legal entities which preclude or the purpose of which is to preclude the provision of financial accounts information about an account holder or controlling person;

6) an arrangement that undermines due diligence or exploits weaknesses in the due diligence measures applied by financial institutions to comply with the reporting obligation on financial accounts, including the exploitation of such countries or jurisdictions where there is inadequate or weak enforcement of anti-money laundering rules or where transparency requirements set to legal persons and legal entities are weak.

The risk of avoiding the identification of the beneficial owner is indicated by an arrangement using a non-transparent chain of ownership or beneficial owners, with the persons or legal entities involved having the following characteristics

1) they do not have a substantial economic activity which is supported, inter alia, by a sufficient number of employees, equipment, property and premises;

2) they are founded or created or are managed or controlled or they are located in such a country or jurisdiction which is not the country of residence or jurisdiction of the location of the beneficial owner of the assets in their possession;

3) it has been made impossible to identify their beneficial owners pursuant to the Money Laundering and Terrorist Financing Prevention Act.

The Regulation shall be applied from 1 January 2020.