The Two Types of Mandatory Disclosure Rules

Mandatory Disclosure Rules (MDR) are designed to identify tax planning before it becomes widespread. Instead of relying only on reporting financial accounts, MDR requires taxpayers and intermediaries—including lawyers, banks, and advisors—to disclose certain arrangements directly to tax authorities.

🌍 The Two MDR Initiatives

Developed by the

Organisation for Economic Co-operation and Development, MDR operates through two distinct but complementary frameworks:

🧠 1️⃣ Aggressive Cross-Border Tax Arrangements

Originating from

OECD BEPS Action 12, this initiative focuses on early detection of tax avoidance schemes.

🔍 What It Targets

Arrangements that exhibit specific “hallmarks”, such as:

• Opaque ownership structures

• Artificial transactions lacking economic substance

• Tax base erosion strategies

• Structures designed to generate tax advantages across jurisdictions

🎯 Objective

• Provide real-time intelligence to tax authorities

• Allow early intervention

• Prevent widespread adoption of aggressive schemes

🏦 2️⃣ CRS Avoidance Arrangements

The second pillar focuses specifically on circumventing the Common Reporting Standard (CRS).

Earlier attempts to close loopholes—through:

• FAQs

• Implementation guidance

proved difficult to enforce consistently.

⚠️ The Reality

CRS avoidance strategies evolved quickly, often described as:

“Like trying to stamp out cockroaches”—closing one loophole simply led to another.🔄 The MDR Solution

Now:

• Any arrangement with CRS avoidance hallmarks is reportable

• Focus is on design and intent, not just technical compliance

• Intermediaries must disclose structures that:

• Obscure beneficial ownership
• Reclassify entities to avoid reporting
• Exploit gaps between jurisdictions

⚖️ Who Must Report?

MDR applies to:

• Tax advisors

• Lawyers

• Banks

• Wealth managers

• Corporate service providers

👉 If no intermediary is involved, the taxpayer themselves may be required to report.

🎯 Key Takeaway

Mandatory Disclosure Rules represent a major shift:

• From reactive reporting (CRS) → to proactive disclosure (MDR)

• From focusing on accounts → to focusing on arrangements and planning

Today:

If a structure shows avoidance hallmarks, it is likely reportable—regardless of whether it technically complies with CRS.