|Methods and techniques|
Mandatory disclosure - a legal rule contained in contracts or legal proceedings which requires the parties to a legal relationship to disclose information about a specific phenomenon. This may include information such as tax returns, cash flows, assets or liability ratios. Very often used in relations between businesses and the financial sector, in particular when granting loans, or in family law. This principle may be imposed from above by generally applicable law or contained in a contract concluded between the parties.
Mandatory disclosures in loans
Mandatory disclosures are used in consumer loans as well as in professional loans. They serve primarily to safeguard the lender's interest and to provide him with a full range of information to assist him in his decision to grant a loan. In the case of a loan to a natural person, the disclosure of information such as:
- marital status,
- previous commitments and
- possible bankruptcy of the consumer
is required. By analogy, companies must disclose any commitments entered into, long-term contracts entered into, loans previously received, the financial health of the company and receivables held. Such action is mandatory because of the determination of the appropriate interest rate for the loan and the construction of other important contractual provisions.
Mandatory disclosure in family law
Where there is a division of property or a divorce, it is important that each spouse provides all information on their property situation together with supporting documents. It is used mainly in a situation when one of the spouses wants to make an unequal distribution of property, due to its contribution to the general property mass. In such a case, any supporting documentation is submitted to an independent arbitrator (court or mediator) whose purpose is to determine the percentage share on the basis of the documentation submitted. In addition, mandatory disclosure is important in determining the amount of maintenance. When a marriage breaks up, the most important thing is to safeguard the interests of the child. A parent who has a child in custody shall have the right to require the other parent to produce appropriate documentation so that his or her maintenance obligation can be established by judicial process.
Mandatory disclosure in tax law
The OECD standards for informing about tax schemes have been implemented by the European Union national order. On 25 May 2018, the DAC 6 Directive on the disclosure by intermediaries of information on the implementation, compilation or development of cross-border tax schemes came into force. All information provided is related to direct taxation. Within the framework of this regulation, intermediaries have to examine on an ongoing basis whether the legal opinions transmitted or the implementation of tax optimization are not an apparent actions. They have no major legal consequences in terms of compliance with the information obligation. However, large sanctioning amounts may be imposed for failure to comply with the information requirement. The idea is to identify tax fraud at an early stage and then implement appropriate legal solutions. This is due to the widespread phenomenon of tax evasion or the abuse of international regulations to obtain tax benefits. The detailed regulation of the procedure for the transmission of information is the responsibility of the Member States. However, they are obliged to transpose all the objectives of the DAC 6 Directive as it is the “minimum” of the requirements for this issue.
- M. Nwogugu 2011
- A. Rodriguez 2016, p. 771 -776
- Council Directive, 2018
- OECD 2018, p. 33
- Council (2018), Council Directive 2018/822/EU of 25 May 2018
- Nwogugu M.C. (2011), Risk in the global real estate market, International Risk Regulation, Mechanism Design, Foreclosures, Title Systems, and REIT’s, John Wiley & Sons Inc, Hoboken
- OECD (2018), Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures
- Rodriguez A.R. (2016), Tailoring the Rules: Finding the Right Fit of Rules of Procedure to Suit Idaho Family Law "Idaho Law Review", 755.
Author: Maria Bartkowska