The EU is introducing an additional level of transparency in order to detect ‘potentially aggressive tax arrangements’. With the introduction of the 6th amendment to the EU Directive on Administrative Cooperation in Directive 2011/16/EU (‘DAC6’), intermediaries and, in some cases, taxpayers will need to report on certain cross-border arrangements. Info to be reported is broad and comprehensive and will be automatically shared by the local EU governments with all other member states.
Although the directive is not effective until 1 July 2020, taxpayers and intermediaries need to monitor their cross-border arrangements already as of 25 June 2018.
As well as the OECD (by means of the different BEPS Action plans), the EU is trying to design rules to increase transparency and prevent tax evasion. DAC6 is one of the EU measures. The main purpose of DAC6 is to facilitate EU member states of gathering insight in international tax arrangements, so they will become able to take legislative actions against tax avoidance. Even though the main purpose of DAC6 is to fight tax avoidance, it is important to note that DAC6 does not only capture cross-border tax arrangements that can be perceived as being aggressive, but any cross-border arrangement that meets certain characteristics (so-called ‘hallmarks’).
Transactions need to be reported when they are ‘cross-border’ and fall within the ‘hallmarks’. Cross-border arrangements are arrangements involving at least two EU jurisdictions, or at least one EU jurisdiction and one or more non-EU jurisdictions. The hallmarks describe certain characteristics of arrangements; they are broadly worded and are expected to apply to a wide range of transactions. In some specifically mentioned cases the tax arrangement only becomes reportable if the main or expected benefit of the arrangement is a tax advantage.
You or your company may be confronted with the new regulations if you ask advice or assistance from an intermediary, such as PwC or another accounting or law firm, civil law notary, bank etc., involving a reportable cross-border arrangement which has tax implications. In that case, details of the transaction, including your name or your company’s name may have to be disclosed to the local tax authorities by your intermediary.
If your company implements a reportable cross-border arrangement without the involvement of an intermediary, the obligation to make the report to the local tax authorities will shift to your company. The same applies if the intermediary is based outside the European Union.
Intermediaries and taxpayers should therefore be able to answer the following questions in relation to all cross-border arrangements:
Should the arrangement be disclosed?
Who should make the disclosure?
What should be disclosed?
As mentioned earlier, information will be shared automatically with all EU Member States.
Now is the time to act! The first reportable transactions will be those where the first implementation step occurs between 25 June 2018 and 1 July 2020 (the date of application of the Directive). This information will then be required to be filed by 31 August 2020.
As from 1 July 2020, cross-border tax arrangements become reportable, if:
(a) the reportable cross-border arrangement is made available for implementation; or
(b) the reportable cross-border arrangement is ready for implementation; or
(c) the first step in the implementation of the reportable cross-border arrangement has been made.
Reportable arrangements need to be disclosed to the local EU tax authority within 30 days. A specific format will be designed for that purpose.
As the intermediary-definition is very broadly defined, many organizations in the Financial Services industry are at risk of being impacted by ‘DAC6’. To assess the potential impact for your organisation and take action to mitigate risks of non-compliance, you can start with the following considerations: