Cross-border arrangements are arrangements involving at least two EU jurisdictions, or at least one EU jurisdiction and one or more non-EU jurisdictions. If a tax arrangement only involves one tax jurisdiction or only non-EU tax jurisdictions, the arrangement is not considered to be of a relevant cross-border nature and will then not be reportable.
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. Important to note is that DAC6 does not only capture cross-border tax arrangements that can be perceived as being aggressive.
The first type of hallmarks to identify reportable tax arrangements by way of looking at the engagement with the intermediary (e.g. the tax adviser). If the engagement provides for a confidentiality clause, a success fee or the tax arrangement is based on standardised documentation/structures, the tax arrangement may become reportable.
The second type of hallmarks regard the specifics of the tax arrangement itself. Specific hallmarks identify amongst others:
- tax arrangements that are based on the trade and use of loss-making companies,
- the conversion of one type of income or capital into another category of income to be able to use lower tax rates,
- international company restructuring,
- claiming depreciations or double tax relief in more than one jurisdiction or the deduction of payments while the payments are not taxable with the recipient
- arrangements to circumvent reporting obligations or to make the ultimate beneficial owners unidentifiable
- arrangements making use of specifics of transfer pricing rules in various jurisdictions, such as safe harbour rules, the transfer of hard-to-value intangibles, business restructuring resulting in a more than 50% reduction of the effective tax rate.
In most cases the tax arrangement becomes reportable if any of the mentioned hallmarks are met, regardless of whether or not the arrangement leads to a lower tax burden. However, in some cases the tax arrangement is only reportable if the main benefit test is met, meaning that:
the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage.
The first reportable transactions will be those, of which the first implementation step occurs between 25 June 2018 and 1 July 2020 (the date of application of the Directive). The reporting deadline for these "legacy arrangements" is 31 August 2020.
As from 1 July 2020, cross-border tax arrangements become reportable within 30 days after on of the following instances occur:
(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.
The reportable tax arrangements are to be filed with the local tax authorities. Next to that, the EU will set up a system for the mandatory exchange of information on such reportable cross-border schemes via the Common Consolidated Network (CCN). This means that any reportable tax arrangement is going to be shared by the local tax authorities with the tax authorities of all other EU member states. Please note, that the information should not become available for public use.
The filing obligation lies primarily with the intermediary who has made the tax arrangement available or is involved in the implementation process (tax adviser, lawyer, or other service provider). If a taxpayer (company or person) has not made use of an intermediary, but has exclusively used its own inhouse tax expertise in respect of the tax arrangement at hand, the reporting obligation shifts to the taxpayer.