The Organisation for Economic Co-operation and Development (OECD) has pushed for additional levels of transparency in the context of the Base Erosion and Profit Shifting ("BEPS")* project.
In this context, the European Union (EU) Council put into force a new directive commonly referred to as "DAC6", which requires additional reporting of cross-border arrangements, effective 25 June 2018 and subsequently report in scope arrangements by the end of August 2020. With EU member states expected to transpose DAC6 into national law by the end of this year, this article aims to help you understanding the significance of the new directive and how you can stay compliant.
Who has to report?
Any person that designs, markets, organises or makes available for or manages the implementation of a cross-border arrangement, as well as anyone assisting them, needs to report (definition of "intermediary"). Typically, intermediaries include tax consultants, lawyers, banks and corporate service providers. In case no intermediary exists, the taxpayer needs to report.
What needs to be reported?
Any cross-border arrangements that are seen as "potentially tax aggressive" needs to be reported to the tax authorities. This information will then be automatically exchanged between EU member states' tax authorities.
Any transaction between two countries (where at least one is in the EU) which meets specific criteria ("hallmarks") needs to be reported. DAC6 is applicable to five groups of hallmarks:
| Hallmark A | Hallmark B | Hallmark C | Hallmark D | Hallmark E |
|---|---|---|---|---|
| Generic Hallmarks | Specific Hallmarks | Specific Hallmarks related to cross-border transactions | Specific Hallmarks relating to Automatic Exchange of Information and Beneficial Ownership | Specific Hallmarks relating to Transfer Pricing provisions. |
Please note that "aggressive tax planning" is not actually defined, so the list of indicators covers a broad range of structures and transactions, which very often are not illegal.
When will reporting begin?
Starting 1 July 2020, intermediaries or alternatively, taxpayers, will have to report within 30 days any in-scope arrangement. In addition, a catch-up reporting obligation exists to report by 31 August 2020 all transactions with retrospective effect from 25 June 2018.
What happens if I don't report?
Businesses, individuals and intermediaries who fail to comply with DAC6 could face significant sanctions under local law in EU countries and reputational risks. Businesses need to act now and understand the importance and implications of the directive to ensure compliance by the first reporting deadline on August 31, 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
