During mid-July 2020 and upon the near 10-year anniversary since the adoption of Directive 2011/16/EU on administrative cooperation in the field of taxation ("DAC"), the European Commission unveiled a directive proposal amending DAC (for the sixth time) with the upcoming 'upgraded' model, (hence the DAC7 moniker).
For anyone who is not familiar with the evolution of the DAC initiative, in the early 1980s there was an impetus for moving towards automatic exchange of information between tax authorities to compact fraud in the field of direct taxation—an area within the competence of Member States. As such, during 1977, Directive 77/799/EEC on Administrative Cooperation in Tax Matters came into force, providing for exchange of information on request/spontaneously, and for automatic exchange.
During 2000s, major progress in administrative cooperation took place within EU, with the Directive 2003/48/EC on taxation of savings income in the form of interest payments coming into force (the Savings Directive), aiming at reducing cross-border tax evasion, introducing an instrument at EU level for automatic exchange of information between tax authorities on non-resident individuals receiving income from savings in accounts outside their country of residence.
2011-2020: A decade of amendments
In 2011, Directive 2011/16/EU (aka the DAC1) was adopted (and was entered into force on January 2013) to better reflect the interconnected economy of the late 2000s, addressing the shortcomings of the old regime and replaced the previous directive. The objective for introducing the DAC was for ensuring 'the efficient administrative cooperation between Member States to overcome the negative effects of the increasing globalization on the internal market'. The milestone reached with DAC in the history of administrative cooperation between tax authorities of EU Member States cannot be underestimated, as it extended and enhanced the cooperation of EU tax authorities aligning EU standards to the international ones set by the OECD and covering more (personal and corporate income) taxes whilst excluding VAT and custom/excise duties, which are already covered in a more harmonized EU instrument.
Since its implementation in 2013, DAC1 has been amended five times, all the more frequently in recent years and on an almost annual basis, mirroring the annual i-phone releases by Apple. The amendments are as follows:
- Directive (EU) 2014/107/EU - DAC2
- Directive (EU) 2015/2376 - DAC3
- Directive (EU) 2016/881 - DAC4
- Directive (EU) 2016/2258 as regards access to anti-money-laundering information by tax authorities – DAC5
- Directive (EU) 2018/822 as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements – DAC6*
*This was followed by Directive (EU) 2020/876 addressing the urgent need to defer certain time limits for the filing and exchange of information in the field of taxation because of the COVID-19 pandemic
DAC and its amendments provide a structured exchange of information both on request about any tax matter in the area of direct taxation as well as spontaneous requests considered as foreseeably relevant to another Member State. With a broader scope, new common electronic forms, a secured channel of communication, commonly agreed timelines and a support by Fiscalis budget, the competent tax authorities were provided with clarity and certainty.
During 2014, DAC2 widened the scope of automatic exchange of information to cover financial accounts, introducing the OECD Common Reporting Standard (CRS) to the EU framework. The adoption of DAC2 led also to a repeal of the 2003 Savings Directive.
During 2015, DAC3 broadened the scope further, expanding automatic exchange to cover advance cross-border rulings and advance pricing arrangements (as a response to the 2014 financial scandal "LuxLeaks". Ever since 2015, national tax authorities must, at least once a year and without prior request (i.e. automatically) provide their counterparts with the following mandatory information on five categories of predefined income and capital relating to residents in another EU country: income from employment, directors' fees, certain life insurance products, pensions, and ownership of and income from immovable property. This resulted in masses of information being collected regularly by tax authorities to have better background data to acknowledge the effects of double-tax treaties, hence ensuring correct tax assessment in two or more Member States. Yet, despite having been amended twice in a year's time (i.e. in 2014 and 2015), DAC continued to evolve.
During 2016, DAC4 and DAC5 were introduced. DAC4 broadened the scope of automatic exchange of information, with the introduction of country-by-country reports. In late 2016, DAC5 was adopted and was composed of only one article (in effect as of January 2018), imposing a legal obligation for Member States to grant tax administrations access to beneficial ownership information as collected pursuant to Directive (EU) 2015/849, the EU's anti-money laundering legislation.
Between 2017 and 2018, no further changes were introduced since it was time for the European Commission to evaluate DAC during the implementation stage of the amendments.
During mid-2018, DAC6 was adopted, which marks the fifth amendment to DAC1. DAC6 widened once more the scope of automatic exchange of information to cover cross-border arrangements and (paper) structures. The transposition of DAC6 into national law was due in mid-2020, however in light of the COVID-19 pandemic, Member States were allowed to opt for a deferral till early 2021 to have in place the national IT systems needed to enable DAC6 reporting, from taxpayers and/or tax intermediaries towards national tax administrations.
2021: DAC7 and multisided digital platforms
In late 2020, the EU Council reached a technical agreement on the exchange of information between EU tax authorities (the so-called DAC7), relating to income earned by EU and non-EU users/sellers on sharing and gig digital platforms, such as Amazon, e-Bay, Etsy, or even Facebook, which has its own marketplace and Airbnb. Specifically, DAC7 shall impact all platform operators facilitating either reportable domestic and cross-border commercial activities (i.e. rental of mode of transport, personal services, sale of goods, etc.) of EU sellers, or the rental of immovable property located in the EU. Crowdfunding investment is outside the scope of DAC7. Information will be automatically exchanged on an annual basis via the EU common communication network. Such exchange of information between Member States can also be used for the administration, assessment and enforcement of VAT and other indirect taxes. Given the transactional nature of the information that is envisaged to be reported under DAC7, this clarification is helpful but not surprising.
Should the DAC7 proposal be adopted, Member States shall transpose DAC7 into national law by 2022, with the obligation to report for the first time the revenues generated by reportable sellers arising during the enforcement period, i.e. from 2023 onwards.
Conclusive remarks:
DAC and its amendments aligned the EU standards to the ones set by the OECD. However, the almost annual amendments for further transparency in the area of EU Direct and Indirect taxation serves as a reminder to the long-established truth: that the law is struggling to keep up with technology. Similar to the annual release of the I-phone by Apple, it is safe to suspect that the upcoming years shall bring further DAC amendments, as the law needs to address the tech advancements in the interconnected digital world we live and operate in nowadays.
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