Effective since June 25, 2018, the EU Council Directive 2011/16, or in short, the DAC 6 directive, covers the mandatory disclosure and automatic exchange of information among EU member states in the field of taxation related to reportable cross-border arrangements. The reporting obligation aims to strengthen tax transparency, prevent tax avoidance and tax evasion.

When to report cross-border arrangements

The subjects of reporting are cross-border tax arrangements which meet at least one or more specific characteristics identified as potentially indicative of aggressive tax planning – the so-called hallmarks.

The hallmarks are the following:

• Generic hallmarks linked to the main benefit test (confidentiality conditions, fee arrangements, standardized documentation)
• Specific hallmarks linked to the main benefit test (acquiring a loss-making company, converting income into capital, gifts or other categories of revenue which are taxed at a lower level or exempt from tax, circular transactions resulting in the round-tripping of funds)
• Specific hallmarks related to cross-border transactions (deductible cross-border payments made between two or more associated enterprises where one enterprise is resident in a jurisdiction with null or preferential tax regime (note: this is also linked to the main benefit test), deductible cross-border payments made between two or more associated enterprises where the recipient is not resident for tax purposes in any tax jurisdiction or is resident for tax purposes of a state listed by EU or OECD as being non-cooperative, depreciation deductions on the same asset claimed in more jurisdictions, relief from double taxation in respect of the same item of income or capital is claimed in more jurisdictions, transfers of assets that generate a material difference in the amount being treated as payable)
• Specific hallmarks concerning automatic exchange of information and beneficial ownership (arrangements that are undermining the reporting obligation, arrangement involving a non-transparent legal or beneficial ownership chain)
• Specific hallmarks concerning transfer pricing (use of unilateral safe harbour rules, the transfer of hard-to-value intangibles, intragroup cross-border transfer of functions and/or risks and/or assets)

Requirements for intermediaries and taxpayers

The primary person which is obliged to file the information is the so-called intermediary. It can be any person who:

• designs, sells, organizes cross-border arrangements subject to reporting,
• makes available for implementation or manages the implementation of a cross-border arrangement subject to reporting,
• meets certain additional conditions.

The obligation may also fall on the relevant taxpayer (in other terms, the user), i.e. any person who:

• is provided with a cross-border arrangement that is the subject of reporting for implementation, or
• is prepared to implement a cross-border arrangement that is the subject of reporting, or
• implemented the first stage of such an arrangement.

The relevant taxpayer or user is obliged to report the cross-border arrangement when they propose the reportable arrangement on their own (so-called in-house), when the intermediary is not from an EU member state or when the intermediary is bound by a legal duty of confidentiality.

Failure to comply with DAC6 rules can result in penalties.

Comparison of implemented DAC 6 rules in 5 European countries

The Table shows that some countries when implementing the DAC6 rules went beyond minimum requirements required by the EU directive. For example, Poland extended the scope of reportable transactions to domestic transactions, too. Moreover, they defined additional hallmarks and aim also on VAT. Also penalties for non-compliance, although they differ from country to country, may be material. Therefore, we recommend taxpayers taking care of these rules.

We recommend taxpayers evaluating the cross-border arrangements in which they were/are involved in terms of the above-mentioned characteristics, in order to identify a possible reporting obligation and checking presence of specific DAC6 reporting requirements given by local legislation. The reporting obligation arises only in case when you identify arrangements that are subject to the reporting. Keeping of defence file can help you to prove that you act in compliance with legislation.

Does the reporting obligation apply to you? Find out from our questionnaire

Disclaimer: Our questionnaire does not represent a comprehensive analysis of a cross-border arrangement. The questionnaire is meant to help determine whether a person is obliged to file the corresponding documentation based on general criteria only. Accace is not responsible for any person’s or entity’s decisions taken based on our questionnaire’s results. Before taking any action, we recommend you to consult an advisor.