As another element of the co-operation in the field of taxation within the European Union, DAC6 Directive (the so-called reporting obligation of aggressive tax structures) entered into force on 25th June 2018. Directive was implemented by the Hungarian legislation in June 2019.
The Directive shall be applied to cross-border arrangements, which means that domestic arrangements will not be subject to the reporting obligation. Cross-border arrangement is defined by the Directive.
In addition, the directive defines hallmarks that capture certain typical features and elements of aggressive tax structures, through which tax evasion and abuse can take place.
The existence of certain hallmarks itself results in a reporting obligation, while other hallmarks generate reporting obligation only if – above the existence of hallmark – achievement of a tax advantage was the main advantage or one of the main advantages of the particular arrangement.
The hallmarks are the following:
- Generic and specific hallmarks linked to the main benefit test
- Specific hallmarks related to cross-border transactions
- Specific hallmarks concerning automatic exchange of information and beneficial ownership
- Specific hallmarks concerning transfer pricing
The directive established the main benefit test. The test has two steps: the first step is to perform a test to examine the main benefit. If the arrangement does not pass the test, that arrangement must be reported to the tax authority.
If the arrangement meets the criteria of the test, the hallmarks used in the main test can no longer be used. In the second phase only the “remaining” hallmarks can be examined.
The directive imposes a reporting obligation on those who are involved in tax planning. As a consequence, the obligation to provide information will primarily fall on tax advisers, but under the Directive, either the financial institution involved in the scheme or the taxpayer itself may be required to provide information – in the latter two cases.
The Directive specifies exactly what information must be provided to the tax authority. The information required by the Directive should, as a general rule, be sent to the competent tax authority within 30 days of the occurrence of the events specified in the Directive.
The deadlines are the following:
- 31st January 2021: deadline for provision of information on the cross-border arrangements concluded between 1st July 2020 and 31st December 2020.
- 28th February 2021: deadline for provision of information on the cross-border arrangements concluded between 25th June 2018 and 30 June 2020.
- 30th April 2021: start date of date exchange with other EU Member State’s tax authority