How Might DAC6 Impact Your Operations?

23 Jan

How Might DAC6 Impact Your Operations?

The sixth and most recent amendment to the Directive on Administrative Cooperation (known as “DAC6”), intends to strengthen the exchange of information and transparency in tax matters between EU member states. To do so, it has established new requirements for those conducting business across European borders.

What does DAC6 entail?
DAC6 introduces the automatic exchange of reportable cross-border arrangements. It aims to fight against aggressive tax planning by requiring potentially aggressive cross-border tax-planning arrangements to be reported to the relevant local tax authorities.

When the directive is transposed into local law at the end of 2019 and begins to take effect on August 31st, 2020, it will create a reporting obligation that applies to transactions implemented as far back as June 25th, 2018. Thus, the time for companies and professionals to take action is now.
 

Who does DAC6 apply to?
The new directive requires the disclosure of potentially aggressive cross-border arrangements to the tax authorities of the relevant EU member states. Those supplying reportable cross-border arrangements bearing one or more of the specified characteristics, or “hallmarks”, must disclose the scheme to their local tax authorities within a 30-day turnaround period.

The description of these hallmarks is relatively complex, making it difficult to know exactly which cross-border arrangements apply to the directive. They encompass a range of scenarios including, but not limited to arrangements which:

  • Include confidentiality clauses
  • Give rise to contingent fees
  • Involve mass-marketed/standardized schemes
  • Include certain tax planning features
  • Involve cross-border deductible payments between associated enterprises
  • Occur in jurisdictions where CRS of FATCA reporting obligations do not apply
  • Involve transfer pricing

Reportable arrangements must be reported by an intermediary. In its simplest form, an intermediary is any person that designs, markets, organizes, makes available for implementation or manages the implementation of reportable cross-border arrangements. 

 

What needs to be reported?
In order to comply with the new DAC6 directive, businesses and individuals are required to maintain a record of pertinent information.

This includes the identification of:

  • Intermediaries and taxpayers
  • Hallmarks applicable
  • Summary of reportable arrangements
  • Dates of implementation
  • National tax provisions applicable
  • Value of transactions
  • Other EU member states involved
  • Persons in other EU member states likely to be affected

Businesses and taxpayers should begin reviewing their cross-border arrangements which have been implemented since June 25, 2018 onward and evaluate them against the hallmarks set out in DAC6 in order to determine whether or not they are reportable.

Alter Domus’ internal Regulatory Watch Committee works diligently to ensure the timely dissemination of information on new directives and regulations to both clients and internal teams. As such, Alter Domus’ compliance teams are preparing themselves to address the issues that will inevitably arise from DAC6’s implementation and work to mitigate any burden it could create for clients.

 

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