DAC6 an attempt to limit tax erosion
Member States face difficulties to protect national tax bases from erosion as tax-planning structures evolve to be particularly sophisticated. Indeed, some financial intermediaries and other providers of tax advice seem to have actively assisted their clients in smuggling money offshore. This is why the European Commission setup DAC6 Directive to:
- Set up strict measures against intermediaries who assist in arrangements leading to tax evasion
- Discourage the use of aggressive cross-border tax-planning arrangements
- Create an environment of fair taxation in the EU market
How DAC6 could create an environment of fair taxation in the internal market?
With DAC6, intermediaries have to inform tax authorities of certain cross-border arrangements that could potentially be used for aggressive tax planning. Then tax authorities have to share information with their peers in other Member States. The fact that tax authorities do not react to a reported arrangement should not imply acceptance of the validity or tax treatment of that arrangement.
Transposition is ongoing but arrangements implemented from directive’s entry into force need to be reported
The directive entered into force on June 25th 2018 with local transposition ongoing almost everywhere in Europe. One key point, intermediaries and relevant taxpayers must file information on reportable cross-border arrangements for which the first step was implemented between the date of entry into force (25/06/2018) and the date of application of this Directive (01/07/2020). This creates additional complexity for the many actors that should report.
Zoom on hallmarks: what is behind?
The regulator defined hallmarks to identify potentially aggressive cross-border tax-planning arrangements. These hallmarks are not crystal clear in many cases and will let room for interpretation. One of the key challenge for market players will be to define consistent interpretations for each type of arrangement and avoid systematic bespoke analysis.
The first hallmarks are submitted to the « Main benefit test ». Reporting is needed here when one of the main benefit expected from an arrangement is a tax advantage.
What are the data to be disclosed?
With DAC6, a mandatory automatic exchange of information (through the Common Communication Network or CCN to be set-up by the European Union) is needed. Key data to be disclosed are both quantitative and qualitative and may be burdensome to consolidate:
- Name, date and place of birth, tax resident jurisdiction, tax identification number, associated enterprises,
- Hallmarks met,
- Summary of the content of the arrangement including common known name, description of the business activities or arrangements (abstractly),
- Date of which the first step was implemented or will be implemented,
- Detailed information on national provisions related to the arrangement,
- Value of the cross border arrangement,
- EU Member State of the taxpayer and other EU Member States involved in the arrangement,
- Persons that are likely to be involved in the arrangement and related EU Member States.
Who should report?
The first intermediary or an other intermediary or the taxpayer should report. Some intermediaries benefit from a waiver as reporting would breach professional secrecy. It is also possible to delegate the reporting to an intermediary to avoid multiple reports if the intermediary can prove, in accordance with national law, that the same information has already been filed by another intermediary.
Six main steps to comply with DAC6
We identified key steps to comply with DAC6 directive. This is a strategic project with major impacts on business model, delegations. The ability to streamline reporting will be critical here to secure data transmission and limit costs.
How Headlink can help?
To do so, an extensive knowledge of business and strong track-record in building regulatory reporting are key to succeed. If you want to know more, let’s discuss together about DAC6, your challenges and our experience in comparable regulatory projects!