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The reporting requirements under the EU’s DAC6 tax disclosure regime are now in force across the EU after an initial six-month deferral of reporting deadlines by most member states due to the Covid-19 pandemic. Complying with the new disclosure and information-sharing requirements may pose a host of difficulties linked to differences in the legal structures of the member states and challenges in interpreting various provisions of the directive, including the “main benefit test” and the features or “hallmarks” that result in an arrangement’s being subject to disclosure.
What is DAC6?
DAC6, formally known as Council Directive EU/2018/822 of 25 May 2018, is an amendment to the European Council’s Directive 2011/16/EU of 15 February 2011. DAC6 covers the mandatory disclosure and automatic exchange of information among EU states in the field of taxation related to reportable cross-border arrangements. The regulatory thread embodied in DAC6 stems from Action 12 of the OECD’s Base Erosion and Profit Shifting project, finalized in 2015, which aimed to give each jurisdiction timely information on the compliance and policy risks raised by aggressive tax planning.
DAC6 called for EU member states to transpose the directive’s provisions into their respective domestic tax laws no later than Dec. 31, 2019. Mandatory reporting of the cross-border reportable arrangements was to begin July 1, 2020, with retroactive reporting of historical arrangements (where the first step of implementation was taken during the period from June 25, 2018, to June 30, 2020) due on Aug. 31, 2020. The EU in June 2020 announced an agreement among the member states to allow the optional delay of the reporting deadlines until 2021 in response to the impact of the Covid-19 pandemic.
[Interested in the DAC7 Directive? Visit Unpacking EU’s DAC7 Directive to learn more .]
Who has a reporting obligation under DAC6?
The directive puts the reporting responsibility on EU-based intermediaries, a designation that is broadly interpreted to include anyone who designs, markets, organizes, makes available for implementation, or manages the implementation of a reportable cross-border arrangement (or provides aid, assistance, or advice). Such intermediaries normally would include tax advisers, accountants, lawyers, consultants, trust companies, and banks that design and/or promote tax planning schemes. The disclosure requirement is shifted to the relevant taxpayer if no intermediary is involved or the intermediary is based outside the EU or the intermediary is exempt from the reporting obligation because it would breach the legal professional privilege under domestic law.
The definition of an intermediary may depend on how individual member states have interpreted the term in their domestic tax laws. Germany, for example, has legislation that includes only advisers directly involved in planning and executing tax-related transactions as intermediaries, and excludes, for example, a bank that only provides funding for the transaction.
What types of tax arrangements must be reported under DAC6?
The reporting obligation is defined by the directive’s enumeration of “hallmarks” that present certain characteristics or features of a cross-border arrangement that suggest a potential risk of tax avoidance. Any cross-border arrangement (i.e., an arrangement that involves more than one EU member state or an EU member state and another country) that contains at least one of these hallmarks must be reported.