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How does DAC6 apply to your business?

Directive 2011/16/EU (commonly known as DAC6) is an EU regulation which is in the process of being implemented across the EU and which requires the disclosure of information relating to certain cross-border arrangements to the tax authorities of EU Member States.

Although DAC6 has been introduced to increase tax transparency across the EU and to fight certain aggressive tax planning arrangements, in some cases it may also require disclosure where a tax advantage is not a main benefit of the arrangement in question.

How does DAC6 apply to your business?

DAC6 reporting obligations apply to ‘reportable cross border arrangements’. For an arrangement to be cross-border, it must concern either more than one Member State or a Member State and a third country – meaning that DAC6 is potentially relevant for non-EU taxpayers who are party to a reportable cross-border arrangement which concerns at least one Member State. For a cross-border arrangement to be reportable, it must fall within one of the “hallmarks” outlined in the Directive.

The hallmarks are characteristics which are broadly indicative of potentially aggressive tax planning, though in some cases are drafted more widely than this. The hallmarks can be divided between those which require the main benefit (or one of the main benefits) of the arrangement to be the obtaining of a tax advantage and those which do not.

Who is required to disclose?

The new reporting obligations apply primarily to intermediaries, with secondary obligations falling on the taxpayers themselves in cases where there is no intermediary (or no EU intermediary) or the intermediary is exempted from reporting due to legal professional privilege.

Intermediaries and/or taxpayers will be required to file information with their national tax authority within 30 days

  • after the reportable cross-border arrangement is made available for implementation; or
  • after the reportable cross-border arrangement is ready for implementation; or
  • when the first step in the implementation of the reportable cross-border arrangement has been implemented

Intermediaries providing aid, assistance or advice must file information within 30 days beginning on the day after they first provided, directly or by means of other persons, aid, assistance or advice.

For any reportable cross-border arrangements implemented between 25 June 2018 and 30 June 2020, transitional provisions are to allow for “one-off reporting” between 1 July 2020 and 31 August 2020.

The definition of intermediary is broad and will likely include legal advisors (including in-house counsel), accountants, tax advisors, banks, financial advisors and other professional advisers and service providers, however there may be an exemption from DAC6 reporting requirements where domestic legal professional privilege rules apply.

The Directive states that an intermediary is:

  • someone with an EU connection who designs, markets, or organises, facilitates or manages the implementation of a reportable cross-border arrangement; or
  • anyone who provides aid, assistance or advice in respect of a reportable cross-border arrangement, or anyone who could be reasonably expected to know that such aid, assistance or advice relates to a reportable cross-border arrangement.

When does it come into force?

DAC6 is required to be implemented into national law of each EU Member State by 31 December 2019, with the first reports to be filed by 31 August 2020. The obligations under DAC6 are partly retrospective in nature however in that reporting will be required in respect of any relevant cross-border arrangements entered into from 25 June 2018.

Timeline of Reporting

What is the current status of DAC6?

How and when DAC6 is implemented will vary from country to country. We’ve made an interactive map so you can easily see the status of DAC6 in each country. It is important to note that the scope of reporting requirements may differ across the various Member States depending on how it is implemented. Taxpayers and intermediaries will therefore need to be aware of their obligations in all Member States to which the particular arrangement is relevant.

Failure to comply with DAC6

Failure to comply may result in significant financial penalties, as well as associated reputational damage. The level of penalties has been left up to the individual Member States to determine albeit the Directive itself provides that any penalties should be “effective, proportionate and dissuasive."

What are the next steps to take?

DAC6 is expected to impose a significant compliance burden on taxpayers and their advisors because of its broad scope and potential application to a wide spectrum of arrangements.

To be prepared, taxpayers and intermediaries should:

  • become familiar with the scope of DAC6 and its implications
  • be aware of their reporting obligations in all Member States under DAC6
  • identify and log any reportable arrangements which may be caught by the Directive between 25 June 2018 and 30 June 2020
  • ensure they can meet their reporting obligations when these go live in each jurisdiction
  • ensure reporting will be consistent where disclosures are required in more than one Member State