Eps 1037: How to deal with DAC 6 regulation?
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Where there would be more than one intermediary involved in the same reportable cross-border arrangement, the obligation to file information would lie with all the intermediaries simultaneously but an intermediary, if it can prove that the transaction has been already reported, is not obliged to report this transaction.
Where no intermediary located in the European Union is involved or if all intermediaries benefit from a legal professional privilege (see above), the reporting obligation falls on the relevant taxpayer.
The mandatory reporting to the tax authorities is required from 1 July 2020: any reportable cross-border arrangement implemented after that date is to be reported within 30 days of the reporting trigger.
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Jared Morris
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On 13 January 2020, the Parliament adopted Directive 2018 / 822 implementing DAC 6 as regards cross-border tax arrangements. According to the current timetable, the first DAC6 report is due to be published on 31 July 2020 and the regulation as a whole will enter into force on 1 July 2020.
Directive DAC 6 amends the Directive on administrative cooperation in tax matters and the Directive to which it refers. Although the main objective of DAC6 is to combat aggressive tax planning, this Directive also applies to cross-border tax agreements between the EU and other countries and covers agreements that have a specific tax motive. As before, it requires intermediaries and taxpayers to report to tax authorities on agreements that have certain characteristics and features.
While a number of Member States are still developing and finalising guidelines, the Directive requires each EU Member State to transpose the DAC-6 rules into national law by 31 December 2019. The Directive also requires that this legislation includes a number of national rules implementing DAC6, in line with the European Commission's guidelines on administrative cooperation in tax matters.
The deadline for reporting varies from country to country, making compliance with DAC-6 more difficult. COVID-19, formally known as the European Union Directive on Administrative Cooperation, mandate companies doing business in an EU Member State to report to the Commission on compliance with DAC6 by 31 December 2019. Some countries have changed their deadlines for CO VID-19 and notification deadlines vary from country to country, making compliance more difficult.
The Directive requires that tax planning systems be encouraged to notify programmes deemed to be "potentially aggressive." If the transactions in question are motivated primarily by tax advantages, companies entering into or advising cross-border agreements do not have to notify these agreements to local authorities. Taxpayers and businesses in EU Member States, as well as the European Commission, are struggling with new disclosure rules, which are due to be fully implemented by the mid-2020s.
EU member states are obliged to automatically exchange the information they receive via a central database. The new reporting requirements will apply from 1 July 2020 and each Member State will be obliged to share this information within a quarter of the date of submission.
Britain has introduced powers under Section 84 of the Finance Act 2019 to allow the UK to make changes to its regulations transposing the EU's DAC 6 directive. The UK legislation to implement EU Directive 2018 / 822 / EEC on regulation has now been presented to Parliament.
There are still significant uncertainties and HMRC guidance is not expected to be published until June. Tax experts are waiting for clarification on key issues as they try to identify which transactions could fall within the scope and implement the corresponding agreements that have been recorded and reported. The final regulation will provide answers in the form of guidance and guidelines from the Ministry of Economy, Energy and Industrial Strategy .
HMRC has acknowledged that intermediaries need to examine the schemes to determine whether they are subject to reporting under the final UK regulations, "using the information available at the time of review." It is challenging to introduce these procedures in time for the first report in August. In its updated guidance, HMRC outlines the intended application of DAC-6 rules in the financial services sector.
DAC6 has come into force and focuses on cross-border agreements between the UK and other EU member states. Determining whether these agreements are reportable cross-border raises complex technical and procedural questions for both taxpayers and intermediaries.
The EU says that the aim of DAC6 is to enable tax authorities in EU Member States to gain knowledge and take measures to counter harmful tax practices and discourage taxpayers from using aggressive tax planning. A key development in DAC 6 is the requirement for cross-border reporting where such agreements concern at least one EU Member State and fall under a number of characteristics.
The reporting obligation is for intermediaries and, in certain cases, taxpayers themselves. This information is passed on quarterly to the tax authorities of EU Member States.
The clock starts ticking back on 25 June 2018 and requires companies to report any cross-border agreements covered by certain features to EU tax authorities. On 22 July 2019, HMRC published the EU Mandatory Disclosure rules to be implemented in the UK. Any reportable cross-border agreement originating in an EU member state must be disclosed to HMRC by 31 August 2020.