Several Member States have started to issue additional guidance, as they prepare for implementation. The UK and Dutch administrations have issued new guidance, although they have both adopted the 6-month reporting deferral.
Examples in both sets of guidance are informative, and may also serve as a trend for other Member States that are in the process of implementation.
However, Germany, among others, remains fairly silent in this guidance as they have not adopted the deferral period, with reporting deadlines at the end of July and August 2020.
The German ministry has advised that they will not delay the optional 6-month reporting obligation, thus the reporting dates revert to the end of July 2020 for 30-day reporting, and 31 August for historical arrangements.
It is interesting to note that Germany has retreated from their prior 30-day delay, citing system setup obstacles. Additionally, this last-minute retreat of position did not affect the delay of FATCA and CRS reporting. The exchange of DAC6 with other Member States by Germany will be delayed due to the positions taken to delay such reporting.
Everyone is awaiting further background on this position, which would align with Finland’s refusal to also adopt the 6-month deferral period.
Finland has provided additional guidance stating they have not elected to defer the COVID-19 6-month dates, thus the original dates of the end of July 2020 and August 2020 apply for reporting 30-day arrangements and historical arrangements, respectively.
Additionally, the guidance provides further clarity on hallmark definitions to apply for reportable cross-border arrangements between Finland and another country.
McDermott Will & Emery’s (MWE) informative article presents basic reporting attributes for DAC6 reporting that may be a good reference tool in understanding this reporting quagmire, which seems to get deeper as more countries publish their rules and ordinary transactions are surfaced for inclusion to avoid penalties.
As advisors develop tools to capture data, etc., it seems there are not many sites/articles that a tax professional can gain knowledge quickly and easily about Best Practice reporting and a listing of the transactions that are definitive, or subjective, for consideration.
DAC6 is more draconian by the day, it seems, as countries publish rules and tax professionals unearth normal business transactions that seemingly get caught in its web.
Due to the significant penalty provisions that have been legislated, this reporting is a requirement for which assumptions may prove costly. Many esteemed followers (practitioners, advisors, tax administrations, academicians, etc.) are proficient in international tax, many of whom interact with EU Member States.
To develop Best Practices that are a primary focus for this blog, I am thinking of developing a separate page for DAC6 reporting, listing basic hallmarks, and description of transactions based on my experience and input from the strategizingtaxrisk.com community. I look forward to your input and ideas.
You may comment on this site, or via email at: email@example.com.
The Swedish Government issued, on 4 February 2020, a final bill to Parliament implementing the European Union (EU) Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as DAC6 or the Directive).
An earlier draft was issued in December 2019, the final legislation is expected to be enacted in March 2020, and penalties apply after it goes into force July 1, 2020.
EU Member States were to adopt and publish national laws required to comply with the Directive by 31 December 2019. Sweden did not meet this deadline. This major miss of the OECD deadlines for a complex, subjective and arguably far-reaching disclosure legislation brings forth the question: Why is there not a similar delay for implementation by taxpayers and reporting parties? Unfortunately, the OECD has not provided any comments on this mismatch of Member State responsibilities and taxpayer obligations.
The scope of the taxes covered under the Swedish new draft legislation is fully aligned with the Directive and applies to all taxes except VAT, customs duties, excise duties and compulsory social security contributions.
In accordance with DAC6, the main benefit test (MBT) will be satisfied if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement, is the obtaining of a tax advantage.
The Government’s explanatory notes indicate that a “tax advantage” includes a tax advantage outside of Sweden (and there is no suggestion that such tax advantage must arise in respect of EU taxes).
The Government further concludes that there is no requirement that the tax advantage occurs during the current fiscal year, it can occur also in the future, for example, in the form of deferred taxation. It states, however, that it must be a tax advantage based on current rules.
DAC6 is complex, subjective and frustrating as each Member State applies their own interpretation of the final rules, as well as reporting formats.
Taxpayers with operations or transactions affecting Sweden, or other Member States, will likely over-report transactions for the initial period, and hope for further clarifications in the near future. However, penalty consequences are so significant with respect to each (subjective) reportable arrangement that some companies may find it difficult to prove the negative – that each arrangement was reported timely.
The EU blacklist of noncooperative tax jurisdictions, which is used in one of the DAC6 hallmarks for reportable transactions, is revised as of February 18th to include the Cayman Islands, Panama, Seychelles and Palau, in addition to the official list, as included in the referenced link. It is noted that Turkey was not added to the list.
On 20 June 2019, the Spanish Government published draft legislation and draft guidance addressing the implementation of the European Union (EU) Directive on the mandatory disclosure and exchange of cross-border tax arrangements (referred to as DAC6 or the Directive). Under DAC6, taxpayers and intermediaries are required to report cross-border reportable arrangements from 1 July 2020. However, reports will retrospectively cover arrangements where the first step is implemented between 25 June 2018 and 1 July 2020.
Comments are requested by July 12, 2019.
The scope of taxes covered is not broader than the Directive.
The definition of reportable arrangements does not include domestic arrangements.
In addition to Hallmarks A-E included in DAC6, Spain’s draft guidance also includes additional information on the interpretation and application of these hallmarks.
The definition of intermediaries is not broader than the definition in DAC6.
The Spanish draft legislation includes an annual reporting obligation, detailing the use of reportable cross-border arrangements that have already been reported before any tax authority. This obligation is not required under the Directive. The draft legislation includes a list of nexus thresholds with Spain which give rise to this obligation.
Penalties for failures to report are expected to apply and will range between €3,000 and up to the maximum of the fees received/agreed or the value of the tax impact of the arrangement.
Intermediaries are exempt from the obligation to report where the reporting obligation would breach legal professional privilege (LPP). LPP is foreseen both for lawyers and other intermediaries, but only in limited cases. If there are no EU intermediaries which can report, the obligation will shift to the taxpayer.
The Spanish Tax Authority will publish on its website, for information purposes, the most relevant reported cross-border arrangements as well as the tax information related to the applicable regime or characterization of such cases.
Multinationals with cross-border transactions subject to such reporting should review Spain’s proposals, as well as monitor other EU Member States for additional obligations not required under the Directive.
EY’s Global Tax Alert provides additional details, for reference.