Last May, the European Union created the 6th Directive on Administrative Cooperation (the “DAC6”). Under this new law tax intermediaries are required to report certain cross-border arrangements that contain at least one of the hallmarks as defined in DAC6.

DAC6 contains five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog will focus on the category E hallmarks which are classified as generic hallmarks, and may include one of the following:

1. Unilateral Harbour Rules – Arrangements involving unilateral safe harbour rules.

13 months ago, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”). This new directive requires tax intermediaries to report specific cross-border arrangements that contain at least one of the hallmarks that are defined in DAC6.

Within DAC6, there are five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog focuses on the category D hallmarks which are classified as generic hallmarks and may include one of the following:

1. Arrangements undermining reporting obligations – This could include those arrangements undermining European Union legislation, other equivalent agreements which take advantage of the lack of legislation or agreements in place.

“DAC6 is one of the most difficult pieces of regulation that a firm has to implement”

VinciWorks hosted a roundtable meeting with representatives from over 20 firms to discuss DAC6 and its implementation. Here are the key takeaways from the conversation.

1. Who is responsible for submitting initial DAC6 data if a transaction may be reportable?

In the pre-meeting survey, the responses showed that the main people who would potentially submit initial data would be partners, associates, or nominated jurisdiction representatives. A staggering 50% of the respondents noted that they were unsure who would submit the initial information at this stage. During the discussion it was mentioned by some firms that fee earners would be the ones who would decide if this transaction was reportable, then there would be a second level of quality check to confirm if it was a reportable transaction.

On 25 May 2018, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”), requiring so-called tax intermediaries to report certain cross-border arrangements that contain at least one of the hallmarks as defined in DAC6.

Within DAC6, there are five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog will focus on the category C hallmarks which are classified as generic hallmarks, and may include one of the following:

1. Cross Border Payments – Deductible cross border payments in certain cases where one of the following occurs:

a. The recipient is not a tax resident in any jurisdiction.

b. The recipient is a tax resident in a jurisdiction with zero or near zero corporate tax rate.

c. The recipient is included in a list of third-country states considered non-cooperative by EU Member states or the OECD.

d. The payment has a full tax exemption in the jurisdiction of the resident.

e. The payment benefits from a preferential tax regime where the recipient is resident.

On 25 May 2018, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”), requiring so-called tax intermediaries to report certain cross-border arrangements that contain at least one of the hallmarks as defined in DAC6.

Within DAC6, there are five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog will focus on the category B hallmarks which are classified as generic hallmarks, and may include one of the following:

1. Acquiring loss-making companies: Trading in loss-making companies to reduce tax liability.
2. Income conversion: Conversion of income into lower-taxed revenue streams.
3. Circular transactions: An artificial transaction between companies in a group, or under single control, the purpose of which is to inflate the turnover of one or more of the companies.

On 25 May 2018, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”), requiring so-called tax intermediaries to report certain cross-border arrangements.

The deadline for each EU Member State to transpose the Directive into national law and legislation is 31 December 2019.

On 31 January 2019, Poland’s Finance Ministry (MOF) published a 102-page guidance document on the country’s new tax reporting requirements which apply retroactively from 1 January 2019, and these included the implementation of DAC6. This is earlier than the 1 July 2020 obligation as stipulated in DAC6, therefore anyone dealing with Polish transactions should ensure they have DAC6 reporting measures in place already.

Free download: DAC6 guide to compliance

The EU has introduced a new law that imposes mandatory disclosure requirements for certain cross-border transactions. Known as DAC6, the law requires intermediaries to report cross-border tax planning arrangements which involve at least one EU Member State, where the transaction falls into a number of hallmarks. This means businesses will be required to:

• Monitor cross-border arrangements
• Assess reportability of arrangements
• Identify correct tax authority
• Report arrangements to local tax authority

As the August 2020 reporting deadline approaches, we’re seeing varying degrees of awareness and compliance among firms and intermediaries.

Since most cross-border arrangements have potential tax implications, how are you assessing which ones will require reporting? Are you proactively documenting every single cross-border deal just to be safe? Some firms are requiring lawyers to indicate DAC6 relevant transactions when they open a case file. Others are wondering which deals are relevant, while some are just learning about the reporting requirements.

VinciWorks has designed a DAC6 risk assessment to help intermediaries understand the risk exposure of their cross-border transactions.

Take the DAC6 risk assessment