Following multiple delays, DAC6 has now been in force in most EU Member States since January 2021. Businesses across Europe are now reporting on cross-border transactions, with many still grappling with when, how and what they need to report.
In this webinar, Director of Best Practice Gary Yantin and Head of Legal and Product Research Ruth Mittelmann Cohen discussed the challenges that intermediaries and taxpayers face, give an overview of how the different EU Member States and the UK have implemented DAC6 and reveal the reporting patterns emerging from the different tax authorities. They also gave an update on the UK’s consultation document on MDR.
It has now been over 10 months since DAC6 has been in force in most EU member states and the UK. Here are some highlights from 2021.
DAC6 reporting
While reporting got off to a rocky start for some tax authorities, the teething problems are now over and tax authorities have begun reviewing the reports they have received. VinciWorks were in touch with many tax authorities, and here is a short reporting summary of a few key member states:
Germany: As of 11 October 2021, a total of 14,047 reports have been received and accepted by the Federal Central Tax Office (BZSt).
Finland: As of 15 October 2021, roughly 250 reports have been filed in Finland. The most frequently reported hallmark categories that have been reported are C and E.
Netherlands: As of 31 March 2021, there were 4,562 reports filed. 3,254 reports were from the original historic period. 1,042 reports were from the deferral period. 265 reports related to transactions from 1 January – 31 March 2021.
Belgium: As of 22 March 2021, the Belgium Ministry of Finance received 535 reports.
Czech Republic: As of 12th October there were 141 DAC6 reports in the Czech Republic. The majority of reports were relating to Hallmark categories D1b, C1d and the E category.
Sweden: As of 30th June 2021, the Swedish Tax Agency received 486 reports. The majority of reports related to hallmark E2 and E3.
On 29 October 2021, the Cyprus Tax Department released a new publication in the Official Gazette, Decree No. KDP 438/2021, which implements the EU directives on reportable cross-border arrangements (DAC6). The guidance in relation to reporting in Cyprus has also been updated.
The Irish Revenue’s Tax and Duty Manual Part 33-03-04 was updated in October 2021. The main amendments relate to Sections 3.2 and 4.2 which now include updated screenshots and guidance. This was necessary following the Irish Revenue releasing a new XSD schema in July 2021 reflecting the UK’s exit from the European Union. Most EU Member States have been updating their XML schemas in response to the amended DAC6 Central Directory Business Validation Rules by the European Commission.
What is the EU list of non-cooperative tax jurisdictions?
The EU list of non-cooperative tax jurisdictions is a list of jurisdictions that do not comply with all international tax standards. The list includes jurisdictions that do not yet comply but have committed to implementing reforms that will bring them to compliance. The aim of the list is not to shame the countries that appear, but rather to encourage positive change in their tax legislation and practices. Once a jurisdiction does meet all criteria to be considered cooperative for tax purposes, it is removed from the list.
October 2021 updated EU list
On 5 October 2021 the Council of the European Union released a revised list of EU non-cooperative jurisdictions for tax purposes.
The EU list of non-cooperative jurisdictions for tax purposes is a tool to tackle:
tax fraud or evasion: illegal non-payment or underpayment of tax
tax avoidance: use of legal means to minimise tax liability
money laundering: concealment of origins of illegally obtained money
The list contains non-EU countries that encourage abusive tax practices, which erode member states’ corporate tax revenues and underlines the importance of promoting and strengthening of tax good governance mechanisms, fair taxation, global tax transparency and fight against tax fraud, evasion and avoidance, both at the EU level and globally.
The updated EU list is important when considering DAC6 Hallmark D1 which captures arrangements where it is reasonable to conclude that these may have the effect of undermining reporting obligations under Council Directive 2014/107/EU (‘DAC 2’) and the Common Reporting Standard (‘CRS’), as implemented in the domestic legislation of EU Member States.
EU list as of April 2022
The Council of the European Union released a revised list of EU non-cooperative jurisdictions for tax purposes on 24 February, 2022. The document that includes the list states that it underscores the importance of advancing and strengthening good tax governance mechanisms, tax fairness, global tax transparency and the fight against tax evasion at both the EU and global level.
The council welcomes the ongoing tax cooperation between the EU Code of Conduct group and most countries and territories, welcomes the progress made in certain previously less cooperative states and territories, and invites the countries and territories that remain on the list to consult with the Code of Conduct group to resolve outstanding issues. The conclusions specifically mention Turkey, recognising the country’s progress and calling on them to continue to do the work necessary to become fully compliant with the requirements.
How VinciWorks can help?
Tax departments in all organisations need to keep to strict deadlines for tax obligations such as corporation tax, payroll and VAT payments. This often gets even more challenging when dealing with multiple jurisdictions.
Omnitrack, VinciWorks’ data collection tool, allows you to record, manage and complete all tax filing requirements. From setting filing deadlines, choosing a warning notice period and recording the obligation fulfilment, Omnitrack has you covered. Get in touch with us to see how Omnitrack can help your business.
Continuing their open communication policy, the Dutch MDR team released details of the DAC6 reports submitted to the Dutch tax authorities in January and February 2021.
There were 4,429 disclosures made between 1 January 2021 and 28 February 2021. 4,259 of the disclosures were for reports in the historical period from 25 June 2018 until 31 December 2020. Only 170 reports related to new transactions. In total 5035 different hallmarks were reported. 35% of hallmark disclosures related to intra-group cross border transfers, covered by hallmark E3. 25% of hallmarks reported concerned the different characteristics of the C1 hallmarks .Hallmark B2, relating to income conversion accounted for 14% of disclosures.
Below is a summary of the hallmarks that were reported during the period. Some transactions may have contained multiple hallmarks.
A1: Conditions of confidentiality: 5
A2: Fee agreements: 3
A3: Standardised documents or structures: 33
B1: Acquiring loss making companies: 3
B2: Income conversion: 723
B3: Circular transactions: 228
C1a: Deductible cross border payments: 346
C1bi: Low or tax exempts recipients: 316
C1bii: Blacklisted recipient country: 282
C1c: Hybrids: 90
C1d: Preferentially taxed recipients: 268
C2: Same depreciation: 13
C3: Double taxation: 41
C4: Transfer of assets: 382
D1: Undermining reporting obligations: 17
D1: Other: 59
D2: Ownership chains: 25
E1: Unilateral safe harbour rules: 258
E2: Hard to value intangibles: 357
E3: Intra group cross border transfers: 1586
Total hallmarks reported: 5,035
VinciWorks’ DAC6 Solution offers reporting solutions for international firms for MDR regulations in many jurisdictions including the Netherlands. Get in touch with us to see how Omnitrack can help ensure you are completing your reporting requirements.
The French Supreme Administrative Court has requested a preliminary ruling from the European Court of Justice (ECJ) regarding the DAC6 filing rules applicable to intermediaries in the case of legal professional privilege.
French domestic law states that intermediaries relying on legal professional privilege are still subject to DAC6 rules, and need to obtain their client’s permission to waive privilege and make a report within a 30 day period. If the relevant intermediary does not obtain their client’s consent, then they have to notify other intermediaries of their reporting obligations and a report needs to be made by a different intermediary within 90 days of notification.
The Dutch MDR team has put a lot of time and energy into open communication throughout the DAC6 process. Whether with intermediaries, software builders or others, the Dutch MDR team has always been available for consultation. The MDR team were aware early on of the potential number of intermediaries and made the decision to update and inform all potential intermediaries via their website, presentations, webcasts, and through their LinkedIn account.
Here is a short overview of how the Dutch DAC6 supervision process operates:
Early on in the process, the MDR team set up clear guidance containing explanations of the DAC6 definitions and criteria. Through the tax authority communicating what, in their should be disclosed there was less room for discussion on these topics.
A clear internal IT process was set up to share the DAC6 disclosures within the Netherlands Tax and Customs Administration, allowing the MDR team to use counter-information from colleagues at the Netherlands Tax and Customs Administration to enhance their review process.
Once the first disclosure has been received, the MDR Team analyses the disclosures from a quality perspective and communicates actively via LinkedIn patterns that they see and what they would like improved.
The MDR Team set up conversations with disclosures that showed lower quality to discuss how they could be improved in the future.
The Ministry of Finance at the Cypriot Tax Department have announced they will be extending the deadline for reporting DAC6 arrangements to 30th November 2021.
This extension will apply to all retroactive reporting dating back to 25 June 2018.
The deadline has been extended for all the following cases:
Reportable cross-border arrangements that have been made between 25 June 2018 and 30 June 2020
Reportable cross-border arrangements that had been made between 1 July 2020 and 31 December 2020 that required submission within 30 days.
Reportable cross-border arrangements made between 1 January 2021 and 31 August 2021 that required submission within 30 days.
VinciWorks is constantly monitoring DAC6 amendments made by the tax authorities, ensuring that schemas remain up to date, and adding additional reporting XMLs as they become available inside the Omnitrack system.
Click here to find out more about VinciWorks’ award winning DAC6 product.
In light of the Brexit Fair Trade Agreement that passed through parliament on 30 December 2020, HMRC announced that there would be major changes in the UK’s approach to DAC6. HMRC confirmed in its shocking New Year’s Eve announcement email that in 2021, the UK government would repeal the legislation implementing DAC6 in the UK and instead implement the OECD’s MDR.
At the Budget meeting in March 2021, the UK government announced that it would consult on the implementation of the OECD Mandatory Disclosure Rules (MDR). The consultation was expected to be issued in late summer but has not yet been released. It was expected that the consultation period would run until autumn and be finalised in the winter.
In preparation for the new rules, HMRC has been in touch with relevant stakeholders in order to begin their planning work on the relevant IT systems to be used for reporting to ensure that they design a service and guidance that are quick and simple to use.
VinciWorks’ DAC6 reporting solution accommodates reporting in the UK as well as all EU Member States and will continue to provide a solution for the new UK MDR as soon as it is finalised by HMRC.
