DAC6 compliance – Category C: Specific hallmarks relating to cross-border transactions – which transactions should you be aware of?

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.

It is important to note that Cross border payments also require that the main benefit test is met – this is a condition where the main benefit of a transaction is a tax advantage.


2. Same Depreciation: An arrangement where an asset depreciates in value and a tax deduction is claimed in more than one jurisdiction.

3. Double Taxation: Tax relief is claimed in more than one jurisdiction.

4. Transfer of Assets: An arrangement where assets are transferred and there is a material difference between those assets being considered payable.

An example of a category C hallmark would be if a Swiss-based parent corporation makes a tax-deductible payment to a daughter corporation in Luxembourg. The daughter corporation is not a tax resident in any jurisdiction.

DAC6 training and reporting

Gif showing the DAC6 reporting portal
VinciWorks’ DAC6 portal is a secure, enterprise-wide data management tool for recording cross-border tax arrangements that may need to be reported under DAC6.

Failure to report a cross-border transaction under DAC6 will result in effective, proportionate and dissuasive penalties. DAC6 should therefore not be taken lightly. VinciWorks has a DAC6 reporting and training solution to help organisations understand the Directive and efficiently report on their transactions. This includes both an advanced and fundamentals course, as well as a customisable reporting tool to effectively log and track transactions.