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To increase fiscal transparency across the EU, the Mandatory Disclosure Directive entered into force on 25 June 2018. The Directive (also known as DAC 6) requires intermediaries — such as EU-based tax consultants, banks and lawyers — to report cross-border transactions and tax arrangements that the EU considers potentially aggressive.
In principle the reporting starts as per July 1, 2020, after which intermediaries should report within 30 days after a reportable cross-border transaction (with an extension for cross-border arrangements between June 25 2018 and July 1 2020). Albeit this reporting period might be extended due to corona it is very important to prepare your company for this new reporting requirement, as non-compliance with these new reporting requirements could lead to significant fines. In this video Monique Pisters, Partner International tax, will tell you more about this Directive and how you can prepare your company.
Or watch our webinar 'The EU Mandatory Disclosure Rules (DAC 6) – How to prepare & comply' >>
Hello, my name is Monique Pisters and I am partner International Tax with Grant Thornton Netherlands. In this video I will discuss the new rules of the Mandatory Disclosure Directive which will become effective as per 1 July 2020.
The EU Mandatory Disclosure Directive came into force in 2018 and requires mandatory reporting and automatic exchange of information by the EU Member states for certain cross border arrangements.
The directive – known as DAC6 – had to be implemented into EU domestic law per 31 December 2019 and will be fully applicable as per 1 July 2020. After that date, intermediaries and taxpayers will be required to report reportable cross-border arrangement with their national tax authority.
The disclosure applies to all taxes with only a few exceptions such as value added tax (VAT).
DAC 6 determines that cross-border arrangements must be disclosed to the tax authorities when there is an arrangement which affects at least one EU Member State and when the arrangement falls under one of the so-called 'hallmarks':
The hallmarks are features in cross-border arrangements that indicate that there is a potential risk of tax avoidance. Examples of these features are cases when the same asset is subject to depreciation in more than one jurisdiction or hard-to-value intangible assets are transferred.
Some of the hallmarks are subject to a main benefit test. This means that only when the main benefit of an arrangement is to create a tax advantage, the arrangement must be disclosed with the tax authorities.
The primary obligation to report is on so-called “intermediaries” defined as those persons who are involved in designing, offering, marketing, and organizing or managing the implementation of a so-called reportable cross-border transaction; as well as those who provide assistance with implementation or advice with respect thereto. Please note that there are a number of circumstances where the taxpayer will have to file himself. Once the rules become fully applicable, intermediaries and taxpayers will be required to file information with their national tax authority within thirty days after for example the cross-border arrangement is made available for implementation or after the moment when an intermediary provided aid, assistance or advice.
Please note that it slightly differs per country who qualifies as an intermediary and which professions are exempt from reporting. In case of non-compliance with these rules by intermediaries or taxpayers a penalty can be imposed. In the Netherlands this penalty amounts to a maximum of € 870,000.
According to the current legislation, the reporting obligation will start on 1 July 2020 and any reportable transaction as of that date should be reported within 30 days. As a transitional measure, where the first step in a reportable cross-border arrangement is implemented between 25 June 2018 and 30 June 2020, the arrangement should be reported between 1 July 2020 and 31 August 2020. However, the COVID-19 crisis has a strong impact on companies. As a result, the European Commission proposed to extend certain deadlines for filing and exchanging information. Based on the proposed changes, the deadlines for reporting qualifying cross border arrangements by intermediaries or taxpayers will be extended with three months.
Whether this extension will be granted depends on the approval of the member states. For now this approval is pending in the Netherlands.
No matter what date the reporting obligation actually starts, it is very important to prepare your company for the new reporting obligations in order to mitigate the risk of fines for non compliance. As such it is highly recommendable to take the following actions.
First it is important to determine your own inhouse DAC 6 policy. Think for instance of appointing a person within your company who will be responsible for reporting and communication with intermediaries. And also to define your process and approach with regarding to the reporting and communication.
Furthermore, it is important to identify any reportable cross border arrangements as per June 25, 2018. And to verify who should report, being your intermediary or your company. Furthermore, tooling could assist you in guiding you through the hallmarks as well as keeping an overview of portential reportable transactions throughout the EU.
Of course we at Grant Thornton could assist you with the DAC6 reporting and policy as well as with tooling. We are of course at any time available to tell you more about this or provide you with a demo. We hope to speak with you soon .
