New tax-related disclosure rules: DAC6 – should we be scared (off)?

The EU has adopted a new directive that is intended as a deterrent against aggressive tax planning practices. Anyone active in this area should be aware that this year brings new disclosure rules and notification obligations.

Haven’t heard of this new regime? That’s hardly surprising. While it will provide for additional consolidation in the automatic exchange of tax information and will have practical significance for stakeholders in Switzerland and Liechtenstein, so far it hasn’t got people excited. Why is that?

National legislation is starting to consolidate the legal framework

EU member states were required to incorporate EU Directive 2018/822 of 25 May 2018, known as DAC6, into their national legislation by 31 December 2019. Statements from EUR LEX suggest that this national legislation was implemented rather late, but it is precisely these laws that will spur affected stakeholders into action. In the absence of national frameworks and specific implementation measures, they were largely biding their time.

The first notifications are due this year and the process is straightforward

The first notifications are not due until later this year. From 1 July 2020, the authorities must be notified of any relevant tax agreements within 30 days of conclusion.

For agreements in place before this date, the relevant date is 25 June 2018; any agreements concluded after this must be disclosed by 31 August 2020. This retroactive period of two years is quite short compared to other regulations. It also appears that the many tax transparency initiatives have left their mark. Tax products and their clientèle have changed and compliance efforts have increased, so the new obligations haven’t caused any major upset.

The core of people affected by notification obligations is tightening

Finding out who has to report what information to which authority under which circumstances is complicated. Reporting cascades, exemption clauses, structures and ‘indicators’ all come into play.

These are the key criteria:

  • Broadly speaking, any agreement that confers a tax advantage, circumvents or undermines tax laws, exploits preferential tax regimes or uses structures that could be deceptive must be reported.
  • To be reportable, an agreement must be cross-border in nature.
  • At least one of the parties involved in the agreement must have an EU connection.
  • The primary notification obligation lies with the intermediary. An intermediary is anyone who sets up, markets, organises or implements a reportable agreement or a person who administers the implementation of such an agreement. The intermediary must also have an EU connection.
  • If the intermediary is unable to report the agreement, then the reporting obligation may fall to the taxpayer.

What can we conclude from this?

For any tax planning agreements (structures, vehicles, etc.) with an EU connection (through business premises, a client, registration, licensing, etc.) it is definitely worth clarifying whether the agreements are affected by this directive. There are financial penalties for non-compliance with reporting obligations. Reporting must include details of the intermediaries, taxpayers and the value of the agreement.

It is the efforts of those involved that will determine whether tax planning ends up becoming an obstacle course. There will certainly be fewer tax loopholes. Tax fraud will be more difficult and tax planning will not be any easier.