The amendment of Council Directive 2011/16/EU on Administrative Cooperation in the field of taxation (commonly referred to as DAC6) has now been implemented into the domestic legislation throughout the entire EU, with retrospective effect from June 25, 2018. DAC6 is the EU’s response to Action 12 on Mandatory Disclosure Rules (MDR) of the OECD Base Erosion and Profit Shifting (BEPS) project.
In short, DAC6 directs the EU Member States to transpose a mandatory disclosure regime into the national legislations regarding certain reportable cross-border arrangements (CBAs), primarily placing a reporting responsibility on intermediaries (subsidiary filing obligations for the relevant taxpayers), which have entered into force and are effective throughout the EU. As the DAC6 regulation has a very broad scope and includes many unfamiliar terms, we will provide a comprehensive overview of the most relevant terminology you will encounter with regard to DAC6/MDR.
Any other person in an EU Member State that is likely to be affected by a reportable CBA, indicating to which Member State such a person is linked.
Although DAC6 does not contain a specific definition, an arrangement can consist of different elements such as a transaction, action, scheme, plan or understanding, agreement, commitment – or any combination thereof. An arrangement puts an idea into effect by making changes to the operational facts and/or legal situations.
A person who is related to another person by: (a) participating in its management or being in a position to exercise a significant influence over the other person; (b) holding of >25% of the voting rights of the other person; (c) having direct or indirect ownership of >25% of the capital of the other person; or (d) having an entitlement to ≥25% of the profits of the other person.
Concerning either more than one EU Member State or an EU Member State and a third country (non-EU jurisdiction).
The Intermediary or Relevant Taxpayer that is liable to report the disclosure(s).
A characteristic or feature of a CBA that indicates a potential risk of tax avoidance. Hallmarks are divided into 5 categories lettered from A to E, some of which are linked to the so-called Main Benefit Test.
Arrangements initiated on or after June 25, 2018 up until and including June 30, 2020, with February 28, 2021 as the reporting deadline. For the subsequent period up until 2021 (retroactive period), the filing due date is 30 days after January 1, 2021 in most cases.
Any person that designs, markets, organizes, makes available for implementation or manages the implementation of a reportable CBA (with a primary intermediary acting as a promotor). The term also covers those persons who know, or could be reasonably expected to know, that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to a reportable CBA (with a secondary intermediary acting as a service provider).
Intermediaries (typically lawyers) may be granted a waiver from reporting information based on an exemption for the purpose of professional secrecy.
The Main Benefit Test will be satisfied if it can be established that the obtaining of a tax advantage can reasonably expected to be the main benefit, or one of the main benefits, of an arrangement, i.e., if the tax advantage is more than incidental then the Main Benefit Test is satisfied.
An arrangement that is designed, marketed, ready for implementation or made available for implementation, without the need to be substantially customized.
The monetary value of a CBA is the total value of an arrangement or series of arrangement taken as a whole (not merely the tax advantage obtained or the related advisory fees).
A concept of the location where operations are carried out, typically regarding the intermediary, i.e., based on its tax residence, place of incorporation, place of registration with a professional association, or in the case of a relevant permanent establishment (PE).
An individual, company or any other body of persons.
This describes that an arrangement contains at least one of the hallmarks of DAC6, and, if required, also meets the Main Benefit Test.
Reportable CBAs must be disclosed within 30 days of their initiation or implementation (after an intermediary or the relevant taxpayer comes into contact with the CBA), submitted to the tax authorities in most cases in an electronic format (i.e., XML), following specific technical schemas, and must pass the validation rules.
Any person to whom a reportable CBA is made available for implementation, or who is ready to implement a reportable CBA, or has implemented the first step of such an arrangement.
Although the DAC6 regulations do not contain a specific definition, it is clear that the advantage must be in the area of one of the taxes covered by the mandatory disclosure legislation.
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