DAC6 requires mandatory automatic exchange of information. It imposes a requirement to report certain cross-border arrangements. It is the latest in a series of measures adopted by the EU to tackle tax avoidance and promote tax transparency by introducing an obligation on intermediaries to disclose cross border tax arrangements. This will allow different tax authorities to exchange information on potentially aggressive tax structures.
Although DAC6 is intended to provide a mechanism for tax authorities to counter act tax abuse, the current provisions are very widely drafted and may catch many commercial transactions with no tax planning motive. DAC6 covers all taxes other than VAT, customs duties, excise duties and mandatory social security contributions.
It is expected that the UK will ratify DAC6 in spite of Brexit, even though the UK legislation adopting DAC6 into UK law has yet to be provided. Therefore UK intermediaries should continue to monitor developments on DAC6 to ensure they are in a position to make DAC6 reports by August 2020.
DAC6 applies to any person (including an individual, partnership, company or other legal entity) operating in the EU or with interests in the EU. So it could apply to multinational companies. It also applies to intermediaries such as law firms, accountants, banks and financial advisers.
DAC6 requires the reporting of certain cross border arrangements if they meet the “hallmarks”. The hallmarks fall within the following categories:
There is still a lot of uncertainty about how DAC6 will apply. The UK the legislation has not yet been drafted, so there are a still a lot of unanswered questions including whether there will be safe harbour provisions to restrict the impact of DAC6.
However, until more detail is available, intermediaries who are potentially affected should set up a system to collate data for the transitional period so that they have the information easily available to report if needed. In order to assess whether a report may need to be made, any arrangements should be assessed against the following questions:
1. Is there a cross-border arrangement?
2. Is the cross-border arrangement reportable based on the hallmarks?
3. Who has the obligation to report?
4. What should be reported?
EU directives will continue to affect UK taxpayers operating internationally well beyond Brexit. Taxpayers will want to ensure compliance with DAC6 within the deadlines and the responsibility for this will in many cases be with their advisers. With so little detail about how EU members will implement the directive there is no clarity about what will need to be reported. However, if a client is involved in a cross-border arrangement that is potentially reportable, make sure to collate as much of the potentially relevant information as possible now, as this is likely to be simpler than trying to recreate records for the transitional reporting period to June 2020.