DAC6
GETTING TO GRIPS WITH DAC6 INTERPRETING THE REQUIREMENTS OF THE EU DIRECTIVE ON ADMINISTRATIVE CO-OPERATION AS AMENDED BY COUNCIL DIRECTIVE 2018/822 (‘DAC6’ OR ‘THE DIRECTIVE’) IS NOT A STRAIGHTFORWARD EXERCISE, INCLUDING THE DECISION ON WHETHER AN ARRANGEMENT SHOULD BE CONSIDERED REPORTABLE OR NOT.
What is DAC6 all about?
The hallmarks
DAC6 requires ‘intermediaries’, and in some circumstances taxpayers, to provide tax authorities with information on certain crossborder arrangements (‘CBAs’). The main purpose of DAC6 is to strengthen tax transparency and the fight against aggressive tax planning.
In terms of the Cooperation Regulations, a hallmark is defined as a characteristic or feature of a CBA that presents an indication of a potential risk of tax avoidance. The hallmarks are listed in Annex IV of the Cooperation Regulations consisting of the five categories below:
DAC6 has been implemented into Maltese legislation by virtue of legal notice L.N. 342 of 2019 which amended S.L. 123.127, entitled the Cooperation with Other Jurisdictions on Tax Matters Regulations (the ‘Cooperation Regulations’), with effect from 1 July 2020 but has retrospective application to any CBAs which date back to 25 June 2018.
A: Generic hallmarks linked to the main benefit test
DAC6 imposes mandatory disclosure requirements with respect to certain arrangements with an EU cross-border element where the arrangement is considered to fall under one of the ‘hallmarks’ set out in the Directive and in certain instances where the main benefit or one of the main benefits of the arrangement is a tax advantage.
B: Specific hallmarks linked to the main benefit test C: Specific hallmarks related to cross-border transactions D: Specific hallmarks concerning automatic exchange of information and beneficial ownership E: Specific hallmarks concerning transfer pricing Certain hallmarks may be considered in determining whether an arrangement is a reportable CBA only if the Main Benefit Test (‘MBT’) is satisfied.
The Commission Recommendation of 6 December 2012 on aggressive tax planning (2012/772/EU) provides that ‘an arrangement means any transaction, scheme, action, operation, agreement, grant, understanding, promise, undertaking or event. An arrangement may comprise more than one step or part.’
That MBT will be satisfied if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement, is the obtaining of a tax advantage.
DAC6 covers all EU taxes except: VAT; customs duties; excise duties covered by other Union legislation on administrative cooperation between Member States; compulsory social security contributions, fees such as for certificates and other documents issued by a public authority; and dues of a contractual nature, such as consideration for public utilities.
Who is responsible for reporting?
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An intermediary is responsible for reporting a reportable CBA. In the absence of an intermediary, or where all intermediaries involved in the CBA have waived their reporting obligations in terms of legal professional privilege, the relevant taxpayer would take over such responsibility.
