What is DAC6?
- The EU Directive 2018/822 amending the EU Directive 2011/16 on Administrative Cooperation (DAC6) is the EU mandatory disclosure regime, aiming at transparency and fairness in taxation. DAC6 applies to cross-border transactions and/or tax arrangements, under one or more hallmarks, and, concerning either two or more EU countries, or an EU country and a non-EU country. Under DAC6, EU-based intermediaries and taxpayers are required to report certain cross-border transactions and/or tax arrangements to their domestic tax authority, which will further be shared with the respective tax authorities of EU member states.
Who is required to file a report?
- The intermediary: reporting obligation falls on the intermediary for the transactions and/or tax arrangements completed with assistance of i.e. lawyers, advisors, banks, trustees, insurance companies, asset managers and other service providers.
- The taxpayer: reporting obligations falls on the taxpayer for internal transactions and/or tax arrangements completed inhouse, without an intermediary.
- Reportable cross-border transactions and/or tax arrangements carried out between 25 June 2018 and 30 June 2020, that had to be reported by 28 February 2021, had their deadline extended to 31 January 2022;
- Reportable cross-border transactions and/or tax arrangements carried out between 1 July 2020 and 31 December 2020, that had to be reported by 31 January 2021, had their deadline extended to 31 January 2022;
- Reportable cross-border transactions and/or tax arrangements made between 1 January 2021 and 1 January 2022, that had to be submitted within 30 days from i) the date they were made available for implementation, or ii) were ready for implementation, or iii) the first step in the implementation has been made, or iv) in case an intermediary is involved, when the intermediary provided assistance, aid or advice, whichever occurred first, had their deadline extended to 31 January 2022;
- From 1 January 2022 onward, reportable cross-border transactions and/or tax arrangements should be filed within 30 days, starting from i) the date they were made available for implementation, or ii) were ready for implementation, or iii) the first step in the implementation has been made, or iv) in case an intermediary is involved, when the intermediary provided assistance, aid or advice, whichever occurred first.
DAC6 requirements for cross-border transactions and/or tax arrangements apply under one or more of the hallmarks, as follows:
- Hallmarks A:
- Hallmark A.1. Confidentiality on tax advantage;
- Hallmark A.2. Fees contingent on tax advantage;
- Hallmark A.3. Standardized documents and/or structures.
- Hallmarks B:
- Hallmark B.1. Acquisition of loss-making entities;
- Hallmark B.2. Conversion of income into capital, gifts or lower-taxed/tax-exempt income;
- Hallmark B.3. Circular transactions.
- Hallmarks C:
- Hallmark C.1. Cross-border payments (low/no tax, etc);
- Hallmark C.2. Double dip;
- Hallmark C.3. Double relief;
- Hallmark C.4. Consideration mismatch.
- Hallmarks D:
- Hallmark D.1. Circumventing exchange of UBO info;
- Hallmark D.2. Non-transparent legal or beneficial ownership.
- Hallmarks E:
- Hallmark E.1. Unilateral safe harbor rules;
- Hallmark E.2. Transfer of hard-to-value intangibles;
- Hallmark E.3. Transfer of substantial functions/assets/risks.
What are the penalties for non-compliance?
- Failure to report:
- Exempt & failure to notify:
- Late reporting:
- up to 90 days: from €1,000 to €5,000;
- more than 90 days: from €5,000 to €20,000;
- Incomplete & incorrect reporting:
- Penalty increase of up to €20,000 for failure to settle it on time and for continuation of the infringement.
- Annual cap of €120,000 per intermediary and/or taxpayer for all Reportable Cross-Border Arrangements (RCBAs) having a reporting deadline within a calendar year, excluding wilful default or fraud by the intermediary and/or taxpayer.
Ministry of Finance of the Republic of Cyprus issued a Decree N. 438/2021 on 29th October 2021 on Mandatory Disclosure Rules (MDR) Law of 31st March 2021 in Cyprus, hence the intermediaries and/or taxpayers with business operations in Cyprus are encouraged to review their reporting policies, in order to ensure their full compliance with the relevant requirements and deadlines.
For more information on DAC6 and how this may affect your business, please contact us at [email protected]