DAC6 mandatory reporting to tax authorities of certain cross-border transactions

Article by A&L Goodbody (First published on Lexology)

DAC6 is an EU Directive requiring the mandatory disclosure to tax authorities of certain cross-border arrangements. It aims to strengthen tax transparency and prevent aggressive tax planning. Finance Act 2019 contains the Irish implementing provisions. In short “intermediaries”, and taxpayers in certain instances, will be required to report to the Revenue Commissioners information regarding cross-border arrangements with certain characteristics referred to as “hallmarks”. An intermediary, such as A&L Goodbody, may be obliged to report details of the transaction and its client (potentially retrospectively since 25 June 2018) to the Revenue Commissioners. The Revenue Commissioners in turn will automatically share this information with other relevant EU Member States.

Overview of DAC6

DAC6 came into effect in 2018. Since the passing of the Finance Act 2019 in December 2019 it applies to a “reportable cross-border arrangement” in respect of which advice or assistance has been given by an intermediary (which could include A&L Goodbody (ALG)) since 25 June 2018. DAC6 is essentially part of the EU Commission’s package of measures to combat what they consider to be aggressive tax avoidance and is intended to increase tax transparency.

What is a reportable cross-border arrangement?

A reportable cross-border arrangement is a cross-border arrangement (i.e. it concerns either more than one EU Member State, or an EU Member State and a third country where, broadly, not all the participants are tax resident in the same country) which contains one of the “hallmarks” or characteristics of potential tax avoidance.

While some of the hallmarks contain a “tax benefit” motivation requirement, others do not. Therefore the range of transactions that are now caught is broader than those that had fallen within Ireland’s pre-existing domestic mandatory disclosure regime.

Who reports?

Subject to limited exceptions an “intermediary” must file a return of “specified information” with the Revenue Commissioners in respect of a reportable cross-border arrangement.

An intermediary for this purpose is either the person that:

(i) designs, markets, organises or makes available for implementation or manages the implementation of the arrangement, or (ii) having regard to the facts and circumstances and relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that it is providing aid, assistance or advice with respect to (i) above and is tax resident in a Member State, registered with a professional association related to legal, taxation or consultancy services in a Member State, etc. As such ALG would be an intermediary for the purpose of reporting. The fact that a transaction is reportable is not of itself an indication that there is any tax mischief.

In the event that the advice benefitted from legal professional privilege the reporting obligation would shift, upon notification, to the client taxpayer or another intermediary (if any).

Where multiple intermediaries (including ALG) are involved in the cross-border arrangement, ALG would not have a reporting obligation if another involved intermediary:

(i) confirms that it has made a DAC6 return to the Revenue Commissioners, and (ii) provides A&L Goodbody with the Revenue assigned reference number. This information should be provided by the other intermediary to ALG within 5 working days of the other intermediary obtaining the reference number, or ALG becoming involved in the transaction.

What is reported?

Broadly, an intermediary must report “specified information” in relation to a reportable cross-border arrangement.

Specified information includes, for example:

  • intermediary and taxpayer (i.e. client) details relating to tax residence
  • tax identification number (TIN)
  • country of issuance of the TIN
  • name and address
  • associated enterprises (if any)
  • details of the hallmark(s) making the transaction reportable
  • the value of the arrangement
  • the date on which the first step in implementing the arrangement has, or will be, taken
  • details of Member States likely to be concerned by the cross-border arrangement

When is the report made?

If the first step in implementation of the cross-border arrangement occured on or after 25 June 2018 and before 1 July 2020 – a return must be filed with the Revenue Commissioners by 31 August 2020.

If a reportable cross-border arrangement occurred on or after 1 July 2020 – a return must be filed with the Revenue Commissioners within 30 days of the arrangement either:

(i) being made available for implementation (ii) being ready for implementation, or (iii) having taken its first step in implementation – whichever happens first.

What are the consequences of DAC6 reporting being made?

The mere fact that a DAC6 report is made in respect of a transaction does not indicate that there is any particular tax liability or mischief occurring.

However, the mere fact that transactions may be reported might deter taxpayers from entering into certain transactions and also enables tax authorities to obtain information on types of transactions that are being entered into earlier than they would have previously. In such circumstances EU jurisdictions may be able to make appropriate changes to their laws to prevent transactions occurring that they consider undesirable.

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