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DAC 6: New EU Tax Disclosure Rules

In the wake of the OECD’s BEPS project, the new EU Council directive 2011/16 in relation to reportable cross-border tax-planning arrangements, known as DAC6, sets a mandatory reporting of cross-border arrangements.

Basically, a reportable cross-border arrangement means any arrangement that:

• involves either more than one EU Member State or an EU Member State and a third country, including Switzerland, and
• meets at least one of the features that are listed in the Annex to the Directive, presenting an indication for aggressive tax planning or tax avoidance - so-called “hallmarks”.

If arrangements involving some specific hallmarks must be reported in any case (transfer pricing, automatic exchange of information, beneficial ownership, payment between associated enterprises), other arrangements will only be reported where they fulfil the “main tax benefit test”.

That test will be satisfied where the main benefit or one of the main benefits of the arrangement is obtaining a tax advantage, where it is unlikely the arrangement would have been implemented were it not for the expectation of obtaining such a tax advantage.

This test helps clarifying which arrangements are to be declared, but it may also lead to a potential disqualification of the declared arrangements. As a matter of fact, French law provides that any construction that has mainly a tax purpose could be disregarded.  

As the new DAC6 regulations are about to be implemented into French law (similar implementation process are on in other Member States as well), EU and non-EU intermediaries such as banks, assets managers, financial advisors and wealth managers must foresee the implications of their new obligations and act promptly to meet compliance requirements by the 2020 deadline set by the directive.

Author: Dimitar Hadjiveltchev, Avocat Associé