Are You Ready for DAC6? Mandatory Reporting and Exchange of Cross-Border Tax Arrangements Are Fast Approaching.

• Author: Silberinq-Meyer, Jessica

Complex new tax reporting requirements are right around the corner for companies with business operations in the European Union (EU).

In June 2018, the EU issued the fifth amendment to its Directive on Administrative Cooperation--commonly called DAC6--calling for "relevant" taxpayers or their intermediaries to report certain cross-border tax arrangements to authorities. (1)

The directives intent is to give tax authorities access to comprehensive information about potentially aggressive tax arrangements so they can close loopholes, undertake risk assessments, and decide whether to conduct audits.

Under the new rules, taxpayers or their intermediaries (including banks, law firms, and tax advisors) will need to:

* comply with disclosure requirements in the twenty-seven EU member states;

* navigate deviations in regulations by jurisdiction;

* file disclosures covering the past two years and then continue to do so regularly going forward; and

* overcome significant data management challenges and devise new work streams to ensure ongoing compliance.

How We Got Here

DAC6 advances the effort by the Organisation for Economic Co-operation and Development (OECD) to mitigate tax avoidance through its base erosion and profit shifting (BEPS) project.

BEPS Action 12 includes recommendations for the design of rules requiring taxpayers and advisors to disclose aggressive tax planning arrangements, (2) and DAC6 directs each EU member state to enact such rules.

Specifically, DAC6 requires each EU country to adopt laws, regulations, and administrative provisions necessary to comply with the directive and to apply them beginning July 1, 2020.

Cross-Border Arrangements

A cross-border tax arrangement involves at least one EU member state and must be reported if it contains one of the directives hallmarks, which are characteristics or features that indicate a potential risk of tax avoidance.

Hallmarks linked to the "main benefit test" make a cross-border arrangement reportable. This test is met when the main benefit a taxpayer may reasonably expect to derive from an arrangement is to obtain a tax advantage.

Who Must Report

Intermediaries or relevant taxpayers must disclose reportable cross-border arrangements.

An intermediary designs, markets, or organizes a reportable cross-border arrangement or makes it available for implementation or manages the implementation. An intermediary must meet at least one of these additional conditions:

* be tax-resident in a member...