Have you considered the DAC6 mandatory reporting in the EU?

October 2020

The EU Directive on Administrative Cooperation—commonly known as DAC6—requires EU-based companies to report cross-arrangements that the EU considers having a potential for aggressive tax avoidance. DAC6 aims to enhance transparency among the tax authorities in the EU and discourage tax avoidance schemes by requiring reportable information to be included in a central directory accessible by the authorities of the member states; such information will be shared periodically with the tax authorities of other member states. Failure to comply with DAC6 could result in significant monetary penalties and could pose reputational risks for affected companies and individuals.

Based on the text of DAC6, the initial reporting deadline originally was August 31, 2020 for arrangements implemented after June 25, 2018. However, due to the disruptions caused by the coronavirus pandemic, the European Council adopted an amendment to DAC6 on June 24, 2020 that allows EU Member States to postpone by up to six months the deadline for reporting and the exchange of information. Many EU Member States have taken advantage of this option (view a list of countries that have extended the deadline and the applicable dates). Since implementation of the mandatory disclosure rules (and the interpretation thereof) may differ from one EU member state to another, affected taxpayers should analyze their reporting obligations carefully. 
 

What do you need to know about DAC6?

What constitutes a reporting obligation?

A reporting obligation arises when there is an “arrangement,” which is an undefined, broad term that includes all transactions in the normal course of business. An arrangement must involve multiple EU member states or an EU country and a non-EU country. It should be noted that U.K. companies are subject to DAC, as are non-EU companies that have entities in the EU and carry out cross-border transactions with EU member states.

An arrangement will be reportable only if it involves specified taxes and contains one or more prescribed “hallmarks” listed in Annex IV of the DAC6 directive. Hallmarks are characteristics or features of cross-border arrangements that present a potential risk of tax avoidance.
 

Who is required to report?

The primary reporting obligation under DAC6 lies with an EU-based intermediary, which is defined as any person who designs, markets, organizes or makes available for implementation, or manages the implementation of a reportable cross-border arrangement. In certain cases, however, the reporting obligation shifts from the intermediary to the relevant taxpayer.
 

What is reported?

The intermediary or relevant taxpayer must disclose information relating to the filer and all other parties to the cross-border arrangement, a summary of the arrangement and specifics of its implementation, as well as a description of the relevant business activities or arrangements.
 

Prepare to Comply with DAC6

Although the reporting obligations under the DAC6 directive may seem daunting, BDO has developed an action plan to help your organization be DAC6-compliant. Access our on-demand webinar to learn more about DAC6 reporting.
 
 

CONTACT