DAC 6. The European Union Directive on reportable cross border transactions 2020

We wish to raise your awareness with regards to the implementation of “DAC 6”.
 
“DAC 6” stands for the Directive on Administrative Cooperation in (direct) taxation in the EU, volume 6.
 
The European Union Directive on reportable cross border transactions is expected to be enacted into law by 1/7/2020 as an amendment to the Mutual Assistance in Taxation Law 205(I)/2012. 

Reportable transactions include those arrangements whose first stage was completed within the period 25/7/2018 and 1/8/2020; these will have to be reported by 31/8/2020. 

All other transactions will have to be reported within 30 days.  All such reportable transactions will be uploaded by the intermediaries or the taxpayers themselves on a European Union database and each member state will be able to view those relating to entities in its own jurisdiction.
 
However, the European Commission will be able to view all reportable transactions for all member states.  This exchange of information will have more of an immediate effect as the exchange will be happening automatically all year round unlike the CRS and Country by country which are currently being done once a year.
 
Administrative fines for non-compliance are set at a maximum of EUR20,000 for each failure to report.
 
Any cross-border transaction meeting at least one hallmark would have to be reported.
 
The hallmarks are separated in to the following categories:

A and B. Where the main benefit of an arrangement is obtaining a tax advantage - there are general and specific hallmarks
 
The general hallmarks are:
 
1.Where a participant in an arrangement undertakes not to reveal the means of establishing the tax advantage.

2.Where the intermediary receives a fee dependent on the tax advantage obtained


3. Where the arrangement has standardized documentation or structure that could be applicable to many clients eg the yacht leasing scheme
 
The specific hallmarks are:
 
4. Where a loss making company is acquired, its activities discontinued and its losses used  in another jurisdiction
5. Where income is converted into capital 
6. Where circular transactions are used to move funds around the globe eg back to back financing
 
C. There are specific hallmarks for cross border transactions:
 
7.Where cross border payments are used and the recipient is either fully or partly exempt from tax in his jurisdiction 


8. Where depreciation of the same asset is claimed in more than one jurisdiction

9. Where double tax relief for the same income or capital is requested in more than jurisdiction

10.Where in a transfer of assets the transfer value is materially different from the true value of the assets
 
D. There are specific hallmarks for the automatic exchange of information:
 
11.Where an arrangement avoids the Common Reporting Standard
12.Where in an ownership chain the structures do not carry on substantive economic activity, they are in a jurisdiction other than that of the UBOs and the UBOs are made unidentifiable.
 
E. There are specific hallmarks for transfer pricing:
 
13. Where safe harbour rules are used unilaterally 


14. Where hard to value intangibles are involved 


15. Where intra group cross border transfer of functions, assets and risks are involved but the transferor would lose more than 50% of the EBIT (earnings before interest and tax) if the transfer had not been made.

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