On May 25, 2018, the Economic and Financial Affairs Council (ECOFIN), which is responsible for European Union tax policy, formally adopted the Council Directive that amends Directive 2011/16/EU on administrative cooperation in the field of taxation with regard to mandatory automatic exchange of information related to reportable cross-border arrangements.
The main purpose of this ‘Directive on Administration’ (commonly referred to as ‘DAC6’) is to strengthen tax transparency and deter aggressive tax planning. Although ‘aggressive tax planning’ is not defined, the Directive references a number of pre-determined ‘hallmarks.’ These hallmarks could render a cross-border arrangement reportable. DAC6 provides for mandatory disclosure of cross-border arrangements by intermediaries, or individual or corporate taxpayers, to tax authorities. It also mandates automatic exchange of this information among EU Member States.
The effective date that commences the period during which any reportable transactions must be reported is expected to begin soon. Although the actual reporting of such transactions is not required until 2020, taxpayers and intermediaries should start planning now for how they will document the reportable transactions and reportable information.
Taxpayers should analyze the potentially broad scope of the hallmarks and thus the substantial reporting obligations.
Furthermore, the Directive’s ‘entry into force’ is expected soon, perhaps within the next two months. The entry-into-force date begins the period during which any reportable transactions must be reported. Although the deadline for actual reporting is not until August 31, 2020, taxpayers and intermediaries should start planning now for how they will document the reportable transactions and reportable information.
Taxpayers also should monitor the transposition of the rules into domestic legislation, coordinate with their intermediaries, and determine who should report and in which Member State reporting is to occur.