DAC 6 draft legislation released as part of Finance Bill 2019 package
The Finance Bill 2019 introduced a range of amendments to existing Irish tax legislation, among them the domestic implementation of Council Directive (EU) 2018/822 of 25 May 2018 (“DAC 6”). DAC 6 requires intermediaries and taxpayers to disclose reportable cross border arrangements in certain circumstances and where the necessary conditions have been met. The reporting obligations arise under DAC 6 where the reportable arrangement has been made available or ready for implementation or where the first step has been completed on or after 25 June 2018.
Finance Bill 2019 legislates for DAC 6 in domestic Irish tax law, although some areas of the new rules may require further clarity through guidance. We have outlined in brief the key provisions and scope of the draft law as it currently stands for Irish tax purposes.
The draft law in Finance Bill 2019 covers reportable cross border arrangements. In particular, a cross border arrangement is defined as one taking place either between EU Member States or between an EU Member State and a third (i.e. non EU) country. Similarly, the concept of a reportable cross border arrangement is defined by reference to the hallmarks already outlined in the Directive and as such the draft legislation does not provide further clarity in this area.
In brief, an intermediary is defined as any person that:
a. Designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross border arrangement, or
b. Taking into account the relevant facts, knows or could be reasonably expected to know that such person has undertaken to provide the services outlined in (a).
A relevant taxpayer is defined as any person to whom a reportable cross border arrangement is made available for implementation, or who is ready to implement a reportable cross border arrangement or who has implemented the first step of such an arrangement.
Duties of an intermediary
The trigger point for reporting of a cross border arrangement under Irish law remains in line with the provisions of the Directive. As such, an intermediary must submit information with respect to the reportable arrangement within 30 days beginning on the earlier of:
a. The day after the reportable arrangement is made available for implementation.
b. The day after the reportable arrangement is ready for implementation, or
c. When the first step in the implementation of the reportable cross border arrangement was taken.
No further clarity is provided by the draft rules in Finance Bill 2019 as to the difference between when an arrangement is made available compared to when an arrangement is ready for implementation.
Upon providing the specified information to the Revenue authorities, an intermediary will be assigned a reference number unique to the reportable cross border arrangement. This reference number must be shared with any other intermediary and each relevant taxpayer involved in the arrangement within 5 days.
In particular, with regard to “marketable arrangements”, intermediaries are required to state when reporting that the arrangement is such. The presence of a marketable arrangement also carries with it the obligation to notify the Revenue Commissioners every three months of any new information that has become available in respect of the arrangement. In this instance, “marketable arrangement” takes on the same definition as in the Directive, meaning an arrangement that is designed or arranged without the need for significant customisation.
Clearly the involvement of multiple intermediaries across various jurisdictions presents a risk of duplicate reporting of the same arrangement – this is taken into account in the Irish legislation as currently drafted to allow an exemption where another intermediary has provided the specified information to the Revenue Commissioners with respect to the same arrangement, and has received a reference number in this regard. Equally, where an intermediary is required to provide information to more than one Member State, the information shall be provided only to the competent authority of the State in which the intermediary has a nexus (through either tax residence, permanent establishment or other factors).
Duties of taxpayers
Where there is no intermediary (in cases where a taxpayer takes no advice or manages the implementation in house), or in cases where legal professional privilege could be maintained by the intermediary in legal proceedings, then reporting obligations fall back to the taxpayer.
A similar exemption to prevent duplication of reporting applies where another relevant taxpayer has provided the required information to the Revenue Commissioners in respect of the arrangement in question and has notified the relevant taxpayer. In addition, where specified information is required to be provided to more than one Member State, an exemption can also apply such that the reporting must be provided in the Member State in which the taxpayer has nexus (demonstrated in a similar manner to an intermediary, but with the added possibility of demonstrating nexus through the generation of income or profits in a Member State).
The specified information required per the legislation is defined as including:
- Information in relation to the identity of each intermediary and relevant taxpayer, including:
- The name of each intermediary and relevant taxpayer;
- Whether each such intermediary and relevant taxpayer is an individual or an entity;
- The date and place of birth (in the case of an individual) of each such intermediary and relevant taxpayer;
- The tax residence of each such intermediary and relevant taxpayer;
- The taxpayer identification number of each such intermediary and relevant taxpayer;
- The country of issuance of the taxpayer identification number of each such intermediary and relevant taxpayer;
- The persons that are associated enterprises to each such relevant taxpayer.
- Details of each hallmark that makes the cross border arrangement reportable;
- A summary of the content of the reportable cross border arrangement, including the name by which it is commonly known and a description of the relevant business activities or arrangements;
- The reference number assigned to the reportable cross border arrangement, if any;
- Details of the national provisions that form the basis of the reportable cross border arrangement;
- The value of the reportable cross border arrangement;
- The date on which the first step was taken or will be taken in implementing the reportable cross border arrangement;
- The identification of the Member State of each such relevant taxpayer and any other Member State which are likely to be concerned by the reportable cross border arrangement; and
- The identification of any other person in a Member State likely to be affected by the reportable cross border arrangement, indicating to which Member States such person is linked.
Reporting dates for prior arrangements
As noted above, intermediaries or taxpayers must provide information within 30 days of a specific point in time. Given the retrospective nature of the legislation and its application to arrangements from 25 June 2018, the legislation provides a specific reporting timeline for such arrangements. In particular, the legislation outlines that for arrangements implemented between 25 June 2018 to 30 June 2020, details of such arrangements must be provided no later than 31 August 2020.
The penalties per the draft legislation which may be suffered by intermediaries and taxpayers will vary based on the specific obligations which are not met.
In cases where there has been a failure to report a marketable arrangement by an intermediary or a failure to provide revised information on a timely basis, a penalty of €4,000 can be expected with an additional penalty of €100 per day for each day of noncompliance. The same penalty applies in cases where:
i. A claim for legal professional privilege which could be maintained is not communicated other intermediaries or the relevant taxpayer;
ii. A relevant taxpayer fails to provide another taxpayer with the reference number assigned to the arraignment within 5 working days; or
iii. The intermediary or relevant taxpayer fails to provide specified information regarding reportable arrangements implemented between 25 June 2018 and 30 June 2020, on or before 31 August 2020.
More onerous penalties can arise where there has been a failure by either the intermediary or relevant taxpayer to provide information pertaining to a reportable arrangement within the 30 day time limit. In this instance, a €500 penalty applies per day for each day that the non compliance continues, beginning on the day after the 30 day time limit expires. Where the Revenue make an application to either the District, Circuit or High Court in respect of the noncompliance, a further penalty of €500 per day is imposed.
Lastly, a relevant taxpayer who does not provide the reference number for the arrangement in the return (in this instance referring to either an income or corporation tax return) will be liable to a penalty not exceeding €5,000.
The domestic rules implementing DAC 6 into Irish law are broader than existing domestic mandatory disclosure rules. Subject to which hallmarks are present in an arrangement, it is possible that certain arrangements may fall within the scope of mandatory reporting under the new rules notwithstanding the fact obtaining a tax advantage was not the main or one of the main benefits of the arrangement.
Amendments may be forthcoming in the Committee Stage amendments to the Finance Bill on 5th/6th November. However, taxpayers and intermediaries will still need to review their cross border arrangements and should be mindful of reporting obligations given the heavy penalties. Given the differing rules across the EU Member States in implementing DAC 6, early engagement with advisors across all jurisdictions will be vital in managing risk and ensuring compliance. Revenue guidance on this area is expected in the new year, but the timeline for same is unclear given the range of other changes brought about by Finance Bill 2019 (for commentary on same, please click here).
Should you require assistance in negotiating your DAC 6 obligations, please reach out to your usual Deloitte contact.