DAC6

The sixth version of the EU Directive on administrative cooperation (DAC6) adopted by the Council of the European Union on 25 May 2018, aims to provide tax authorities of the Member States with additional information in order to assist them to more rapidly close perceived loopholes in tax legislation and harmful tax practices. DAC6 was transposed into Maltese legislation, on 17 December 2019, by virtue of Legal Notice 342 of 2019 which brought about changes to the Cooperation with Other Jurisdictions on Tax Matters Regulations, Subsidiary Legislation 123.127 (the Regulations).

Who does it affect?

In terms of the Regulations, intermediaries are required to file information that is within their knowledge, possession or control on reportable cross-border arrangements to the Malta Commissioner for Revenue. A cross-border arrangement would be considered reportable in terms of the Regulations if it contains at least one of the hallmarks listed in Annex IV of the Regulations. For the purposes of the Regulations, a hallmark means, certain characteristics or features that present an indication of a potential risk of tax avoidance.

The obligation to file information on a reportable cross-border arrangement shall lie with the taxpayer where there is no intermediary, or alternatively where the filing of information by the intermediary would constitute a breach of professional secrecy.

Timeline

Although the Regulations were to be applicable from 1 July 2020 and intermediaries and/or taxpayers, as the case may be, were required to collect the relevant information in connection with reportable cross-border arrangements whose first step was implemented on or after 25 June 2018, on 2 July 2020, the Commissioner for Revenue announced the deferral of the first reporting deadlines under regulation 13(7) of the Regulations by six months.

The announcement has been made subsequent to the adoption of the Council Directive (EU) 2020/876 of 24 June 2020 amending Directive 2011/16/EU to address the urgent need to defer certain time limits for the filing and exchange of information in the field of taxation because of the COVID-19 pandemic (DAC6 Amendment).

The DAC6 Amendment provides that, where a Member State decides to take the option to defer the applicable time limits, the following shall be applicable:

• Information on reportable cross-border arrangements the first step of which was implemented between 25 June 2018 and 30 June 2020 shall be filed by intermediaries and relevant taxpayers by 28 February 2021 (instead of 31 August 2020);
• The first information shall then be communicated by the competent authorities by 30 April 2021 (instead of 31 October 2020); and
• The period of 30 days for filing information shall begin by 1 January 2021 where:

a) A reportable cross-border arrangement is made available for implementation, or is ready for implementation, or where the first step in its implementation has been made between 1 July 2020 and 31 December 2020; or

b) Intermediaries provide, directly or by means of other persons, aid, assistance or advice between 1 July 2020 and 31 December 2020.

• In the case of marketable arrangements, the first periodic report shall be made by the intermediary by 30 April 2021.

From 1 January 2021 onwards a 30-day rolling window for reporting new arrangements shall apply.

Failure to meet these requirements and deadlines may result in financial penalties and reputational damage.

How can we help?

There are certain steps that businesses should be planning for now with respect to the implementation of DAC6:

Strategy: Mobilising your business’ response to the requirements, discussing policy and raising awareness at board level and establishing a plan for efficient compliance.

Impact assessment: Identifying transactions or structures potentially affected by the hallmarks and considering where reporting responsibility will reside.

Technology: Selecting a solution for capturing arrangements that aligns with local requirements, and integrates with reporting.

Training: Raising awareness within the business though eLearning modules as well as bespoke training programmes.

Monitoring: Tracking regulatory changes and to make the relevant source information accessible to affected intermediaries and taxpayers.

To discuss the implications of DAC6 on your business in more detail please contact us.