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DAC6: EU Mandatory Disclosure Regime

New tax transparency initiative increases reporting requirements

The EU is introducing a new regime to increase the level of transparency surrounding potential loopholes and harmful tax practices. With stricter disclosure applicable from June 2018 and entering fully in force by mid-2020, this represents one of the most significant changes for tax advisors, service providers and taxpayers in recent years.

The sixth version of the EU Directive on administrative cooperation (DAC6) aims to provide Member States tax authorities with additional information in order to
assist them to more rapidly close perceived loopholes in tax legislation and harmful tax practices. Taxpayers and intermediaries entering into or advising on cross border arrangements involving EU jurisdictions will need to monitor where reporting will be required and disclose as necessary.

DAC6: EU Mandatory Disclosure Regime

Who does it affect?

Certain organisations will meet the definition of an EU intermediary, which can include financial institutions that process payments on behalf of customers and financial advisors that provide tax and legal advice. EU intermediaries will have the primary obligation to disclose reportable cross border arrangements (RCBAs) that involve at least one EU Member State, where certain ‘hallmarks’ are met. Even where organisations do not expect to meet the intermediary definition, they need to closely monitor any RCBAs that they enter into.

Firstly, the responsibility for disclosure can fall to the taxpayer, for example, where an advisor is located outside of the EU, subject to legal professional privilege or the arrangement arises from in-house activity. Secondly, tax authorities may require taxpayers to reference RCBAs on annual returns or answer follow up questions on reported transactions, raising the importance for organisations to record transactions reported by third parties
 

Timeline

DAC6 was implemented into Maltese law on 17 December 2019 through Legal Notice 342 of 2019. DAC6 provides an initial one-off reporting deadline in August 2020 for arrangements implemented between 25 June 2018 and 1 July 2020. From then onwards a 30-day rolling window for reporting new arrangements will 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 DAC 6:

  • 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.
     

Technology

Deloitte’s web-based solution will provide users with a portal through which they will be able to log arrangements, help decision makers to determine reportability and facilitate processors filing reports.

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