MDR and DAC6
Mandatory Disclosure Rules (MDR) and DAC6 aim to provide tax administrations with information on arrangements that circumvent the Common Reporting Standard and on structures that disguise the beneficial owners of assets held offshore. The EU implemented the MDR by adopting EU Council Directive 2018/822 (DAC6). DAC6 is much wider in scope covering also potentially aggressive tax planning schemes (Arrangements) which affect EU taxpayers. DAC6 requires EU intermediaries, or in some cases taxpayers, to report such arrangements to the local tax authority if specific hallmarks are met.
Who is affected by DAC6?
An arrangement is cross-border if it involves at least one EU Member State or an EU Member State and a third country. Such arrangements may concern all taxpayers, i.e. both natural and legal persons (i.e. companies) and legal arrangements such as trusts.
Affected are on the one hand EU intermediaries, for example tax advisors, lawyers or accountants or any other person who designs, promotes or provides assistance in regard to certain cross-border arrangements. On the other hand, the reporting obligation may under some circumstances instead shift to the relevant EU taxpayer, for example if the only involved intermediary is non-EU, if it is an in-house arrangement or if an EU intermediary has the right to a waiver due to legal privilege.
If several EU intermediaries are involved in the same arrangements, a reporting obligation lies with each one of the intermediaries. Only to the extent an intermediate has proof that the relevant information has already been reported by another intermediary will the first-mentioned intermediary be exempt from reporting.
What kind of arrangements are in scope?
A cross-border arrangement is in scope for reporting if at least one so called ‘hallmark’ is met. The hallmarks referred to in Annex IV of DAC6 contain characteristics or features of an arrangement that present an indication of e.g. aggressive tax planning or CRS avoidance. Some of the hallmarks include a main benefit test, which means that in order to be considered reportable, one of the main objectives of the arrangement must have been to obtain a tax advantage.
Reportable cross-border arrangements which were put in place between 25 June 2018 and 30 June 2020 (retrospective period) are in accordance with the directive to be reported by 31 August 2020, and reportable cross-border arrangements implemented as of 1 July 2020 are to be reported within 30 days.
In the light of the COVID-19 situation, the EU Council has adopted an amending directive allowing the EU Member States to defer reporting deadlines with up to six months and under certain circumstances additional three months. Assuming the full six-month deferral is made use of by a member state, reportable cross-border arrangements implemented during the retrospective period are to be reported no later than 28 February 2021. The 30-day reporting deadline for arrangements implemented on or after 1 July 2020 will begin by 1 January 2021 – meaning that reports are due by 30 January 2021.
Our DAC6 Services
We can support intermediaries but also affected taxpayers in fulfilling their DAC6 reporting obligations in the following ways:
- Impact analysis: KENDRIS can assist intermediaries or taxpayers in assessing whether and, if so, to what extent they are affected by DAC6
- Identification of reportable arrangements: We can support clients in analysing whether cross-border arrangements meet any of the DAC6 hallmarks and must therefore be reported to the local tax authority
- DAC6 reporting: Thanks to our AEOI Reporting Solution, KENDRIS can support clients with the creation of DAC6 reports for the retrospective and the rolling reporting period
- DAC6 Compliance Program: We consult clients on how to implement due diligence processes in order to identify reportable cross-border arrangements in time
Do not hesitate to contact our regulatory experts if you have any questions.