By Jian-Cheng Ku & Tim Mulder, DLA Piper Nederland NV.
The Netherlands, on 29 June, published long-awaited guidance on its decree implementing Council Directive 2018/822, better known as the DAC6 directive.
Multinationals with European Union operations need to be aware of the DAC6 reporting obligations, especially since there are situations in which multinationals will be required to report cross-border arrangements with local tax authorities.
Background
Two years have already elapsed since the Council of the European Union adopted the DAC6 directive.
The DAC6 directive is designed to increase the information available to tax authorities by requiring that certain cross-border arrangements are reported by either advisers (known as intermediaries) or taxpayers.
Hence, tax authorities should be able to better fight against aggressive tax planning.
All EU Member States should have implemented the DAC6 directive in their local legislation before the end of 2019. As a result of local implementation, the DAC6 reporting obligations apply retroactively to arrangements from 25 June 2018 if they satisfy certain conditions.
Initially, such cross-border arrangements were to be reported to local tax authorities by 1 July 2020. However, as a result of the COVID-19 pandemic, the Council of the European Union allowed the EU Member States to defer the local reporting deadlines by six months.
On 26 June, the Netherlands announced that it deferred DAC6 reporting deadlines in accordance with the new Council guidance.
Netherlands DAC6 guidance
Furthermore, the Netherlands published on 29 June important guidance that provides examples of the types of arrangements that could be subject to the DAC6 reporting requirements as well as more information about intermediaries and taxpayers that can be subject to these requirements.
Under the DAC6 requirements, if a cross-border arrangement has certain “hallmarks,” the intermediary or intermediaries involved that should report the arrangement.
Intermediaries can be, for example, tax advisers, attorneys, civil-law notaries, banks, trust offices, and accountants. If such an intermediary is involved in assisting or advising with the implementation of such cross-border arrangements, then it is primarily their responsibility to report the arrangement with local tax authorities.
Taxpayer reporting
However, there are three situations in which the taxpayer should report. The reporting obligation shifts from the intermediary to the taxpayer if the intermediary has a legal professional privilege and is therefore not required to report. Also, the obligation shifts if only an intermediary from outside the European Union is involved. Furthermore, if no intermediary at all is involved, the taxpayer must report the arrangement.
If a taxpayer does not comply with its reporting obligations, then it risks in the Netherlands a fine up to EUR 830,000 and/or prosecution.
The new Netherlands DAC6 guidance clarifies that a relevant taxpayer is any person with nexus in the Netherlands for whom a reportable cross-border arrangement has been made available for implementation, is ready to be implemented, or is implemented.
A taxpayer is each standalone entity. Consolidation, such as in cases of a fiscal unity, is not relevant.
Insofar that a taxpayer should report a cross-border arrangement because the intermediary involved invokes its legal professional privilege, the period within which the taxpayer should report the arrangement begins on the date that the intermediary has informed the taxpayer about its privilege.
Insofar that a taxpayer should report a cross-border arrangement because the intermediary involved invokes its legal professional privilege, the period within which the taxpayer should report the arrangement begins on the date that the intermediary has informed the taxpayer about its privilege.
If multiple taxpayers are involved in the same reportable cross-border arrangement, a taxpayer does not need to file if it can prove that another taxpayer already filed and if it provides the earlier filing’s reference number.
What a multinational should do if intermediaries are involved
Even if intermediaries are involved in assisting or advising of the reportable cross-border arrangement, it is still important for multinationals to prepare an inventory of its cross-border arrangements that could be subject to the DAC6 reporting obligations.
The inventory list which intermediaries or other taxpayers are involved in each cross-border arrangement and whether the intermediaries have a legal professional privilege and/or nexus with the European Union.
It is important to note that intermediaries are only required to report information on cross-border arrangements that they have assisted and that they know or should know is subject to the reporting obligations.
There could be situations, however, where the intermediary involved is not involved in the entire arrangement, such as when the arrangement consists of multiple steps, like circularity transactions, and therefore does not report the arrangement.
This could result in a situation where the taxpayer should report the arrangement.
Furthermore, if multiple intermediaries are involved, it is important for multinationals to monitor the information that will be shared with the tax authorities to ensure the information shared is consistent and not duplicated.
Information that should be shared consists, among others, of a summary of the arrangement.
Intermediaries involved with the same cross-border arrangement are not required to report the arrangement if another intermediary already reported and shared the reference number received from the local authorities with the other intermediary.
For multinationals, it makes sense to request this reference number for their files as well.
Timing
As a result of the Netherlands’ deferral of the DAC6 directive, intermediaries or taxpayers should report the reportable cross-border arrangements occurring from 25 June 2018 to 1 July 2020 between 1 January 2021 and 28 February 2021.
Reportable cross-border arrangements occurring between 1 July 2020 and 31 December 2020, should be reported between 1 January 2021 and 31 January 2021.
For reportable cross-border arrangements as of 1 January 2021, the reporting should be filed within 30 days.
Takeaways
Since not all EU Member States have deferred their DAC6 reporting deadline, multinationals operating in multiple EU Member States should not only inventory arrangements that might be reportable but also keep track of which EU Member State they report to.
As a result of the deferral in some EU Member States, not all deadlines within the EU are aligned anymore.
Although the DAC6 reporting obligations primarily focus on intermediaries involved in the reportable cross-border arrangements, multinationals with nexus in the European Union still must stay focused on DAC6 reporting obligations.
There are situations in which the multinational must report its cross-border arrangements with local tax authorities.
For multinationals, it is important to create a control framework that allows for long-term compliance with the DAC6 reporting rules.
Such a control framework should consist of designing and putting in place the appropriate internal processes before 31 December 2020.
Simultaneously, taxpayers should determine the reportable arrangements for the catch-up phase (25 June 2018 until 30 June 2020) and the transition period (1 July 2020 to 31 December 2020) and determine not only which but also who, where, and what needs to be filed by 28 February 2021 or 31 January 2021. Most likely, this should be done together with the involved intermediaries.
Jian-Cheng Ku
Jian-Cheng Ku advises on international tax law and transfer pricing with a particular focus on international tax planning, M&A and private equity transactions, corporate reorganisations, and planning and design of transfer pricing policies.
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Jian-Cheng Ku
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