JONES DAY PRESENTS® - EU Mandatory Disclosure Rules (DAC 6)
DAC6, the European Union's new disclosure regime, imposes the reporting of cross-border tax arrangements for multinational enterprises in 28 European countries. Jones Day partners Florian Lechner (Frankfurt) and Carlos Albiñana (Madrid) discuss what clients need to know about DAC6's mandatory disclosure rules.
Read the full transcript below:
Florian Lechner:
Let me explain what DAC6 rules are about. These are mandatory disclosure rules for tax arrangements, which are perceived as aggressive. The background is a European Union law directive, which obliged all member states to implement a set of rules for such disclosures.
Florian Lechner:
The directive has been implemented in June, 2018, but first disclosures will only need to be made by the end of August this year. However, we will need to go back until the 25th of June, 2018 to identify arrangements that may be reportable and then report them in the middle of this year.
Florian Lechner:
It is very important to note that the schemes that need to be reported are not illegal. They're perfectly feasible. However, the tax authorities shall be put in a position to proactively address certain structures that may be new and may be perceived as aggressive and unwanted.
Florian Lechner:
And the second aspect is that the tax authorities, when assessing a certain taxpayer shall be able to check what kind of aggressive structures the taxpayer may have implemented. And hence, consider this either in the tax assessment process or in the future tax audit.
Florian Lechner:
Primarily the burden to report is for so-called intermediaries. The directive defines an intermediary as someone who is either designing, marketing, implementing, or organizing the reportable arrangement. Naturally these are tax lawyers, other legal advisors, but these could also be banks, insurance companies, or other financial institutions that are marketing structured products for clients.
Carlos Albiñana:
Multinational groups, when complying with the reporting obligations under the DAC6 directive will be facing a number of challenges. Firstly, and most importantly, is consistency. Given that taxpayers will be located in different jurisdictions, each jurisdiction will have its own national law, which might be different from the national law of different ideology detections, because they may have implemented the directive in a different way.
Carlos Albiñana:
Each local taxing authority may have its own view on interpretation on DAC6. They may publish different rules, different guidance for taxpayers. For these reasons we at Jones Day, believe that it will be reasonable for a taxpayer to suggest to receive from intermediary service providers in advance of the filing, whether a particular transaction will be reportable or not.
Carlos Albiñana:
To the extent possible, taxpayers should be provided as well with a draft filing that intermediaries may make with the relevant tax authorities. With that approach, we believe that taxpayers can get consistency in this reporting. This also take us to the second main challenge, which is the need to have a global tax compliance internal policy, where taxpayers has to set very clear rules as to who is involved in the process, who should be assessing whether a transaction is reportable or not, who will be responsible for making a decision on the reporting and who will be responsible for making effective that reporting. And also, the organizations need to identify the person dealing with the intermediaries to get things done in a consistent way.
Carlos Albiñana:
And thirdly, we also believe that it will be necessary for taxpayers and also intermediaries to have in place sort of database or a system in order to gather information regarding these potentially reportable transactions, where they can populate the data about the transactions and they can store the data for the future reporting. And these new obligations are applied retroactively back to June, 2018 so that it will important for taxpayers, intermediaries to gather information from the relevant 18 months.
Carlos Albiñana:
Overall, we at Jones Day believe that the application of these new reporting obligation would imply a time-consuming exercise for taxpayers and obviously, intermediaries. And they will need to devote additional resources for two main reasons. One, complying with the rules under DAC6 in order to avoid penalties, which can be heavy penalties depending on each jurisdiction.
Carlos Albiñana:
And more importantly, by complying properly with DAC6 obligations, tax payers and intermediary may make the reporting in a particular way so that the particular transaction is respected by the tax authorities, if in the end is not a tax aggressive planning.
