Mandatory reporting on cross-border tax planning
An EU-directive on mandatory disclosure rules (Council Directive on administrative cooperation in the field of taxation, so called “DAC6”) aimed at increasing transparency to detect potentially aggressive cross-border tax planning became effective in June 2018.
DAC6 applies to cross-border tax arrangements, which meet one or more specified characteristics (hallmarks), and which concern either more than one EU country or an EU country and a non-EU country. It mandates a reporting obligation for these tax arrangements if in scope no matter whether the arrangement is justified according to national law.
What has to be reported?
The disclosure requirement for cross-border tax planning includes e.g. income tax, corporation tax, trade tax, and real estate transfer tax. It does not cover (import) VAT, customs duties and harmonized excise duties (such as taxes on energy, electricity, spirits and tobacco), social security contributions and fees.
Examples of mandatory reporting requirements are:
- A Swiss headquarter receives royalties from its subsidiary in Germany that are taxable in Switzerland.
- A German company acquires difficult to value trade marks from a company residing on the Bahamas.
- A payment by an associated company to a recipient that resides in Dubai with a zero or close to zero tax rate.
- Agreement for specifically acquiring a loss-making company.
Who has to report?
The primary reporting obligation applies to the intermediary (e.g. tax consultants). Anyone who develops, markets, organizes, provides for use or controls tax planning is an intermediary. Taxpayers only have to report if intermediaries plead confidentiality, if there is no reportable intermediary or if the taxpayer has developed tax planning himself.
Effective from July 1, 2020, taxpayers in the EU are required to report on tax planning activities within 30 days from the day they started. Transactions and arrangements between June 25, 2018 and June 30, 2020 must be reported by August 31, 2020.
What happens once tax planning has been reported?
The information reported by the intermediary or taxpayer (where applicable) to its country tax office is automatically made available to all EU-member states on a central directory set up by the European Comission.
Non-compliance (including with deadlines) will involve substantial penalties.
Implementation in Germany
Germany implemented DAC6 into national law on December 31, 2019. Intermediaries or tax payers (where applicable) must submit the information electronically to the German Federal Tax Office (by using an official form).
Update on implementation
EU member states requested the European Commission to extend the DAC6 reporting deadlines. The European Commission denied the request, since it may not amend DAC6 at its sole discretion. On April 6, 2020, the European Commission confirmed that the deadlines for DAC6 reporting would not be extended.
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