In their fight against tax evasion, the member states of the European Union adopted in 2018 the so-called "MDR or DAC 6" – Mandatory Disclosure Rules for intermediaries. It provides that intermediaries, or taxpayers where applicable, will now be required to declare to the tax authorities cross-border arrangements considered fiscally aggressive.
DAC 6 is the sixth version of the EU Directive for Administrative Cooperation. Its objective is to provide EU Member States' tax administrations with additional information that would enable them to react more quickly to potentially aggressive tax planning arrangements.
Different criteria must be cumulatively assessed in order for the tax planning arrangement to fall under the reporting obligation:
- It must be a "binding or non-binding agreement, arrangement or plan" involving at least one party.
- Cross-border: the arrangement concerns a Member State and another Member State of the European Union (EU) or not.
- Be qualified as potentially aggressive assembly. To do so, it must comply with at least one of the 15 hallmarks set out in the Directive. Certain hallmarks are subject to the existence of a "main benefit test". The "main benefit test" results in particular from the fact that the cross-border arrangement would not have been developed in the same way without this advantage. It may be a tax refund, a tax relief or reduction, a reduction in tax debt, a deferral of taxation or no taxation.
The reporting obligation is incumbent on the intermediary, if he or she has a link with the EU (residence, permanent establishment, subject to a duty, registration with an order) or, where applicable, on the taxpayer benefiting from the scheme.
- The promoter/designer, i.e. anyone who designs, markets or organises a reportable arrangement, makes it available or manages its implementation,
- but also the service provider, i.e. one who, having regard to the relevant facts and circumstances and on the basis of the information available and the relevant expertise and understanding necessary to provide such services, knows or ought to know that he or she has undertaken to provide, directly or through other persons, aid, assistance or advice with respect to the design, marketing or organisation of a reportable cross-border arrangement, its availability for implementation or the management of its implementation.
Where there is more than one intermediary, all must in principle make a declaration, but those who can prove by any means that the scheme has already been declared by another intermediary may dispense with it.
Territorial priority is provided for in order to prevent the same intermediary from being required to file the same declaration in several Member States.
In the presence of an intermediary subject to professional secrecy (in particular lawyers, credit institutions, etc.), the intermediary must first ask the taxpayer concerned for authorisation to declare. Otherwise, he or she must notify any other intermediary to whom the obligation to declare is incumbent or, where applicable, the taxpayer.
Finally, the provision defines the notion of "first step". The first step of implementation of the arrangement means any legal act or economic, accounting or tax transaction with a view to implementing the cross-border system.
The DAC 6 Directive entered into force in the EU on 25th June 2018 with an initial effective date of 1st July 2020 and retroactive effect for cross-border arrangements implemented between 25th June 2018 and 30th June 2020.
Most member states transposed DAC 6 during 2019. This is notably the case for France, Luxembourg, Germany and the UK. On the other hand, Italy and Spain have not yet transposed it.
"However, considering the exceptional circumstances linked to the Covid-19 crisis, the European Council has just adopted on 24th June, based on the European Commission's proposal of 8th May 2020, an amendment to the DAC 6 directive providing for an optional deferral of reporting obligations for 6 months", says Anne Lebeau, tax expert at CACEIS' PERES* Global Services department.
On this basis, each state will have to choose a deferral option and introduce a transposition text. "Belgium, Ireland, Luxembourg, the Netherlands and the United Kingdom have already announced their intention to use the six-month deferral option. As for France, it will also follow this path, via the 3rd draft amending finance bill (loi de Finances rectificative), as should other countries. At this stage, only Finland has indicated its intention not to opt for a postponement. "says Anne Lebeau.
In practice, this would mean for the intermediaries or taxpayers concerned an extension of the reporting deadlines as follows:
- for arrangements whose first stage of implementation took place between 25th June 2018 and 30th June 2020: the filing date would be extended from 31st August 2020 to 28th February 2021 at the latest;
- for arrangements whose first stage of implementation took place between 1st July 2020 and 31st December 2020: the filing date would be set at 31st January 2021 at the latest;
- the starting point of the 30-day period for arrangements implemented as of 1st July 2020 would be postponed to 1st January 2021, which implies that the first periodic report, in the case of marketable arrangements, would have to be drawn up by the intermediaries by 30th April 2021 at the latest;
- thus, the first periodic report on the exchange of information between Member States would be made by 30th April 2021 at the latest (initially 31st October 2020).
If the state of the health crisis persists during the deferral period, a further period of up to three months could be granted to Member States. A unanimous implementing decision of the European Council would therefore be required.
Adopted by the EU in record time, with retroactive effect and accompanied by sanctions, DAC 6 requires intermediaries such as CACEIS to define and put in place new internal procedures for identifying operations potentially falling within its scope, while taking into account the disparities in transposition by the various Member States. It is also incumbent on them to store the necessary information and meet reporting obligations.
"Acting in its role as an intermediary providing services on behalf of its clients, notably in private equity and real estate funds, CACEIS actively participates in market meetings and discussions with tax authorities to clarify the scope of these new regulations. In this respect, we intend to work closely with our clients, who are themselves usually considered as intermediaries, to analyse the measures in question and the declarations to be made, if necessary," adds Anne Lebeau.
This is a new challenge for intermediaries, especially given the current situation. CACEIS takes up the challenge and will be ready to ensure the first declarations as soon as the deadlines are definitively set.
* Private Equity, Real Estate & Securitisation