Managing DAC 6 – Is Your Company Reporting Cross-Border Tax Arrangements Effectively?

Managing DAC 6 – Is Your Company Reporting Cross-Border Tax Arrangements Effectively?

3 November 2022

DAC 6 is the 6th version of the EU Directive on administrative cooperation and can trace its roots back to the OECD 2015 Action 12 Final Report, which provided a set of recommendations for the design of mandatory disclosure rules (“MDR”). On 25 May 2018 Directive 2011/16/EU was amended by Council Directive (EU) 2018/822 regarding the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (“DAC 6”). This EU Directive introduces reporting obligations for a wide range of cross-border tax arrangements and affects lawyers, accountants, tax advisors, bankers, and other “intermediaries”, as well as taxpayers across the EU Member States – including Malta.

Read on to discover who is obliged to report under DAC 6 regulations, the ongoing obligations in line with Maltese legislation, and how AE Business Advisors can help companies successfully manage these rigorous reporting requirements.

The Maltese rules transposing the provisions of DAC 6

The aim of the Directive remains the same, to provide tax authorities with additional information in order to assist them in more rapidly closing perceived loopholes in tax legislation and harmful tax practices. DAC 6 has been implemented into Maltese legislation by virtue of legal notice L.N. 342 of 20191 amending S.L. 123.127 entitled ‘The Cooperation with Other Jurisdictions on Tax Matters Regulations’ and came into force on 1 July 2020 with retrospective effect from 25 June 2018. Following this, the Commissioner for Revenue (“CfR”) published the Guidelines on the Mandatory Automatic Exchange of Information in relation to Cross-Border Arrangement2 and complimentary FAQs3 which are to be read in conjunction with the above-mentioned Legal Notice.

DAC 6 states that a cross-border tax arrangement becomes reportable if:

• It involves participants who for tax purposes are residents in different jurisdictions; or
• One or more participants is simultaneously resident for tax purposes in more than one jurisdiction; or
• One or more of the participants in the arrangement carries on a business in another jurisdiction through a PE; or
• One or more of the participants in the arrangement carries on an activity in another jurisdiction; or
• The arrangement has a possible impact on the AEOI or the identification of beneficial ownership.

And –

• It triggers one or more ‘Hallmarks’.

Hallmarks are defined by the Directive as attributes in a transaction that could lead to tax evasion or abuse and are categorised into five groups. In certain instances, a tax arrangement can also be subject to a ‘Main Benefit Test’, which would be met when the main or anticipated benefit of the arrangement is a tax advantage. The scope of the regulations includes all types of taxes except for VAT, excise and customs duties and social security contributions.

Who is obliged to report?

In line with DAC 6 Regulations, intermediaries and, in certain circumstances, relevant taxpayers are required to disclose information on reportable cross-border arrangements to the relevant tax authorities.

Intermediaries are defined as any individual or entity involved in designing, marketing, organising, making available for implementation, or managing the implementation of a reportable cross-border arrangement (as defined by the directive) as well as those who provide assistance or advice. Examples of intermediaries include tax advisors, lawyers, banks, corporate service providers and trustees.

To be an intermediary, a person shall meet at least one of the following additional conditions:

• Be a resident for tax purposes in an EU Member State;
• Have a PE in an EU Member State through which the services with respect to the arrangement are provided;
• Be incorporated in, or governed by the laws of an EU Member State;
• Be registered with a professional association related to legal, taxation or consultancy services in an EU Member State.

If an individual or entity does not meet the definition of intermediary there is no requirement to register for DAC 6 purposes. In such cases where no intermediary exists or in cases where the intermediary has exercised the right to waive the reporting obligations within the limits of the relevant Maltese law, the reporting obligations will shift to the relevant taxpayer.

On-going reporting obligations in Malta

DAC 6 regulations in Malta require reportable arrangements to be reported within 30 days from the occurrence of one of the following events, whichever occurs first:

• The day after the reportable cross-border arrangement is made available for implementation; or
• The day after the reportable cross-border arrangement is ready for implementation; or
• When the first step in the implementation of the reportable cross-border arrangement has been made.

Failure to report the relevant information within the stipulated deadlines completely and accurately or failure to comply with the obligations under the DAC 6 legislation may result in hefty penalties.

How can AE Business Advisors help?

We have a team of highly skilled and experienced professionals ready to help you understand DAC 6 and its implications for your business. We offer a variety of services including implementation strategy, data management, reporting and ongoing monitoring to help track regulatory changes. Reach out on contact@ae.com.mt for more information.