EU Council agrees DAC 6 reporting deferral

The EU Council has agreed a Directive to extend reporting deadlines under the EU rules requiring mandatory reporting of cross-border tax avoidance arrangements (DAC 6). The Directive allows Member States the option to defer the time limits for the filing and exchange of information under DAC 6 by up to 6 months.

In the UK, HMRC has already announced that that it will be deferring the first reporting deadlines under DAC 6 by the agreed 6 months. This will provide taxpayers and intermediaries dealing with the impacts of the COVID-19 pandemic with additional time to ensure that they can comply with their obligations. Regulations will be laid to implement the change, but these may not be in force by 1 July 2020. However, HMRC has confirmed that no action will be taken for non-reporting during any period between 1 July and the date that the amended Regulations come into force. The deferral is in line with the approach adopted by a number of other Member States.

As a result, for arrangements where the first step in the implementation took place between 25 June 2018 and 30 June 2020, reports must be made by 28 February 2021, instead of by 31 August as originally required. For arrangements which are made available for implementation, or which are ready for implementation, or where the first step in the implementation takes place between 1 July 2020, and 31 December 2020, reports must be made within the period of 30 days beginning on 1 January 2021. Under the original rules, such arrangements would have had to be reported within 30 days of the reporting trigger point being reached. Further details are set out in HMRC’s International Exchange of Information Manual.

Background

DAC 6 arose out of Action 12 of the OECD’s base erosion and profit shifting (BEPS) project, which recommended that jurisdictions should introduce a regime for the mandatory disclosure of aggressive cross-border tax planning arrangements. The EU Directive required Member States to transpose the provisions into domestic law by 31 December 2019 and come into effect from 1 July 2020. However, the Directive does contain a transitional regime under which any cross-border arrangements the first step of which was implemented between 25 June 2018 and 01 July 2020 must be disclosed by 31 August 2020.

DAC 6 applies to “reportable cross-border arrangements” and requires Member States to introduce rules to provide that “intermediaries” (or, failing which, relevant taxpayers) must provide information to the competent tax authority on such reportable cross-border arrangements within a set time period (usually 30 days). Where a Member State receives information concerning a cross-border reportable arrangement from an intermediary or taxpayer, that Member State will then need to exchange that information automatically with other Member States, including a range of details concerning the arrangements (such as summary of the arrangements, their value, identification of persons in other member state involved, details of the hallmarks, implementation dates etc). It is intended that the Commission will set up a “central directory” where the information can be communicated to satisfy this requirement. For more details on the provisions of the Directive, see “Mandatory Disclosure of EU cross-border tax planning arrangements”.

In the light of the COVID-19 pandemic, there have been calls to delay the implementation of these new rules to allow already hard-pressed businesses longer to comply. The EU Council has now agreed the terms of a Directive to implement such a delay.

Extended reporting deadlines

Under the changes to be made by the Directive, whilst DAC 6 will still come into force with effect from 1 July 2020, Member States will have the option to dealy certain reporting deadlines by up to 6 months.

Firstly, it is proposed that transactions reportable under DAC 6 and which occurred between 25 June 2018 and 01 July 2020 will need to be disclosed by 28 February 2021 (rather than 31 August 2020).

Secondly, it is proposed that for reportable transactions occurring between 1 July 2020 and 31 December 2021, the period of 30 days for reporting that transaction shall begin on 1 January 2021 (rather than within the period of 30 days of the day after the arrangement is made available for implementation etc).

Given the current uncertainties over the development of the pandemic, the agreed Directive also contains provisions allowing for the EU Council, acting on a proposal from the Commission, to take an implementing decision to extend the period of deferral of the time limits by a further three months, “provided that severe risks to public health, hindrances and economic disturbance caused by the COVID-19 pandemic continue to exist and Member States apply lockdown measures”.

Comment

The delay to the implementation of DAC 6 has been widely expected and will be welcomed by businesses already hard-pressed to deal with the challenges presented by the pandemic.

Several Member States, including the UK, Belgium, Luxembourg, Ireland, Sweden and Hungary, have already announced that they intend to implement the reporting deferral. The Netherlands issued a formal Decree (2020-12560) implementing a six month reporting deferral on 26 June 26 2020.

For the European Commission to collect relevant information and for Member States to facilitate reporting by intermediaries and taxpayers, clear and reliable systems and processes need to be put in place. That infrastructure is simply not yet available in many countries. In several countries the implementation of the Directive has not yet been completed or local tax authority guidance is unclear at best, leaving intermediaries and taxpayers unclear over what transactions need to be reported and unsure as to whether they will be compliant. As such, the extension therefore provides a welcome reprieve and opportunity to get clarity on these outstanding issues.

See our coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.