News

 

In response to the Covid 19 pandemic, the EU has given its members more time to comply with the DAC 6 requirements and postponed the deadline to apply them. 

The postponements give the EU Member States the option to delay the deadlines for filing information on reportable cross-border arrangements by up to six months, as follows: 

    • 1 January 2021 Ι 30-day period for reporting cross-border arrangements starts
      The beginning of the 30-day period for reporting cross-border arrangements, will likely be extended from 1 July 2020 to 1 January 2021.
    • 28 February 2021 Ι Reporting of historical cross-border arrangements
      The deadline for the reporting of historical arrangements – implemented between 25 June 2018 and 30 June 2020 – will likely be extended from 31 August 2020 to 28 February 2021.
    • 30 April 2021 Ι Marketable arrangements
      The new deadline for the first periodic report on marketable arrangements, will likely be 30 April, 2021.
    • 30 April 2021 Ι First exchange of information
      The first exchange of information on reportable cross-border arrangements between EU Tax Authorities, will likely take place on 30 April 2021, instead of 31 October 2020.

 

DAC6 Key facts – A reminder

What is it?

DAC6 is an EU directive which imposes Mandatory Disclosure rules for cross border arrangements.

What is reported and where?

All cross-border arrangements that are reportable (based on hallmarks) and are in place from 25 June 2018 must be reported to the local tax authorities

Hallmarks?

Hallmark is a characteristic or feature of a cross border arrangement that presents an indications of a potential tax risk of tax avoidance. A hallmark can be of general or specific nature. 

A general hallmark of an arrangement can be:

    • the requirement for confidentiality on how the tax advantage is secured
    • Payment of a premium fee by reference to the tax advantage
    • Substantially standardised documentation and structure

Specific hallmarks are if  the recipient of the income is or does any/or a combination of the below:

    • tax resident in a jurisdiction which the income is exempt 
    • has a preferential tax regime  
    • has a corporate tax rate lower than 1%. 
    • is not tax resident in any jurisdiction
    • is tax resident is a black listed jurisdiction 
    • same income is tax relieved in multiple jurisdictions
    • asset transfer where valuation is materially different between jurisdictions
    • acquisition of a loss making company with discontinuation of its activities and utilising its losses
    • circular transactions with no primary commercial function
    • converting income into capital/gifts or other categories of revenue that are taxed at lower lever or exempt
    • use of non-transparent legal or beneficial ownership chain
    • transfer of hard to value intangibles between associated enterprises. 

Cyprus Tax Department

It is expected that the postponed deadlines will be adopted by Cyprus as well in its upcoming legislation. 

It is important to note that the Cyprus Tax Department will not expand the implementation of DAC6 to:

    • arrangements that affect the tax base of other countries which are not EU  member states
    • in border arrangements
    • arrangements that concern other than direct taxes such as VAT or custom duties.

Who is responsible to report? 

The directive places the responsibility on the shoulders of the professional intermediaries which include banks, funds managers, accountants, auditors lawyers and financial advisors.  Penalties apply for failure to report. 

The obligation to report is shifted from the intermediary to the relevant tax payer if the intermediary is protected from professional secrecy or the arrangement is designed in-house or the intermediary is in a third country. 

Please contact a member of our staff for further information and/or clarifications. 

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