The European Union has added further impetus to its objective of enhancing transparency against harmful tax practices with the amendment to Directive 2011/16/EU, commonly referred to as DAC6. This builds on the Common Reporting Standard (CRS), which allows for the automatic exchange of information on financial accounts held by non-tax residents at an international level, and the OECD’s Base Erosion and Profit Shifting (BEPS) project. In brief, DAC6 requires the mandatory reporting of cross-border arrangements that are indicative of a potential aggressive tax planning. The disclosure requirements will have to be followed by “intermediaries” and, in some instances, the taxpayers.
One of the key points of DAC6 is that it does not define aggressive tax planning. Instead, those involved must adhere to the list of “hallmarks” found in Annex IV of the Directive, which is constituted by both general and specific features that are deemed possible indicators of tax avoidance or abuse. Such hallmarks alongside broadly drafted key definitions, such as the ones for “intermediary” or “cross-border arrangement”, seem to have created a wide scope for the Directive. The reason given for this is that the intricacies and complexity of aggressive tax-planning arrangements are constantly evolving and being modified in response to countermeasures from tax authorities.
The Cypriot Ministry of Finance has already started to disseminate a draft bill to transpose DAC6 and there appears to be no amendments. It must be iterated that DAC6 sets only a minimum standard and Member States are free to choose to apply stricter rules, one such example is Poland.
The first reports will be due August 2020 and will involve information on transactions since June 2018. This deadline is fast approaching and a robust understanding of DAC6 needs to be achieved by both intermediaries and tax payers in order to minimize potential exposure from sanctions, reputational and client relationship jeopardy risks. Elias Neocleous & Co. LLC is committed to helping monitor the development of DAC6 in relation to the Cypriot tax authorities as well as provide any guidance regarding the interpretation, policies, procedures, and assessments involved with the Directive.