EU: European Commission proposes delay to reporting under new DAC6 mandatory disclosure regime due to COVID-19 disruption

In brief

In light of the COVID-19 pandemic, the European Commission is proposing to allow for a three month delay to reporting deadlines under the new DAC6 mandatory disclosure regime in the EU and UK. The reporting regime will still apply from 1 July 2020 but the deadlines for filing first reports with EU tax authorities will be deferred from the end of July to the end of October 2020.

Intermediaries (including lawyers and accountants) and taxpayers in the EU and UK have been preparing to meet their compliance obligations when the disclosure regime goes live on 1 July 2020 and reporting due to start within 30 days from that date.Those preparations have been disrupted by the COVID-19 pandemic and lockdown measures.

A delay to reporting would therefore be a welcome development, giving intermediaries and taxpayers three more months to implement and test their compliance systems and processes. It also gives authorities in member states more time to publish guidance to aid the intepretation of the reporting requirements and to put in place their systems for receiving reports and exchanging them with other member states.

Background to DAC6

The EU mandatory disclosure regime known as DAC6 goes live on 1 July 2020 and reporting obligations were set to begin within 30 days from that date.

Under the wide-ranging DAC6 regime, intermediaries (such as tax advisors but in some cases extending to non-tax personnel) will have to report cross-border transactions going back to 25 June 2018 to EU tax authorities. The reporting obligation reverts to the taxpayer where there is no intermediary involved or legal professional privilege prevents the intermediary from reporting.

Arrangements are in scope if they involve either two EU member states or one EU member state and a third state and the transaction contains certain “hallmarks” that suggest potentially aggressive tax planning. Some of these hallmarks apply even where obtaining a tax advantage is not the main benefit, or one of the main benefits, of the transaction. This means that many commercially-driven transactions could fall within the regime and need to be reported. Failure to report could result in significant penalties, which vary considerably among member states and which, in limited cases, include criminal liability.

Delay to DAC6 reporting deadlines

In response to the COVID-19 pandemic, the European Commission published a proposal on 8 May 2020 fora new directive to allow for a three-month delay to reporting deadlines under the new DAC6 mandatory disclosure regime. The directive also delegates to the European Commission the right to extend with a further delay of up to three months, which may be necessary if the pandemic persists and lockdown measures are implemented by EU member states.

This proposed deferral is a response to requests made by member states and persons liable to report under DAC6. The Commission explained the reason for taking this step: “persons liable to report cross-border arrangements…are faced with several work-related disruptions, primarily due to the remote working conditions because of the lockdown in most member states. Similarly, the capacity of member states’ tax administrations to collect and process the data is negatively affected”.

New reporting deadlines

The DAC6 mandatory disclosure regime will still apply from 1 July 2020 and it is only reporting deadlines that it is proposed should be deferred.

It is proposed that the deadline for filing information in respect of reportable cross-border arrangements implemented in the period between 25 June 2018 to 30 June 2020 from 31 August 2020 is postponed to 30 November 2020 (a three-month delay).

The deadline for the first automatic exchange of information on reportable cross-border arrangements between member states should also be deferred from 31 October 2020 to 31 January 2021.

Where a reporting obligation arises between 1 July 2020 and 30 September 2020 it is proposed that the period of 30 days for reporting begins on 1 October 2020 (and thus seems to end on 30 October 2020 which becomes the new filing deadline for that entire period). The reporting obligation for that period might be triggered by (a) the implementation of the first step of a reportable cross-border arrangement, (b) the arrangement becomes ready for implementation, (c) the arrangement is made available for implementation or (d) an intermediary provides aid, assistance or advice in relation to a reportable arrangement.

GPH Image for EU European Commission proposes delay to reporting under new DAC6 mandatory disclosure regime due to COVID-19 disruption

The Commission's proposed directive will need unanimous approval from the member states. It will also need to go through the European Parliament. Once the directive has been adopted it will then need to be implemented into the domestic legislation of EU member states before the delays are legally effective. It would be advisable to monitor if and how the changes take effect in member states.

The UK, which has left the EU but is still in a transitional period, would also be required to transpose the directive. The mandatory disclosure regime already applies in Poland (and has done since 1 January 2019) but the Polish authorities have already announced a suspension of reporting deadlines in response to the COVID-19 pandemic.

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