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EU Council adopts reportable transaction rules for tax intermediaries

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Tax Hot Topics newsletterOn May 25, the European Union’s Economic and Financial Affairs Council (ECOFIN) adopted rules requiring transparency of intermediaries and taxpayers in an effort to prevent “aggressive” cross-border tax planning.

The directive, known as DAC6, targets intermediaries such as tax advisors, accountants and lawyers who design tax planning schemes. The directive will require intermediaries, and taxpayers on occasion, to report tax planning strategies that are deemed aggressive. Once reported, the transactions will be automatically exchanged through a centralized database with other EU member states.

A tax planning arrangement must be reported if it meets at least one of the indicators in the directive, referred to as hallmarks. Examples of tax planning arrangements that meet one of the hallmarks include those that:

  • Involve a cross-border payment that is deductible in one jurisdiction and subject to no- or low-tax in another
  • Circumvent EU information exchange requirements
  • Have a link between the intermediary's fee and the amount of the tax advantage from the arrangement (assuming that the main benefit of the arrangements is to obtain a tax advantage)
  • Do not respect EU or international transfer pricing guidelines.

EU member states will have until Dec. 31, 2019, to transpose the directive into local laws and regulation, with the first exchange taking place by Oct. 31, 2020. The initial filing deadline for transactions entered into before July 1, 2020, but after the date of enactment must be completed by Aug. 31, 2020. Although the deadline for the first reports is not until Aug. 31, 2020, the reporting period begins when the directive is entered into force. Penalties will be imposed on those that do not comply.

More information, including FAQs, a memo summarizing the rules and the directive, can be found on the EU Commission’s website.

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Partner
Washington National Tax Office
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David Zaiken
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Washington National Tax Office
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Cory Perry
Senior Manager
Washington National Tax Office
T +1 202 521 1509

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