Blogs/Vlogs

DAC6 reporting deadline extension

15 May 2020

The European Union announced an extension to the filing deadline for DAC6 reporting, which is welcome news but many companies are not even aware of their obligations.

The first DAC6 report is due for the period 25 June 2018 to 30 June 2020. This report was due to be filed by 31 August 2020 with your local tax authority so they could share it with other member states. This has been extended to 30 November 2020. Please do not put the work off you need to complete it as there is still very little time and you need to put an action plan together if you have not already done so to ensure the filing is completed on time.

Penalties for failure to file are up to £5000 as a fixed penalty for not filing with daily penalties of up to £600. The UK tribunal services are allowed to increase the penalty to £1 million.

DAC6 aims to bring transparency and fairness in taxation. It applies to cross-border arrangements within the EU or where one entity is in the EU with an arrangement with a non-EU country. Brexit has not changed this and the UK is part of the EU for DAC6.

The report under DAC6 is mandatory for arrangements which are caught even if the arrangement is justified in accordance with national laws.

After the 1 July 2020 (now 1 October 2020) there is a 30-day reporting requirement if there is a reportable event. Reportable events start date are:

  • On the day after the reportable cross-border arrangement is made available for implementation
  • On the day after the reportable cross-border arrangement is ready for implementation
  • When the first step in the implementation is made of the reportable cross-border arrangement
  • When the provision of aid, assistance or advice is made (this applies to intermediaries – so if the tax payer does not report their advisers will).

Therefore, you need to understand what is a reportable event. This is complex and the legislation uses the term ‘hallmarks’ with lengthy definitions.  Certain hallmarks have purpose test basically was the event entered into to obtain a tax advantage or was the tax advantage one of the main benefits for the arrangement.

Some examples

  • Acquiring a loss-making company (trading in loss-making companies to reduce previous, current or future tax liabilities)
  • Income conversion (conversion of income into a lower tax stream)
  • Circular transactions (an artificial transaction between group or common owned companies with a purpose of inflating income of one or more of the companies – profit shifting)
  • Payments are deducted for tax in one country whilst recipient country does not impose tax on the income or charges at a low rate.

There are certain events which need to be reported when there is no tax benefit.

  • Arrangements involving the tax relief of cross-border payments to companies receiving the payment who are resident in a bad list country (as agreed with EU nations), or the country does not follow the OECD framework so it is a non-cooperative jurisdiction, or where the company is not resident anywhere
  • Claiming deductions for the same depreciation on an asset in more than one country
  • Claiming the same double tax relief in more than one jurisdiction
  • There is a transfer of assets and there are material differences in the amounts being accounted for in the various jurisdictions.

Other hallmarks relate to beneficial ownership like involving a non-transparent legal or beneficial ownership chain to hide the assets/transactions.

  • An entity does not carry on a substantive economic activity
  • The entity is incorporated, managed, resident, controlled or established in any jurisdiction other than the jurisdiction of the residence of one or more of the beneficial owners of the assets
  • The hiding of beneficial ownership

Finally, there are hallmarks covering transfer pricing like:

  • An arrangement which uses unilateral safe harbours
  • An arrangement involving the transfer of difficult to value intangibles
  • An arrangement involving the cross-border transfer of functions, risks or assets which results in the earnings moving by more than 50%.

Therefore, if you are involved with cross-border arrangements you need to review the structures and consider whether you need to report them, but do not wait just because the deadline has moved. If you have a plan carry on, or if you do not have a plan you need to move quickly.

We are happy to assist your reporting. If you have any further queries or require more information, please contact me or your usual UHY adviser.

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