In recent years, the EU has been looking for new initiatives to increase fiscal transparency within the Union. As a result, a Directive was introduced in 2018 to report aggressive cross-border tax structures that have led to tax avoidance or evasion as a result of possible loopholes in the law. This European Directive ((EU)2018/822), known as the Mandatory Disclosure Rules (MDR), also known as DAC-6, will apply from 1 July 2020. Which arrangements must be reported and what are the reporting periods? This article will help you prepare for the MDR.
27 Feb 2020
In December 2019, the Senate gave its approval for the introduction of the Directive into Dutch law. As a result, the International Tax Assistance Act (Wet op de Internationale bijstandverlening bij de heffing van belasting (WIB)) and the General Tax Act (Algemene wet inzake rijksbelastingen (AWR)) have been amended. The additions/amendments to both Acts encompass the mandatory automatic exchange of information between the EU Member States on cross-border tax structures. This concerns potentially aggressive tax planning structures that extend to more than one jurisdiction.
For whom is this Directive intended?
The obligation to report is primarily imposed on intermediaries. This refers to all players in the EU who are usually involved in designing, marketing, organizing and making available for implementation or managing the implementation of a reportable cross-border tax structure, as well as those who provide assistance or advice in this respect . Intermediaries include tax advisers, lawyers, accountants, notaries, financial advisors, banks and trust offices. Therefore, if you are involved as an intermediary in a potentially (aggressive) cross-border tax arrangement, you must report it.
There are two exceptions to the obligation to report, where such an arrangement does not have to be reported;
- Another intermediary has already reported the arrangement and the intermediary has provided the reference number under which the arrangement has been reported as evidence of this; or
- The intermediary may waive its right for filing information where the obligation would breach the legal professional privilege under national law. Intermediaries may only be entitled to a waiver to the extent that they operate within the limits of the relevant national laws that define their professions.
In some cases, the taxpayer for whom the arrangement is intended must make his own notification. This occurs in the following cases;
- An intermediary from outside the EU is involved in the arrangement;
- The intermediary may waive its right for filing information where the obligation would breach the legal professional privilege under national law;
- There is no intermediary involved in the arrangement.
If the intermediary invokes its waiver to report the arrangement, this intermediary must inform the other intermediary (in the chain) or the taxpayer itself that the reporting obligation is their responsibility.
The DAC-6 has a retrospective notification, i.e. between 1 July 2020 and 31 August 2020 all transactions between 25 June 2018 and 30 June 2020 with a potential (aggressive) international tax arrangement, in which you are involved as an intermediary, must be reported. This means that as from 25 June 2018, intermediaries must carefully review all their cross-border arrangements in order to determine whether they contain one or more of the essential characteristics (see section "Which tax arrangements should you report?").
And in the future (as from 1 July 2020), intermediaries are required to file information that is within their knowledge, possession or control on reportable cross-border arrangements with the competent authorities (the Dutch Tax Administration) within 30 days beginning;
- 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; or
- when the first step in the implementation of the reportable cross-border arrangements has been made.
In addition to the above reportable periods, there are several other reportable periods related to, for example, when intermediaries have provided assistance or advice directly or through other persons.
As far as the cross-border aspect is concerned, it is important, amongst other things, that the arrangement concerns more than one EU Member State or an EU Member State and a third country.
Which tax arrangements should you report?
The Directive distinguishes between two arrangements:
- The so-called market-ready structure, i.e. a cross-border structure that has been conceived or is offered, can be implemented or made available for implementation without the need for substantial adjustments.
- Tailor made arrangements. This is a structure that is tailored to a taxpayer before it can be implemented.
In addition, the Directive includes a total of five categories of essential characteristics (so-called hallmarks), in which concrete arrangements are described. A hallmark is a characteristic or feature of a cross-border arrangement that is an indication of a possible risk of tax avoidance. If there is such a characteristic, the arrangement must be reported by the intermediary. The essential characteristics are accurately described in the EU Directive and the Dutch legislator has adopted the exact wording in its bill.
Because the essential characteristics have been determined at a European level, the Dutch Tax and Customs Administration is of the opinion that this may have a detrimental effect that the essential characteristics can be interpreted in different ways. Therefore, according to the information of the Tax and Customs Administration, they will soon make a guideline with more explanations and examples available.
Do you have further questions about the MDR/DAC6? Please contact your relationship manager.