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  • Tax Newsletter January 2021: Implementation of EU Council Directive 2018/822 in relation to cross-border tax arrangements known as ‘’DAC6’’

Tax Newsletter January 2021: Implementation of EU Council Directive 2018/822 in relation to cross-border tax arrangements know as ‘’DAC6’’

01 February 2021

The Cyprus Tax Department through an official announcement dated 5/1/21 has informed the public that the abovementioned EU Directive is expected to be transposed in the National Tax Legislation within this month and the relevant guidelines will then be issued in relation to the implementation and procedures to be followed in respect of the relevant reporting.

As per the relevant announcement, since the legislation is not yet in place in Cyprus, the submission of DAC6 information will occur for the time being on a voluntary basis until it becomes mandatory in line with the adoption of the relevant DAC6 legislation. The reporting obligation falls on both intermediaries and the taxpayer, with all information being provided to the competent authority of each member state.

The relevant Tax Department announcement (issued only in Greek language) can be accessed by pressing the below link:

 

Tax Office Announcement – DAC 6

 

Purpose and reporting under ‘’DAC 6’’ Directive

 

DAC6 aims at transparency and fairness in taxation and requires EU-based intermediaries or taxpayers to disclose certain cross-border arrangements to their domestic tax authority, who must then share the information with the tax authorities of all other EU member states.

 

Following informal agreement reached by EU Member States in early June 2020 and green light from the European Parliament on 19 June 2020, the Council of the EU announced that it has adopted an amendment to the Directive on Administrative Cooperation (DAC), allowing EU Member States an option to defer the time limits for filing and exchange of information, with respect to mandatory disclosure requirements (MDRs) for intermediaries and relevant taxpayers under the Directive on Administrative Cooperation (DAC6). In case of intermediaries, these will be obliged to report certain information about such cross-border arrangements to their tax authorities and there will then be an automatic exchange of that information with other EU tax authorities.

 

The first reporting period will have a retrospective effect and will cover the period from 25 June 2018 to 30 June 2020 with the extended reporting deadline being 28/2/2021. The reporting for the period July 2020 to December 2020 will be due by 31/1/2021 and thereafter the reporting will be on a monthly basis. 

 

Who is considered an intermediary as per the Directive?

 

Any person (legal or physical) which:

 

  • designs, markets, organizes, or makes available for implementation or manages the implementation of a reportable cross border arrangement; or
  • provides, directly or by means of other persons, aid, assistance, or advice with respect to designing, marketing, organizing, making available for implementation, or managing the implementation of a reportable cross border arrangement.

 

What is a Reportable Cross-Border Arrangement?

 

An arrangement is considered cross-border where at least one of the participants is based in the EU and such arrangement would be reportable where it contains at least one of the hallmarks analysed below:

 

  • Hallmark category “A”: arrangements whose tax benefits are subject to confidentiality arrangements, that give rise to performance fees or mass marketed schemes;
  • Hallmark category “B”: arrangements such as the acquisition of loss-making companies, the conversion of income into capital or other forms of income, or so-called circular transactions;
  • Hallmark category “C”: arrangements that give rise to tax deductions without a corresponding amount of taxable income on the other jurisdiction, to certain double reliefs or deductions, or other mismatches;
  • Hallmark category “D”: arrangements that have the effect of undermining the CRS or the rules on identification of beneficial ownership;
  • Hallmark category “E”: arrangements concerning transfer pricing.

Certain hallmarks will only be satisfied if an additional “main benefit test” is satisfied. To satisfy this test one of the main objectives of the arrangement must be to obtain a tax advantage.

 

Information to be included on any reportable cross border arrangements.  

 

The expected information to be included in respect of any reportable cross border transactions is the following:

 

  • Information on the identity of involved intermediaries and relevant taxpayers (i.e name, tax number, address etc);
  • Details of each Hallmark that makes the arrangement reportable;
  • A brief summary of the content of the reportable cross-border arrangement;
  • The date of implementation of the arrangement;
  • The value of the reportable cross-border arrangement.

 

Submission of any reportable cross border arrangements

 

The submission of the necessary information in relation to any reportable cross border transaction is done via the Ariadne Portal of the Cyprus Government in an XML format file. Therefore a one off registration is required to the Portal so as for an intermediary or a taxpayer to be able to make ongoing DAC6 submissions. 

 

Penalties for non compliance

 

In the event that there is no compliance with the provisions of the EU directive, fines and penalties are expected to be imposed on a range of €5.000 to €20.000.