Mandatory Disclosure

On 25 May 2018 the EcoFin has adopted a legislative measure (also known as 'DAC 6'), which imposes an obligation on qualifying intermediaries, such as lawyers, tax advisors, auditors and notaries (notarissen) to disclose cross-border tax planning arrangements. DAC 6 requires EU Member States to implement mandatory disclosure rules for cross border arrangements in their national law by 31 December 2019, at the latest.

This article will provide you with an overview of who, what and when cross-border tax planning arrangements have to be disclosed.

Who is concerned
The disclosure obligation is imposed on intermediaries or, in their absence, on the relevant taxpayer. Intermediaries can be absent when the arrangement was developed in-house, when the intermediary is a non-EU intermediary or when the intermediary is subject to legal professional privilege. The definition of intermediary is very broad and covers almost any person with the relevant knowledge to provide tax planning services and also persons who provide directly or indirectly aid, assistance or advice with respect to the cross border arrangement (e.g. domiciliation companies and banks) provided that the intermediary has a connection with the EU on the basis of its tax residency, domicile, etc. On the other hand, the definition of relevant tax payer implies every person to whom tax planning services are provided and arrangements have been made available. These definitions are setup broad in order to make sure that every reportable cross-border tax planning arrangement will be disclosed by an intermediary or, otherwise, by the relevant tax payer.

What has to be reported
In order for an arrangement to be reportable, the arrangement (i) must be cross-border and (ii) must meet at least one of the hallmarks set out in an annex to the DAC 6.

An arrangement is considered as cross border if it concerns either more than one EU Member State or an EU Member State and a third country and provided that not all the participants in the arrangement are resident for tax purposes in the same jurisdiction; one of the participants is regarded as tax resident in multiple jurisdictions or one participant operates a permanent establishment in another jurisdiction; in the latter case, however, the arrangement must form part or the whole of the business of the permanent establishment, meaning that having a permanent establishment does not necessarily imply that the arrangement qualifies as cross-border.

As regards the hallmarks set out in DAC 6, these hallmarks are divided into generic hallmarks and specific hallmarks; while some hallmarks trigger automatic disclosure obligation, others are subject to a “main benefit” test in order to trigger the reporting obligation. The main benefit test is fulfilled if the main benefit or one of the main benefits from the arrangement is obtaining a tax advantage. In addition, EU Member States may take the necessary measures to require that each relevant taxpayer has to file information about their use of the arrangement to the tax administration in each of the years for which they use it.

When
DAC 6 requires EU Member States to implement mandatory disclosure rules for cross border arrangements in their national law by 31 December 2019, at the latest. Member States shall apply those provisions from 1 July 2020; however, the DAC 6 rules apply to reportable cross-border arrangements set up as from 25 June 2018; this implies that tax payers should already keep track of cross border reportable arrangements. The first reporting will be made by 31 August 2020 and the first automatic exchange of information will take place by 31 October 2020.

Status of implementation into Dutch and Luxembourg law
The Dutch government has released on 19 December 2018 for consultation purposes a legislative proposal to implement DAC 6 in Dutch law. This consultation procedure closes on 1 February 2019 with final draft legislation to be submitted to Parliament in July 2019.

In Luxembourg, there is no public information available about the legislative proposal for the implementation of DAC 6 into domestic law.