Europe was among the regions that were hit the hardest by COVID-19. The epidemic brought about large-scale disruptions in nearly every sector of the economy. That caused the EU to take a number of measures in an attempt to limit the potential damage. In particular, the EU Commission has proposed the deferral of several taxation rules concerning VAT and cross-border administrative cooperation.
The VAT Ecommerce Package
EU citizens and businesses can freely partake in cross-border trade. However, the rules for direct taxation are not uniform across the different Member States. That has long hindered the effective implementation of the EU's fair competition regulations.
To remedy this problem, the EU adopted a series of legislative instruments commonly known as the VAT ecommerce package. The aim is to fully harmonize the VAT obligations in destination Member States of companies and suppliers that provide cross-border sales of goods or services. That will guarantee a level playing field for businesses across the EU and should help prevent VAT fraud and evasion.
The last VAT measures were supposed to enter into force on 1 January 2021. However, on 8 May 2020, the EU Commission announced that the VAT ecommerce package would be postponed by six months due to COVID-19. As a result, the rules will now come into effect on 1 July 2021. That should give both business and Member States some much-needed time to recover from the pandemic and adjust their IT systems and other infrastructure as required.
Directive on Administrative Cooperation
Furthermore, the Commission proposed to extend the deadlines for filing and exchanging information under Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC). Under DAC, all EU Member States are under an obligation to share certain information concerning taxable periods. That is due to the growing opportunities for cross-border investment in a wide array of financial products.
In particular, the suggested extension is for the filing of DAC2 and DAC6.
DAC2: Automatic Exchange of Reportable Financial Account Information
DAC2 refers to the automatic reciprocal exchange of reportable financial account information between Member States, including:
- Gross proceeds from the sale or redemption of financial assets
DAC2 now requires financial institutions to not only adapt their systems but also communicate with customers on issues concerning best practices, data protection, and due diligence.
Due to COVID-19, however, the Commission has proposed to defer the deadline for exchanging information on reportable financial accounts by three months until 31 December 2020.
DAC6: Mandatory Disclosure Obligation for Cross-Border Tax Arrangements
DAC6 is a mandatory disclosure obligation to national tax authorities on the part of intermediaries such as taxpayers or professional and financial bodies that design or promote cross-border schemes related to tax or tax reporting. These may involve one or more EU Member States as well as an EU Member State and a third country.
The chief aim of DAC6 is to increase tax transparency. It also seeks to prevent harmful tax practices associated with the migration of taxable profits to more favorable tax jurisdictions. That way, the DAC6 rules should also redress the resulting decrease in tax revenue in the countries of origin.
As per the Commission's proposal:
- The first day of the thirty-day period for reporting cross-border tax arrangements listed in Annex IV to Council Directive 2018/822/EU will extend from 1 July 2020 to 1 October 2020.
- The date for reporting historical cross-border arrangements will change from 31 August 2020 to 30 November 2020.
- The day for the first information exchange concerning reportable cross-border arrangements featured in Annex IV to Council Directive 2011/16/EU will change from 31 October 2020 to 31 January 2021.
It should be noted that, as of 24 June 2020, the Commission's proposal is still pending final approval. Whether the proposal enters into effect or not, however, taxpayers and intermediaries still need to ensure that they are familiar with the DAC6 and meet all relevant obligations and requirements by 1 July 2020.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.