The European Union has added further impetus to its objective of
enhancing transparency against harmful tax practices with the
amendment to Directive 2011/16/EU, commonly referred to as DAC6.
This builds on the Common Reporting Standard (CRS), which allows
for the automatic exchange of information on financial accounts
held by non-tax residents at an international level, and the
OECD's Base Erosion and Profit Shifting (BEPS) project. In
brief, DAC6 requires the mandatory reporting of cross-border
arrangements that are indicative of a potential aggressive tax
planning. The disclosure requirements will have to be followed by
"intermediaries" and, in some instances, the
taxpayers.
One of the key points of DAC6 is that it does not define aggressive
tax planning. Instead, those involved must adhere to the list of
"hallmarks" found in Annex IV of the Directive, which is
constituted by both general and specific features that are deemed
possible indicators of tax avoidance or abuse. Such hallmarks
alongside broadly drafted key definitions, such as the ones for
"intermediary" or "cross-border arrangement",
seem to have created a wide scope for the Directive. The reason
given for this is that the intricacies and complexity of aggressive
tax-planning arrangements are constantly evolving and being
modified in response to countermeasures from tax authorities.
The Cypriot Ministry of Finance has already started to disseminate
a draft bill to transpose DAC6 and there appears to be no
amendments. It must be iterated that DAC6 sets only a minimum
standard and Member States are free to choose to apply stricter
rules, one such example is Poland.
The first reports will be due August 2020 and will involve
information on transactions since June 2018. This deadline is fast
approaching and a robust understanding of DAC6 needs to be achieved
by both intermediaries and tax payers in order to minimize
potential exposure from sanctions, reputational and client
relationship jeopardy risks. Elias Neocleous & Co. LLC is
committed to helping monitor the development of DAC6 in relation to
the Cypriot tax authorities as well as provide any guidance
regarding the interpretation, policies, procedures, and assessments
involved with the Directive.
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