1. Introduction

Put in brief, the Mandatory Disclosure Directive1 (the Directive) imposes the obligation on intermediaries and – under certain circumstances – relevant taxpayers to report certain cross-border arrangements to the tax authorities.

The Dutch legislation implementing the Directive (the Dutch DAC6 legislation) entered, as required, into effect on 1 July 2020, having retroactive effect until 25 June 2018.

This issue of Quoted includes a detailed description of the Dutch DAC6 legislation. Paragraph 2 contains an executive summary of this Quoted. Paragraph 3 provides for a short overview of the background of the Dutch DAC6 legislation. Paragraph 4 focuses on the (interpretation of the) most relevant provisions and definitions of the Dutch DAC6 legislation. In paragraph 5, the potential impact for taxpayers is addressed followed by some guidance on how taxpayers can be in control of the potential impact of the Dutch DAC6 legislation.

In Part 2 of this Quoted, which will be published early 2022, specific elements of the Directive and the Dutch implementation thereof, such as the main benefit test, the hallmarks and some examples with respect to the hallmarks will be outlined. For more detailed information on the Directive, see our Quoted published in October 2018.2

2. Executive summary

  • The Dutch DAC6 legislation imposes the obligation on intermediaries and – under certain circumstances
  • relevant taxpayers to report certain cross-border arrangements to the Dutch tax authorities from 1 January 2021 onwards.
  • The obligation to report may not be enforceable upon an intermediary due to legal professional privilege, or because the intermediary does not have a presence within the EU. In these circumstances, the disclosure obligation shifts to the taxpayer, if no other intermediary is involved. This is also the case if there is no intermediary involved because the taxpayer designs and implements a reportable cross-border arrangement in-house.
  • In the Netherlands, taxpayers should be aware that they can be considered an intermediary, and as a result have to disclose information on a reportable cross-border arrangement to the Dutch tax authorities.

3. Background

Directive 2011/16/EU3 (the DAC) contains – in certain circumstances - a general obligation for the national tax authorities to spontaneously exchange information to the other tax authorities within the European Union (EU). On 21 June 2017, the European Commission presented a proposal amending the DAC in respect of the mandatory automatic exchange of information in the field of taxation in relation to "reportable cross-border arrangements". The Directive is the fifth amendment to the DAC and is therefore also referred to as DAC6. The aim of the Directive is to increase transparency and to have access to information about potentially aggressive cross-border tax arrangements at an early stage. This should allow the Member States to close possible loopholes by enacting legislation or by undertaking adequate risk assessment and carrying out tax audits.

4. The Dutch DAC6 legislation

4.1 Introduction by a step-by-step plan

In general, the Dutch DAC6 legislation follows the minimum standard of the Directive (it does not contain additional requirements compared to the wording of the Directive). In addition to the guidance provided in parliamentary history, the Dutch State Secretary of Finance published a decree that provides further guidance on the Dutch DAC6 legislation (the Decree).4

In this description of the (interpretation of the) most relevant provisions and definitions of the Dutch DAC6 legislation, a step-by-step plan is used as guidance. This step-by-step plan covers several steps to analyse the potential impact of the Dutch DAC6 legislation in respect of a cross-border arrangement.

4.2 Covered taxes

The Directive in principle applies to all taxes of any kind levied by, or on behalf of, an EU Member State or the EU Member State's territorial or administrative subdivisions, including the local authorities. Exceptions apply to value added tax, custom duties, excise duties and compulsory social security contributions payable to the EU Member State or a subdivision of the EU Member State or to social security institutions established under public law.

Some Member States deviate from the Directive with respect to the covered taxes and therefore broadened the scope of the Directive in their domestic DAC6 legislation. The Dutch DAC6 legislation does however not differ from the covered taxes defined in the Directive.

4.3 Step 1 | Cross-border arrangement

The first question is whether there is a cross-border arrangement for Dutch DAC6 legislation purposes. The Directive does not provide for a definition of the term arrangement. The reason being that it was not considered necessary nor desirable to include a definition.5 The term 'arrangement' is not further defined in the Dutch DAC6 legislation either. In parliamentary guidance and in the Decree it is stated that an arrangement could be a transaction, action, agreement, loan, commitment or a combination thereof. Furthermore, an arrangement can consist of different elements and shall also include a series of arrangements. Following the above, a low threshold is applied for the term arrangement. In the Netherlands both marketable and bespoke arrangements should be reported.6

An arrangement is a cross-border arrangement if the arrangement concerns more than one Member State or a Member State and a third country, where at least one of the following conditions is fulfilled:

  • not all of the participants in the arrangement are resident for tax purposes in the same jurisdiction;
  • one or more of the participants in the arrangement is simultaneously resident for tax purposes in more than one jurisdiction;
  • one or more of the participants in the arrangement carries on a business in another jurisdiction through a permanent establishment situated in that jurisdiction and the arrangement forms part or the whole of the business of that permanent establishment;
  • one or more of the participants in the arrangement carries on an activity in another jurisdiction without being resident for tax purposes or creating a permanent establishment situated in that jurisdiction; or
  • the arrangement has a possible impact on the automatic exchange of information or the identification of beneficial ownership.

If there is no cross-border arrangement, there is no reporting obligation under the Dutch DAC6 legislation. Purely domestic situations and situations having no link to any EU Member State do not constitute a cross-border arrangement in this respect.

It appears from the Decree that the concept of 'cross-border' can cover a variety of situations. The Decree includes for example the legal merger of two Dutch group companies owned by a joint foreign parent company.

The term 'participant' has not been further clarified. It depends on the facts and circumstances in a specific case which persons (whether tax transparent or not) are participants with respect to the arrangement. In practice, the position is taken that a person can only be a participant if that person has an active involvement in the arrangement.

4.4 Step 2 | Reportable cross-border arrangement

If there is a cross-border arrangement, the second question is whether this cross-border arrangement is reportable.

A cross-border arrangement is a reportable cross-border arrangement if the cross-border arrangement contains at least one of the hallmarks listed in Annex IV to the Directive. These hallmarks are characteristics or features of a cross-border arrangement that present an indication of a potential risk of tax avoidance. For the list of hallmarks the Dutch DAC6 legislation refers to the list of hallmarks included in Annex IV to the Directive. Therefore, no additional hallmarks have been included in the Dutch DAC6 legislation. The hallmarks are divided into five categories:

  1. Generic hallmarks linked to the main benefit test;
  2. Specific hallmarks linked to the main benefit test;
  3. Specific hallmarks related to cross-border transactions;
  4. Specific hallmarks concerning automatic exchange of information and beneficial ownership; and
  5. Specific hallmarks concerning transfer pricing.

All generic hallmarks in Category A, all specific hallmarks in Category B and some hallmarks in Category C7 are only to be included if the main benefit test is satisfied. The main benefit test will be satisfied if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage. If there is no reportable cross-border arrangement, there is no reporting obligation.

Footnotes-

1 Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements.

2 See: Mandatory Disclosure Directive | Loyens & Loeff (loyensloeff.com).

3 Directive 2011/16/EU on administrative cooperation in the field of taxation.

4 Decree of 24 June 2020, nr. 2020-11382.

5 See the Directive, preamble paragraph 9 and see our Quoted issued in October 2018.

6 A 'marketable arrangement' is a cross-border arrangement that is designed, marketed, ready for implementation or made available for implementation without a need to be substantially customised, while a 'bespoke arrangement' is any cross-border arrangement that is not a marketable arrangement.

7 I.e., Hallmark C1 paragraph 1, under b)(i) under c) and under d).

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