EU citizens and businesses have the freedom of cross border trade but since direct taxation is not consistent across the Member States, this meant that fair competition regulations could not be implemented.
To ensure the harmonisation of complete and correct VAT obligation taxations in the destination EU Member State, the European Commission introduced VAT for cross-border e-commerce returns for companies/suppliers carrying out cross-border sales of goods or services (mainly online). The new EU regulation is expected to ensure fair competition for EU businesses and combat VAT evasion and fraud.
With the advent of the Covid-19 pandemic and in consideration of the difficulties that businesses and Member States are confronting, the European Commission issued an announcement on 8 May 2020 for the postponement of the VAT e-commerce package by six months. Therefore, instead of these rules applying from 1 January 2021 they would apply from 1 July 2021. This would also provide time for the adaptation of existing IT systems and the establishment of these systems by the Member States.
In addition, the European Commission proposed postponement deadlines in filing and exchanging information under the Directive on Administrative Cooperation (DAC). The DAC directs all EU Member States to share certain information for taxable periods, in particular due to the increased opportunities for investors to invest abroad in a wide range of financial products. The proposed extension is for the filing deadlines of DAC2 and DAC6.
In brief, DAC2 is the reciprocal automatic EU Members States' exchange of financial reportable account information, which includes interest, dividends or other income generated by a financial account as well as gross proceeds from a sale or redemption and account balances. Financial institutions will be required not only to adapt their systems but also to communicate with their customers on matters relating to due diligence, data protection and best practices. The European Commission has proposed for DAC2 to be deferred by three months until 31 December 2020. The tax measures affect only the extended timeline for financial reporting purposes.
DAC6 is a new EU mandatory disclosure obligation (to their national tax authority), from intermediaries such as financial and professional bodies or taxpayers, that are involved in designing and promoting cross-border schemes that have certain hallmarks or features related to tax and tax reporting. This may concern one EU Member State or an EU Member State and a non-EU country. The increased mobility of both capital and persons has shaped the move of taxable profits to more beneficial tax areas resulting in a reduction in the taxpayer's bill and a reduction in tax revenue in certain jurisdictions. DAC6 is being introduced to increase the level of tax transparency and to provide Member States' tax authorities with more information on resolving harmful tax practices.
DAC6, which is the EU directive on cross-border tax arrangements, will apply from1 July 2020. This means that the postponement, only affects reporting until a later date.
Assuming that the proposal is accepted, the deferrals will be amended as follows:
- Changing the date for the beginning of the 30-day period for reporting cross-border arrangements by intermediaries (or taxpayers) under DAC6 from 1 July 2020 to 1 October 2020.
- Change of date for the reporting of so called 'historical' cross-border arrangements that became reportable in the period from 25 June 2018 to 30 June 2020 by intermediaries (or taxpayers), from 31 August 2020 to 30 November 2020.
- Change the date on the exchange of information on Reportable Financial Accounts until 31 December 2020.
- Changing the date between EU Member States' first exchange of information on reportable cross-border arrangements under DAC6 from 31 October 2020 to 31 January 2021.
It is essential to understand the impact of DAC6 and to ensure that taxpayers and intermediaries conform and fulfill their requirements and obligations under DAC6 on and after 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.