During the previous year, the sixth amendment to the EU Directive on Administrative Cooperation in Tax Administration, which regulates the mandatory notification of tax optimization schemes, was implemented into Czech law. It establishes this obligation towards the intermediaries of these arrangements, or the taxpayers themselves. The tax administration seeks to gain a better overview of such arrangements that are potentially aggressive tax planning and whose main or one of the main reasons is to obtain a tax advantage.
As a result of the COVID-19 pandemic, the deadlines for fulfilling the notification obligation were postponed. However, even these deadlines are slowly being met these days (more HERE). Last year, the Financial Administration also published an electronic form on the tax portal (HERE).
At the end of the year, the General Finance Directorate (GFD) issued the expected document (more HERE), which contains answers to certain questions related to the application of Act No. 164/2013 Coll., On International Cooperation in Tax Administration in the Reporting Obligation DAC6). Unfortunately, this document did not meet the expectations of both intermediaries and users themselves. Nevertheless, it is appropriate to mention some points in the information provided.
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Important information was provided on the so-called historical cross-border arrangements. These are arrangements that were made available for implementation in the period from 25 June 2018 to 28 August 2020, but the first step towards their implementation has not been taken. On this point, the GFD states that if a cross-border arrangement is established by 28 August 2020 inclusive, but the first step in its implementation is not taken, the arrangement will not be the subject of a notification. The arrangement would then be announced if the first step in its implementation were taken.
With a few exceptions, the GFD describes in general in the information what types of cross-border arrangements there are, who exactly is the user of the arrangement, what is meant by the term arrangement at all. However, all this could already be read, for example, from the explanatory memorandum.
However, the GFD further describes, for example, the use of the so-called A-ID and D-ID identification numbers. Layout Identification Number (A-ID) - this is a unique layout identifier that is automatically created after the processing of a new notification (ie the A-ID is assigned to a cross-border arrangement that is first notified within the EU). Submission Identification Number (D-ID) - This is a unique submission identifier that is automatically created after processing a new notification or a subsequent non-corrective notification. The GFD recommends that obliged entities include an e-mail address in the contact information as part of the Notification. An e-mail address is necessary for sending the identification numbers A-ID and D-ID after the processing of the Notification and also for possible communication by the tax administrator in case of incorrect submissions.
In the information, the GFD also outlines possible preconditions for the notified cross-border arrangement. In the Communication, the GFD assumes that someone should design or offer a cross-border arrangement, there must in principle be a concurrence of these facts. There must be someone proposing such an arrangement (intermediary, taxpayer or employee) and at the same time there must be a proposal intended to provide the taxpayer with a tax advantage, including concealment of income or assets or circumvention of the common OECD reporting standard described in Section II, Article D, Annex No. 3. If the above-mentioned concurrence does not occur, it is not a cross-border arrangement which is subject to the notification obligation. If a basic concurrence exists, the fulfillment of at least one of the characteristics must be verified (or, where appropriate, with the application of the MBT main benefit test).
The GFR further describes situations where a obliged entity is not obliged to notify a notified cross-border arrangement if it has submitted a notification containing the same data in another EU Member State or if another obliged entity has notified in relation to this arrangement in one of the EU Member States, which contained the same data. In case the notified cross-border arrangement has been notified by another obligated person or the arrangement has been notified in another EU Member State, we recommend keeping the A-ID and D-ID identification numbers, which can serve as proof of compliance with the notification obligation.
The GFR also touched on professional secrecy in the information. In the case of tailor-made arrangements that are tied to a specific user, the intermediary is not a liable person in this case (linked to professional secrecy) and the obligation passes either to another intermediary, or if the arrangement does not already have another intermediary, the notification obligation passes to the user of the arrangement. The intermediary of the notified cross-border arrangement, who is not at least partly a liable person in relation to this arrangement due to professional secrecy, is obliged to inform the other intermediaries of this arrangement known to him and the user of this arrangement in good time. In the case of a standardized arrangement (it could be compared to "boxed software"), professional secrecy applies to the user and not to the arrangement as such. In this case, the broker shall report other information about the arrangement, in addition to the user of the arrangement. In a given situation, it is desirable that the intermediary also communicates to the user the identification number of the so-called A-ID arrangement, which he receives after processing his notification.
The information includes a number of other announcements. These could already be derived, for example, from the explanatory memorandum. Other information in the communication includes, for example, what is meant by the value of the arrangement, how to make corrections to notifications already submitted, whether signing a contract is already the first step in implementing the arrangement, etc. Unfortunately, we lack more practical examples in practice. It is often impossible to imagine where the line is between what needs to be reported and what does not. However, one very important issue appeared in the information in connection with the payment of dividends from subsidiaries to parent companies. In the given situation, according to the information of the GFD, it is a question of fulfilling the requirements listed in Annex 3, Section 2, Article C, paragraph 1, letter c) and mentions at the same time the need to assess the main benefit test. Unless one of the main advantages is a tax advantage, cross-border arrangements are not subject to notification. In specific arrangements, the fulfillment of other requirements cannot be ruled out.
Not only in the Czech Republic, but also in other EU member states, it will probably be a long time before a long range of interpretive ambiguities is clarified. In many cases, the case law of the EU SD will probably decide. Until then, we can only hope that the tax authorities will be instructed to apply mild sanctions rather than those allowed by law in the event of a possible breach of the notification obligation.
The Chamber of Tax Advisers makes every effort to ensure that at least the basic practical situations we may encounter are clarified and described in practice as soon as possible. Intensive exchanges of information on these issues between representatives of the Chamber of Tax Advisers and the GFD have taken place and are still ongoing. You will be continuously informed about the final approaches not only on the website (HERE), but certainly in the case of questions, please contact your BDO advisor, with whom you will assess the specific situation together.
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.