Cross-Border Tax Arrangements
On June 25, 2018, EU Directive 2018/822/EU (also known as DAC 6) came into force. Since July 1, 2020 –
at least in Germany – it has been mandatory to report cross-border tax arrangements to the relevant tax authorities. The tax authorities of the EU member states are supposed to exchange this information automatically. The declared objective is to enable legislators and tax authorities to be able to identify aggressive tax practices and take action against them in a timely manner.
Reportable facts and circumstances
Reportable facts in the sense of DAC 6 are cross-border tax arrangements that meet the requirements (“hallmarks”). However, the long catalogue of hallmarks is sometimes formulated in such a general way that
it is likely that almost common situations are also covered by it. For example, arrangements that have
a standardised documentation or structure are potentially subject to reporting in any case if they have a tax connection (so-called “main benefit” test). Independently of this, the obligation to notify also applies to certain transfer pricing structures.
Primarily so called “intermediaries” are obliged to report. These include all actors who are involved in the conception, marketing, organisation, provision for use or management of the implementation of a transaction subject to reporting requirements on behalf of third parties. These may be external parties, e.g. auditors, tax advisors or lawyers, or in-house consultants. However, the intermediary must be involved until the project reaches a certain “maturity” (e.g. until it is ready for use). If components of the structure are implemented without the involvement of a German intermediary or if there is no intermediary, the duty of notification passes to the taxpayer (“user”) who benefits from the structure.
The notification of a fact and other information to the Federal Central Tax Office by electronic means should in principle be made within 30 days of the day on which it is made,
- where the cross-border arrangement is made available for implementation,
- the taxpayer is willing to implement it or
- the first step towards implementation was taken.
Notified facts are to be exchanged automatically between the financial authorities of the EU Member States within one month of the end of the quarter in which the notification was made.
Violations by intermediaries and users of the notification obligations concerning cross-border tax arrangements subject to notification can be punished in Germany by a new administrative offence with a penalty of up to EUR 25,000.
Need for action
DAC 6 or their respective national implementation poses a number of challenges for taxpayers, in particular
- Definition and establishment of internal processes for the recording, documentation, archiving, control and analysis of (potentially) notifiable arrangements and the timely transmission of data records,
- Coordination of the procedure with intermediaries and between group companies,
- Definition and distribution of responsibilities and tasks and
- Monitoring the further development of implementation in the individual EU member states..
Effective support by BDO
BDO AG Wirtschaftsprüfungsgesellschaft supports you in identifying notifiable facts, defining and implementing processes including coordination with your existing Tax Compliance Management System (“Tax CMS”) and in carrying out the relevant notifications. If necessary, we will involve our colleagues from other divisions, for example in the audit or adjustment of compliance structures and IT systems or the integration of IT tools. If necessary, we will work together with colleagues from the various BDO Member Firms from our international network in more than 160 countries.
Service portfolio of BDO
- Review of possible DAC 6 notification obligations in Germany or in other EU member states (if necessary: together with foreign BDO Member Firms),
- Compliance with the related and necessary documentation requirements,
- Transmission of DAC 6 notifications to the Federal Central Tax Office and administration of the registration and disclosure numbers received from there,
- Output of a reporting adapted to the individual requirements,
- Tailor-made workshops and e-learning modules for the implementation of the DAC 6 notification obligations under German law and
- Support identification and documentation of reportability of arrangements based on Member State specific information and facilitate reporting and filing status using the BDO DAC 6-software tool.