The EU Tax Intermediaries Directive (“Directive”) introduces new mandatory obligation on intermediaries and taxpayers to report information on cross-border arrangements that meet certain criteria to the tax authority (“EU Disclosure Requirements DAC 6”). This Directive will be implemented into the Czech legislation next year, but with retrospective effect.
The Czech Chamber of Deputies is currently discussing the amendment of the Czech mandatory disclosure rules legislation which will implement the DAC 6 requirements.
The Directive requires mandatory reporting by tax intermediaries (including tax advisers, lawyers, notaries or auditors) or in some situation, taxpayers, of certain cross-border arrangements which concern more than one member state, or a member state and a third country within 30 days of the earlier of:
- The arrangement being made available for implementation;
- It being ready for implementation; or,
- The first implementation step being taken.
It will also require intermediaries to report changes of arrangements that are considered to be ‘marketable arrangements’ within 30 days of the last day of the calendar quarter in which the changes occurred.
The effectiveness of the amendment
The amendment will be effective from 1 July 2020, but the rules will apply retrospectively from the date the Directive took effect, i.e. 25 June 2018. This means that the mandatory reporting obligations for intermediaries will include information related to reportable arrangements where the first step of implementation is undertaken on or after 25 June 2018.
Deadline for filing the first report for the period between 25 June 2018 and 30 June 2020, is 31 August 2020.
What are reportable arrangements?
Reporting requirements can be triggered by the existence of certain ‘hallmarks’ or characteristics, defined in the Directive. These hallmarks distinguish between ‘generic’ and ‘specific’ hallmarks for which a ‘main benefit’ test also needs to be fulfilled and those which of themselves result in a reporting obligation.
The main benefit test
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.’
The following hallmarks define an arrangement only when they fulfil the main benefit test:
- Arrangements for which a confidentiality clause is imposed on the taxpayer/participant.
- Arrangements where the intermediary’s fee is contingent based on the amount of the tax advantage derived or whether a tax advantage is actually derived.
- Arrangements including standardised documentation and/or structures, which do not need to be substantially customised for implementation.
- Arrangements involving the acquisition of a loss-making company to reduce a tax liability.
- Arrangements where income is converted into capital, gifts or other categories of revenue which are taxed at a lower rate or are exempt from tax.
- Arrangements involving circular transactions resulting in the ‘round-tripping’ of funds.
- Arrangements involving deductible cross-border payments between associated enterprises which are not fully taxable where received because the jurisdiction where the recipient is resident for tax purposes:
- Does not impose any corporate tax or imposes corporate tax at a zero or almost zero rate;
- Applies a full tax exemption from tax for the payments received; or
- Applies a preferential tax regime for the payments received.
The following hallmarks will trigger a reporting obligation by themselves:
- Arrangements involving deductible cross-border payments between associated enterprises which are not fully taxable where received because:
- The recipient is not a tax resident anywhere; or
- Is included in a list of third-country jurisdictions which have been assessed by EU or OECD as being non-cooperative.
- Arrangements involving deductions for depreciation on the same asset in more than one jurisdiction.
- Arrangements involving relief from double taxation in respect of the same item of income or capital in more than one jurisdiction.
- Arrangements including a transfer of assets with a material difference in the amount treated as payable in consideration for those assets in the jurisdictions involved.
- Arrangements that circumvent or undermine EU legislation or any equivalent agreements on the automatic exchange of financial account information.
- Arrangements involving non-transparent legal or beneficial ownership chains.
- Arrangements that use unilateral safe harbour rules in the area of transfer pricing.
- Arrangements involving transfers of intangibles between associated enterprises which are hard-to-value.
- Arrangements involving intragroup restructuring resulting in profit shifts of more than 50 per cent of projected earnings before interest and tax (EBIT) of the transferor(s) in the three-year period following the cross-border transfer of functions, risks and/or assets.
Who announces the arrangements?
The obliged person is primarily the intermediary (e.g. tax advisors, lawyers, etc.) of the arrangement or the relevant taxpayer if the intermediary is obliged to maintain professional duty of confidentiality.
Information to be reported
Pursuant to the law amendment, it will be reported the below information:
- Identification of relevant intermediary and the taxpayer and the persons that are associated enterprises to the taxpayer;
- The details of the hallmark(s) met that make the arrangements reportable;
- A summary of the arrangements,
- The date on which the first implementing step was/will be made
- The specific country provisions or international agreements that form the basis of the arrangement;
- The value of the arrangement;
- The member states or persons likely to be affected by the arrangements;
- The identification of any other person in member states likely to be affected by the reportable arrangement.
The Czech Tax Administrator may impose a fine on an intermediary or a taxpayer for failure to meet the reporting obligation up to CZK 500,000.
If you have any questions regarding the “DAC 6”, please do not hesitate to contact us. We will be happy to help.