On June 25, 2018, the EU Directive on Mandatory Disclosure (Directive (EU) 2018/822, DAC6) took effect. This Directive provides for the mandatory automatic exchange of information on reportable cross-border arrangements. We refer to our previous memoranda for more background information on DAC6.
On December 19, 2018, the Dutch government launched an internet consultation offering interested parties the opportunity to respond to the bill to implement this Directive into Dutch law.
DAC6 in brief
DAC6, in principle, obliges intermediaries (including so-called ‘auxiliary intermediaries’) to report potentially aggressive cross-border tax planning arrangements, so that these can be exchanged between the tax authorities of the EU Member States. Due to the broad definition of intermediary, not only tax advisors, but potentially also lawyers, accountants, notaries, financial advisors, banks, trust offices, etc. will fall under the definition. In certain circumstances the reporting obligation can shift to the taxpayer.
The Annex to DAC6 includes a number of hallmarks, which are indicators of an aggressive cross-border tax planning arrangement. If a tax planning arrangement has one of these hallmarks, the arrangement must, in principle, be reported to the tax authorities of the relevant EU Member State. However, a number of these hallmarks will only trigger a reporting obligation if a ‘main benefit test’ is also met. The main benefit test is met if it can be convincingly demonstrated that the most important benefit or one of the most important benefits that, given all the relevant facts and circumstances, can reasonably be expected from an arrangement is obtaining a tax benefit.
The Netherlands must implement DAC6 into national law. During the parliamentary debates that will follow on the actual implementing legislation, more clarity will have to given about how the Netherlands interprets the obligations and terms in the Directive.
On the basis of the draft legislation and explanatory notes that have now been published, the Dutch implementation appears to, in any case, remain close to the text of the Directive in terms of its wording. With regard to the hallmarks, there is even a one-on-one reference to the Annex to the Directive.
The draft explanatory notes provide more clarity about, for example, the interpretation of certain terms in DAC6, the interpretation of the hallmarks and the main benefit test. This is very important in practice and concerns, for example, questions such as:
- Can an employee at a tax advisory firm also have a reporting obligation? The explanatory notes make clear that – in the case of a services agreement between the tax advisory firm and the taxpayer – this is not the case. The firm qualifies as the intermediary.
- Do the tax benefits that are part of the main benefit test also include tax benefits realized in countries that are not EU Member States? The answer is yes.
- The explanatory notes also make clear that DAC6 does not lead to an obligation to investigate for auxiliary intermediaries. Auxiliary intermediaries are intermediaries who do not devise the arrangement or offer it, but who provide assistance with it (including help with getting a reportable arrangement ready for implementation).
- It is not the intention to have all tax advice, arrangements, etc., fall under the scope of DAC6. It only concerns arrangements that (may) indicate tax avoidance. An arrangement that is only set up to avoid double taxation will not meet the main benefit test. An intermediary will have to decide itself whether there is a reportable arrangement.
- Cross-border arrangements that are admittedly devised for and focus on a specific taxpayer but ultimately do not ‘get off the ground’, do not have to be reported.
- Some parts of the draft explanatory notes provide clarity on the various hallmarks.
Despite the draft explanatory notes, many practical questions still remain. A frequently heard criticism that the term ‘arrangement’ is not further defined in DAC6, is unfortunately not covered in the consultation document.
Other than was the case with the implementation of DAC6 in some other EU Member States, the Dutch draft bill does not go further than the obligations prescribed by the Directive. For example, the draft bill does not include any other hallmarks and taxes than those included in DAC6.
The draft bill also includes a provision providing for the possibility of imposing a pecuniary penalty, if the fact that the reporting obligation was not complied with, was not complied with on time, or was not fully or accurately complied with, is due to the gross negligence or deliberate actions of the intermediary or taxpayer. The pecuniary penalty is the maximum of the sixth category (as of January 1, 2018: EUR 830,000).
The publication of the draft bill and accompanying explanatory notes answers many questions about the Dutch implementation and interpretation of DAC6. However, this does not alter the fact that many questions still remain. We hope that these – partly as a result of the consultation – will ultimately be answered in the legislative process.
The consultation closes on February 1, 2019. If approval is granted, the responses will be published during the course of the consultation. The final bill is expected to be presented to the Lower House in the summer of 2019.