On June 5 2018, Council Directive (EU) 2018/822 of 25 May 2018, known as DAC 6 or as the Directive on mandatory disclosure for intermediaries, was published in the Official Journal of the EU. This Directive, which is the fifth amendment to the Directive on Administrative Cooperation, imposes mandatory reporting obligations on intermediaries in relation to cross-border arrangements involving "aggressive" tax planning. The Directive further mandates the automatic exchange of this information among the Tax Authorities Member States.
Both the content of the Directive and its future transposition into domestic law give rise to controversial issues in the current context international taxation. The present note does not seek to be fully comprehensive but rather provides an analysis of some significant features of the Directive, focussing especially on items where the Directive is, perhaps intentionally, unclear or may lead to inconsistent interpretations.
From a substantive perspective, the Directive imposes on "intermediaries" the duty to disclose to the Tax Authorities such cross-border "arrangements" that fall within some pre-determined "hallmarks" (as defined in Annex IV), seen as indicative of a level of risk of tax avoidance.
It is easy to see that the main terms of the Directive give rise to many questions. Firstly and as regards the person placed under such duty to disclose, there is no definition of what would constitute an "intermediary". The Directive does however displace this reporting obligation to the original taxpayer in two specific situations: where the intermediary is bound by professional secrecy obligations and where there is no such intermediary (arrangements put forward by the company itself) or such intermediary is not established in the EU.
Moreover and as regards reportable "arrangements", the Directive has opted for a list of broad categories setting out particular characteristics (hallmarks) identified as potentially indicative of aggressive tax planning. This list treats separately situations where the hallmark implies direct disclosure and situations where, even though the facts would fall within the hallmark, disclosure would only be mandatory should a preliminary analysis lead to the conclusion that one of the main benefits expected from an arrangement is a tax advantage. Such an analysis implies a degree of subjectivity, which, in practice, will make compliance difficult.
In this context, the interpretation followed by Member States upon implementation will be decisive, since such implementation will require a certain degree of definition of the multiple legal concepts included in the Directive.
From a Spanish perspective and even though nothing definitive as regards the Directive's scope and effects may be advanced until its transposition, representatives of the General Directorate of Taxes, a body responsible for advancing proposals, drafting and interpreting tax provisions, as well as carrying out the tasks required by the EU tax harmonization policies, have declared that they intend to interpret the Directive's provision consistently with the positions adopted by other Member states, in order to prevent situations where:
- Compliance with the same obligation may allow for unfair competition or unfair professional advantage among intermediaries or taxpayers from different Member States.
- Matters of domestic law, such as the objective and subjective scope of professional secrecy or client privilege obligations (e.g. cases of lawyers as compared to tax consultants) may lead to discriminatory positions even among intermediaries from the same Member State. Note that certain Member States have now indicated that they will favour a broad interpretation of their professional secrecy provisions, to limit the practical scope of the mandatory disclosure obligations.
A final and equally controversial aspect of these disclosure obligations is worth highlighting: their retroactive effect. Thus, although Member States are afforded until 31 December 2019 to implement the Directive, this Directive has been in force since 25 June 2018. Therefore, in their first submission, intermediaries or taxpayers will be required to disclose arrangements carried out between 25 June 2018 and 1 July 2020.