Businesses have only a bit more than half-a-year left to identify cross-border transactions and constructions that fall under EUʼs DAC6 directive, which requires additional reporting of cross-border arrangements, Big Four advisory company Deloitte says.
While DAC6 goes live on July 1, 2020, businesses may be required to provide information regarding transactions all the way back to June 25, 2018. Deloitte says that while it is difficult to determine which arrangements fall under the directive, anyone who makes a mistake or fails to fulfill their obligations may be fined.
The EU directive requires member states to inform each other automatically of cross-border transactions and arrangements that carry the risk of tax avoidance. The required information must be sent to the tax authority by the taxpayer, or its consultancy partner.
"The provision of data mainly concerns cross-border arrangements which take advantage of the differences in the tax, information exchange, or financial account laws of each country," says Ferenc Póczak, partner at Deloitte Hungaryʼs tax department. "Fictitious transactions that meet one of the statutory criteria must also be reported."
Deloitte argues that in many cases, a detailed examination is needed to determine whether or not a particular arrangement falls under the regulation.
Gabriella Kocsis, senior manager at Deloitte Hungaryʼs tax department explains, "For example, it may be problematic how a tax advisor or taxpayer can check the tax treatment practice in another country in particular cases. In many cases, there is also the question of how to interpret qualifications for a tax benefit regarding a transaction."
In the case of multiple consultants, there is a question of who is required to provide the information. If a company does not employ an advisor, it has to assess which transactions are affected.
The required information also includes details that could be classified as commercially sensitive. These include, for example, the exploration of affiliated companies included in the plan, a detailed description of the arrangement, the value of the transaction, and a specification of the reason for the disclosure.