The EU Mandatory Disclosure Regime and What it Means for EU Citizens
Go back

The EU Mandatory Disclosure Regime and What it Means for EU Citizens

on 15 February 2021

The EU Mandatory Disclosure Regime is a mandate set in place to require citizens to report their cross-border transactions for taxpayers and intermediaries. This was put in place to help limit those who may attempt to avoid paying taxes and increase the transparency of tax measures across the EU. This first began with the CRS, known as the Common Reporting Standard, which brought the introduction of an automatic exchange between tax and financial information. This elevated transparency for governments in the EU when it came to tax information.

 

Why DAC6?

This new regime was introduced as a means to enforce stricter disclosure of taxes cross-border in the EU. It will affect all financial institutions in the EU that provide tax and legal advice to citizens. Non-compliance to the DAC6 comes with heavy penalties. All tax information that will be contributed from reporting will be accessible in a central directory. While this may look like an aggressive tax plan, the prime motive behind this was to bring transparency to standard transactions.

 

Reporting Requirements

Reporting for the DAC6 was initially set to begin in the Summer of 2020. However, due to COVID-19 the EU extended the deadlines by six months. All members of the EU (except Germany, Austria, and Finland) opted to accept the six-month deferral. Meaning most jurisdictions did not have to report until January 2021.

●      Payments made through arrangements cross-border in the EU may require parties to disclose under Category C hallmarks.

●      Cross-border transactions to lower tax jurisdictions would need to be considered for reporting.

●      Category D hallmarks need to be reported, even if the activity is not of substantive economic purpose and whether or not tax was motivated.

●      Acquisition finance must be reported cross-border.

 

Who are Intermediaries?

An intermediary is anyone who “designs, markets, organizes or makes available or implements a reportable arrangement or anyone who helps with reportable activities and knows or could reasonably be expected to know that they are doing so,” according to Norton Rose Fulbright. This includes but is not limited to people in the following roles:

●      Accountants

●      Financial Advisors

●      Lawyers

●      Consultants

●      Banks

●      Trusts

●      Insurance intermediaries

●      Holding companies

●      Treasury functions

 

When Is an Intermediary Involved?

It only takes one transaction to need an intermediary. It depends on what the transaction is and in what manner an intermediary will be providing service. In order for an intermediary to be properly aligned with the new disclosure rules, they must maintain some connection to the EU by way of:

●      Residence either personally or professionally in the EU

●      Permanent establishment in connection to relevant services provided

●      Be registered as a finance, tax, legal, or consultant professional in the EU

 

What to Report?

Arrangements are a broad concept that refers to any course of action that is not contractually binding. Cross-border refers to transactions or business that is carried out across borders within the EU, particularly where the taxes between the borders may differ. All of these need to be reported. The various categories are as follows:

●      Category A: Commercial characteristics

●      Category B: Tax-structured arrangements

●      Category C: Cross-border payments and transfers

●      Category D: Arrangements that may affect tax reporting and transparency

●      Category E: Transfer pricing

 

Conclusion

All new reports must be filed within 30 days of the transaction with ongoing quarterly obligations. Non-compliance will warrant heavy penalties. Consider all relevant jurisdictions when compiling your report.

Legal and Compliance Jobs in Malta?

Are looking for compliance jobs in Malta? VacancyCentre (VC) is a well-established recruitment company in Malta servicing organisations talent resource requirements across a range of technical and specialist disciplines across key service industries within Finance, Compliance & Technology.

Share this article