The Accountant – Issue 1 of 2021 (MIA Publication)

Interpreting the requirements of the EU Directive on Administrative Co-operation as amended by Council Directive 2018/822 (‘DAC6’ or ‘the Directive’) is not a straightforward exercise, including the decision on whether an arrangement should be considered reportable or not.

What is DAC6 all about?

DAC6 requires ‘intermediaries’, and in some circumstances taxpayers, to provide tax authorities with information on certain cross-border arrangements (‘CBAs’). The main purpose of DAC6 is to strengthen tax transparency and the fight against aggressive tax planning.

DAC6 has been implemented into Maltese legislation by virtue of legal notice L.N. 342 of 2019 which amended S.L. 123.127, entitled the Cooperation with Other Jurisdictions on Tax Matters Regulations (the ‘Cooperation Regulations’), with effect from 1 July 2020 but has retrospective application to any CBAs which date back to 25 June 2018.

DAC6 imposes mandatory disclosure requirements with respect to certain arrangements with an EU cross-border element where the arrangement is considered to fall under one of the ‘hallmarks’ set out in the Directive and in certain instances where the main benefit or one of the main benefits of the arrangement is a tax advantage.

The Commission Recommendation of 6 December 2012 on aggressive tax planning (2012/772/EU) provides that ‘an arrangement means any transaction, scheme, action, operation, agreement, grant, understanding, promise, undertaking or event. An arrangement may comprise more than one step or part.’

DAC6 covers all EU taxes except: VAT; customs duties; excise duties covered by other Union legislation on administrative cooperation between Member States; compulsory social security contributions, fees such as for certificates and other documents issued by a public authority; and dues of a contractual nature, such as consideration for public utilities.

The hallmarks

In terms of the Cooperation Regulations, a hallmark is defined as a characteristic or feature of a CBA that presents an indication of a potential risk of tax avoidance. The hallmarks are listed in Annex IV of the Cooperation Regulations consisting of the five categories below:

A: Generic hallmarks linked to the main benefit test

B: Specific hallmarks linked to the main benefit test

C: Specific hallmarks related to cross-border transactions

D: Specific hallmarks concerning automatic exchange of information and beneficial ownership

E: Specific hallmarks concerning transfer pricing

Certain hallmarks may be considered in determining whether an arrangement is a reportable CBA only if the Main Benefit Test (‘MBT’) is satisfied.

That MBT 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.

Who is responsible for reporting?

An intermediary is responsible for reporting a reportable CBA. In the absence of an intermediary, or where all intermediaries involved in the CBA have waived their reporting obligations in terms of legal professional privilege, the relevant taxpayer would take over such responsibility.

The Cooperation Regulations set out that an intermediary is:

• a person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable CBA. The Revenue’s (‘CfR’) Guidelines refer to this type of intermediary as the ‘primary intermediary’; or
• a person that, having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable CBA. The CfR Guidelines refer to this type of intermediary as the ‘secondary intermediary’.

An intermediary may therefore include an accountant or tax advisor (the intermediary may be an individual or a legal person) providing the assistance referred to above. Reference should be made to the CfR Guidelines for further guidance on the types of intermediaries and the responsibilities of such intermediaries in the context of the Cooperation Regulations.

In Malta, the Cooperation Regulations provide a right to certain intermediaries to a waiver from disclosing DAC6 information when their profession is referred to in article 3 of the Professional Secrecy Act. Accountants and auditors are amongst those listed in the article. The waiver can be claimed through a written notification to any other intermediary involved or, in the absence of an intermediary, a relevant taxpayer, of such waiver within 7 working days from the triggering event. Notification must include certain prescribed details. The right to the waiver vis-à-vis a reportable CBA ceases to apply if notification is not sent as aforesaid.

The reporting deadlines and the process

Disclosures shall be made within 30 days from the date of the triggering event, this being the earlier of the dates when the reportable CBA;

• is made available for implementation;
• is ready for implementation; or
• starts being implemented with a first step.

Where the triggering event fell between 1st July 2020 and 31st December 2020, the reporting deadline was 1st February 2021. For those reportable CBAs which had their first step of implementation made between 25th June 2018 and 30th June 2020, the deadline fell on 1st March 2021. For both pre-2021 periods, non-disclosing intermediaries had up to 12th January 2021 to notify of their waiver.

Reporting entities/individuals need to register with the CfR through its online portal. Once registered, information is to be filed electronically by uploading either an XML data file or the completed personalised DAC6 Excel Sheet downloadable from the said portal. Reporting entities/individuals can delegate the filing of the disclosure report to their appointed tax practitioner.

Failure to report on a timely basis or in a complete manner will incur penalties capped at €20,000.

Considering that practice and interpretation is still evolving across EU member states and locally, questions are continuously being tackled and discussed with the CfR. Another event on DAC6 is set to be held by the MIA on 16th April, 2021. Refer to page 12 for more details.

This article has been jointly created by representatives of the Malta Institute of Accountants, the Institute of Financial Services Practitioners, and the Malta Institute of Taxation as a brief reflection of the areas tackled during the webinar, which was jointly organised by the three Institutes on 5th February 2021. Presented in the form of a panel discussion with panel members Mr Andre Zarb, Dr Rachel Zarb Cousin and Mr Mirko Rapa, moderated by Mr Nick Captur.

This material is intended for educational purposes only and readers shall not, in any way consider this as advice and hence should not be relied upon as such.