The European Union is increasing transparency requirements in order to identify so-called potentially aggressive tax structures. We are happy to support you in complying with the disclosure requirements, which have been significantly tightened by DAC 6.
DAC 6 only applies to cross-border tax structures. However, the Act, which has been in force since 1 July 2020, does not only regulate the obligation to report cases from the date of entry into force of the Act (so-called new cases), but also old cases which concern the period from 25 June 2018 to 30 June 2020 are covered by the reporting obligation. DAC 6 defines certain new terms, such as the intermediary (who designs the tax structuring, organizes the marketing etc.), the user (who benefits from the tax structuring) and the identifiers (the criteria for the existence of a reportable tax structuring). In addition, DAC 6 defines who has to report which information and within what time limit.
With this letter we would like to inform you about the obligation to report certain cross-border tax arrangements (so-called DAC 6) and naturally offer you our comprehensive support in this matter. We would be happy to assist you in identifying the tax structures subject to reporting requirements and in DAC-6 project management.
The obligation to notify concerns cross-border tax structures whose first step of implementation was taken from 25 June 2018 and until 30 June 2020. For these so-called old cases, the notification deadline is 31 August 2020, whereas the deadline for official notification to the Federal Central Tax Office for so-called new cases, the first step of which was taken from 1 July 2020, must be made within 30 days of their provision. An extension of the deadline was under discussion due to the COVID 19 pandemic, but was rejected by the Federal Ministry of Finance, so that there is still a short-term need for action for all parties involved. The DAC 6 is standardised in §§ 138d to 138k of the German Fiscal Code.
According to the explanatory memorandum to the law, a tax arrangement within the meaning of DAC 6 is
“a process of creation in which a specific structure, process or situation is consciously and actively brought about or changed by or for the user and this structure, process or situation thereby acquires a tax significance which would not otherwise occur.”
Both the EU and the German legislator deliberately leave room for interpretation at this point in order to cover as many factual constellations as possible. Relevant facts are to be derived from the DAC 6 indicators (presentation in 2 groups) mentioned in the FAQ.Examples of potentially reportable tax arrangements within the meaning of DAC 6:
- Confidentiality clause and prohibited forwarding of the design to third parties without the consent of the creator,
- Profit-sharing when the tax advantage occurs,
- Use of financing, purchasing or service companies in low-taxed countries,
- Goldfinger model,
- Contribution of a claim and conversion into tax-exempt dividend income,
- Licensing of IP from a domestic parent company to a low-taxed foreign company to produce an asset and reselling the produced asset to the parent company,
- Deposit of cash into a financing company and return of the cash granted as a loan immediately after the deposit,
- Multiple write-offs due to multiple attribution under a lease
- Circumvention of the obligation to notify information exchange, if not economically justified
In the following section, we discuss the individual actors, the number plate groups and the reporting process in the context of an FAQ:
Who is responsible for the reporting obligation?
In principle, the so-called “intermediary” is obliged to report. However, under certain conditions the user is also subject to the obligation to register. In addition, the intermediary and user may be obliged to register jointly.
Who is an intermediary?
The intermediary is the person who conceives, markets, organises, makes available for use or takes over the administration for the implementation of a cross-border tax arrangement, e.g. tax advisors, auditors, lawyers, banks, financial service providers and other consultants or a group tax department. The intermediary with a domestic connection is subject to reporting requirements. In individual cases, several intermediaries may be involved.
Who is a user?
The work of the intermediary benefits the so-called “user”. User is the person who is provided with a tax structuring, is prepared to implement the tax structuring or has taken the first step towards implementation. In the case of fund structures, it is the capital management company, insofar as it is resident in Germany. The user is obliged to register if he has created the structure himself (in-house tax structuring), if an intermediary has no domestic connection or if the intermediary is obliged to maintain confidentiality. In addition, there is a cooperative reporting obligation if the intermediary transmits anonymised data, which must be supplemented by the user. This reporting obligation is, so to speak, the first step towards the Federal Central Tax Office, whereby anonymised key data on tax planning must be disclosed. The Federal Central Tax Office then issues registration and disclosure numbers to the intermediary, with which the respective structure can be identified by the authorities.
To whom must the notification be made?
Notification is made to the Federal Central Tax Office using a special electronic reporting procedure.
What are registration numbers or so-called Hallmarks?
Hallmarks are the criteria for the existence of a reportable tax structure. A total of 16 hallmarks are intended for examination, which are to be divided into 2 groups. The first group of 7 hallmarks requires an additional main benefit test. In the second group and the remaining 9 licence plates no tax benefit is necessary.
What is the Main-Benefit-Test (MBT)?
The Main-Benefit-Test is an additional requirement, e.g. the reimbursement of taxes, the granting or increase of tax benefits or the increase of tax claims or also temporary postponement of tax payments to other periods, and examines whether the design is tax motivated and whether it is one of the main advantages.
What falls under the 1st group of characteristics with MBT?
- Agreement of a confidentiality clause (A1)
- Performance agreement (A2)
- Standardised documentation / structure (A3)
- Acquisition of companies with termination of activity to exploit losses (B1)
- Conversion of income into assets with lower taxation (B2)
- Circular transactions (B3)
- Deductible payments which are not taxed or are subject to low taxation in the country of destination (C1)
What falls under the 2nd group of labels without MBT?
- Deductible payments if the recipient is not a resident of any country or an OECD blacklist country (C1)
- Multiple depreciation of the same asset (C2)
- Multiple exemptions from double taxation of the same income (C3)
- Transfer of assets with substantially different carrying amounts (C4)
- Elimination of the notification obligation under the automatic exchange of information on financial accounts (D1)
- Disguising the identity of the beneficial owner (D2)
- Use of a unilateral Safe Harbour (E1)
- Transfer of hard-to-value intangible assets to associated enterprises (E2)
- Transfer of functions, risks or assets between related companies, so that the EBIT forecast of the transferor decreases by more than 50% over 3 years (E3)
What should be stated on the tax return?
In the tax return for the user’s type of tax concerned, the registration and disclosure numbers must be stated, which were issued to the intermediary by the Federal Central Tax Office for a tax configuration used. In the case of the cooperative reporting obligation, the disclosure number of the intermediary must also be stated in the tax return.
What are the sanctions?
Failure to disclose in the tax return is subject to a fine of up to EUR 25,000, as is failure to report the tax structuring of new cases in a timely manner, incompletely or not at all by the intermediary. There is no fine for incorrect or late reporting of old cases.
We will be happy to assist you in identifying the tax structures subject to reporting requirements and the intermediary or the party obliged to report, as well as the DAC-6 project management, and will be happy to answer any questions you may have on the subject of DAC6.