May 10, 2021
What is DAC 6 and what are its effects on cross-border tax arrangements?
The European Directive DAC 6 was voted into law in March 2020, and is applicable retroactively from 25 June 2018. The Directive aims to broaden the scope of Common Reporting Standards (CRS) and Automatic Exchange of Information between EU member states in order to give greater transparency into potential aggressive tax planning arrangements by clients. DAC 6 applies to both natural persons and legal entities that make use of cross-border tax planning strategies involving at least one EU country.
However, the intention is not to organise a witch-hunt on the lookout for tax structures which are compliant and robust from a legal perspective, or to levy taxes, but to identify legal tax avoidance strategies, with a view to possibly amending legislation in the future.
What are the implications for OneLife and its clients?
The new Directive means that OneLife has to report on all policies that fulfil the following criteria:
- Tax planning structures considered as aggressive
- Strategies which are cross-border, involving at least one EU country
- Structures which meet one or more of the ‘hallmarks’ mentioned in the regulation. A hallmark is a characteristic or a feature of a cross-border arrangement entailing its mandatory reporting if met. In addition, a Main Benefit Test (MBT) may also apply to verify if the main benefit of the tax arrangement is to derive a tax advantage where OneLife is an intermediary.
It is important to remember that aggressive tax planning is a perfectly legal activity as such and that there are no sanctions for OneLife clients following its reporting obligation. Compliance with DAC 6 is therefore not an item blocking the client acceptance process.
On the other hand, a company that neglects to follow reporting requirements or that reports only partially may encounter a fine of up to EUR 250,000. According to Article 8ab of DAC 6, each Member State shall take the necessary measures to require intermediaries to file information that is within their knowledge, possession or control on reportable cross-border arrangements with the competent authorities. In the scope is any person or company that designs, markets, organizes or makes available for implementation or manages the implementation of a reportable cross-border arrangement or knows or could be reasonably expected to know that he has undertaken to provide advice with respect to the implementation of a reportable cross-border arrangement.
As a consequence OneLife only has the obligation to report a policy in the case where no partner (eg. the broker) has already done so or should OneLife have something to add to the partner’s declaration. Otherwise, OneLife can simply refer to the partner’s declaration or vice versa. The reporting is therefore not confidential and could be shared with the broker and/or client.
How and when will OneLife declare?
As the afore-mentioned legislation applies retroactively since 25 June 2018, OneLife has already declared all existing policies to which the applicable criteria apply. On the other hand, new contracts will, if the conditions are met, be declared when they enter into force. OneLife has 30 days after the conclusion of the contract or the occurrence of the event leading to a declaration to discharge this duty, but under no circumstances will the contract be blocked because of DAC 6. After all, the client has the legal right to carry out tax planning.
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