Disclosure of information in relation to “reportable cross-border arrangements”
What is DAC 6?
DAC 6 refers to the EU Directive 2018/822 (“DAC 6”) amending the EU Directive 2011/16. It represents the sixth amendment to the EU Directive on Administrative Co-operation. In Luxembourg, the Directive has been transposed into Luxembourg law on 25 March 2020 (the “DAC 6 Law”).
DAC 6 concerns mandatory disclosure of information in the field of taxation in relation to a reportable cross-border arrangement by an “EU intermediary” or, where applicable, by the “relevant taxpayer”.
The stated purpose of DAC 6 is to enhance transparency, reduce uncertainty over beneficial ownership and dissuade intermediaries from designing, marketing and implementing harmful tax structures.
How does it impact the Bank?
A Bank qualifying as “intermediary” for the purpose of DAC 6 has a legal obligation to disclose to the Luxembourg tax authorities, on a case-by-case basis, information on each reportable cross-border arrangement that meets at least one criteria (so-called “hallmark”) listed in the DAC 6 Law.
What is exactly reported to the local tax authorities?
In accordance with the DAC 6 Law, the Bank reports the following information to the Luxembourg tax authorities:
- Identification of intermediaries and relevant taxpayers, including their names, date and place of birth, tax residence, tax identification number and where applicable, associated enterprises to the relevant taxpayer;
- Details of the hallmark(s) that make the cross-border arrangement reportable; Summary of the arrangement, including the name by which it is known, if any, and an adequate description of the relevant business activities;
- Date on which the first step in implementing the reportable cross-border arrangement has been made or will be made; Details of the national provisions of the concerned states that form the basis of the arrangement;
- Value of the reportable cross-border arrangement;
- Identification of the EU member state of the relevant taxpayer(s) and any other EU member state(s) likely to be concerned by the arrangement;
- Identification of any other person likely to be affected by the cross-border arrangement to be declared by indicating to which member states that person is linked.
In return, the Luxembourg tax authorities will allocate to the Bank a reference number to the reported arrangement for DAC 6.
The Luxembourg tax authorities will automatically exchange collected information with the tax authorities of all the other EU member states through a common centralized database.
Reportable cross-border arrangements where the first step was implemented between 25 June 2018 and 1 July 2020 are to be disclosed retrospectively.
How does it impact the Client?
Depending on their own tax legislation, “relevant taxpayers” of a cross-border arrangement which were reported by the Bank, may be required to indicate in their own tax returns the reference number(s) allocated by the Luxembourg tax authorities to the Bank.
A cross-border arrangement disclosed according to the DAC 6 Law neither qualifies as such as a taxable event nor as a sign of illegal behavior.