The European Union (hereinafter the ‘EU‘) has expanded the scope of its Directive 2011/16/EU on Administrative Cooperation in the field of taxation. With the aim of strengthening tax transparency, Directive (EU) 2018/822 is the sixth amendment of the EU Directive on Administrative Cooperation and is therefore referred to as ‘DAC6‘. DAC6 responds to the recommendations of Action 12 of the OECD/G20 Base Erosion and Profit Shifting (‘BEPS‘) project regarding the Mandatory Disclosure Rules (‘MDR‘).

In short, DAC6 directs the EU Member States to transpose a mandatory disclosure regime into their domestic law. This includes a reporting obligation for intermediaries and taxpayers in relation to their reportable cross-border arrangements and mandatory automatic exchanges of information between the EU Member States.

The DAC6 disclosure regime has an extremely broad scope, not only with respect to the scope of the parties that are involved but also with respect to the extensive information that must be disclosed to the competent authorities. A failure to correctly (and timely) file a report or another act of non-compliance may result in extremely high penalties (up to EUR 870,000 in the Netherlands).

The reporting obligation lies primarily with the EU-based intermediaries, unless a right of legal professional privilege applies. However, if no intermediaries are involved in making a cross-border arrangement available or in implementing the process, the relevant taxpayer becomes responsible for filing a report with the competent authorities (usually the local Tax Administration).

In short, an intermediary is any person that is actively involved in making available, or in implementing (a step in) the process, or who has either directly or through another person provided aid with respect to a reportable cross-border arrangement (i.e., an accountant, tax advisor, trust officer, or lawyer).

A cross-border arrangement becomes reportable only if certain characteristics or features are present, which are referred to as ‘hallmarks.‘ Since most EU Member States have transposed the definitions of hallmarks into their domestic mandatory disclosure regimes in line with DAC6, we will provide an overview that outlines the different hallmarks as defined in the DAC6 regulations.

Please note that some hallmarks are linked to the main benefit test. This means that certain hallmarks make an arrangement reportable only if it passes that main benefit test, which is fulfilled if it can be reasonably concluded that the main benefit, or one of the main benefits of an arrangement, is to obtain a tax advantage. This will be the case if such a tax advantage is more than merely incidental.