DAC6 refers to the “Directive on Administrative Cooperation”, specifically its sixth amendment (thus “DAC6”). It is a European Union directive that aims to promote transparency and fairness in taxation.

Its primary purpose is to require intermediaries and, in some instances, taxpayers to report details of certain cross-border arrangements that could be used to avoid or evade taxes. The main goal is to counter aggressive tax planning.

Key Requirements:

• Mandatory Disclosure: DAC6 requires intermediaries (e.g., tax advisors, accountants, lawyers, and banks) and sometimes taxpayers to disclose information on potentially aggressive or harmful cross-border tax arrangements.
• Hallmarks: The directive outlines various “hallmarks” which are essentially characteristics or features of a cross-border arrangement that make it reportable. These hallmarks cover a wide range of scenarios, from arrangements that undermine reporting obligations to those that shift profits to low tax jurisdictions.
• Main Benefit Test (MBT): Some hallmarks only make an arrangement reportable if it also meets the “Main Benefit Test”. This test is satisfied if the main benefit or one of the main benefits of the arrangement is obtaining a tax advantage.
• Timelines for Reporting: Intermediaries/taxpayers must report arrangements within 30 days of the day after the arrangement is made available or is ready for implementation, or when the first step in its implementation has been made.

Examination:

The competent authority of each member state is responsible for examining the information disclosed under DAC6. They assess the potential risk of tax avoidance and can take appropriate actions based on the disclosed arrangements.

Obligation to Review and Report:

• Intermediaries: They are the primary entities required to report. An intermediary is any person who designs, markets, organizes, or makes available for implementation, or manages the implementation of a reportable cross-border arrangement.
• Taxpayers: If there is no intermediary, or if the intermediary is protected by legal professional privilege (or if the intermediary is non-EU based and the obligation does not shift to another intermediary), the reporting obligation falls on the taxpayer.

Reporting in Cyprus:

In Cyprus, like all EU member states, DAC6 has been transposed into national law. Cyprus implemented the directive through its own legal framework, and reporting must be made to the Cyprus Tax Department.

The full text of the DAC6 is available here.

Conclusion:

DAC6 represents a significant move towards greater transparency in the EU’s efforts to combat tax avoidance. It imposes new reporting obligations on intermediaries and taxpayers involved in certain cross-border arrangements. It is crucial for affected entities and individuals in Cyprus to seek advice from local professionals to ensure compliance.

At AGP Law, we have set up a particular DAC6 team that deals nearly exclusively with DAC6. We will be happy to support any taxpayer or intermediary.

For all enquiries please contact our team of experts at agp@agplaw.com 

The information provided by AGP Law | A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.