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BEPS

DAC6 reporting delay: dates and deferrals your tax team needs to know

The European Union (EU) Commission has approved a six-month delay in key dates for DAC6 reporting for countries that announced that they would defer. Multinational enterprises (MNEs) may be breathing a small sigh of relief at deadline extensions, but there is still much to be concerned about when it comes to complying with this very complex and stringent EU mandatory disclosure regime (MDR) regarding cross-border arrangements.

DAC6 uses the EU mandatory disclosure rules to deter aggressive cross-border transactions intended to secure tax advantages. Its goal is to support a fair, transparent, efficient, and thorough digital tax system. DAC6 is a response to the BEPS Action 12 initiative spearheaded by the Organisation for Economic Co-Operation and Development (OECD) for mandatory disclosure of these transactions.

Because of the COVID-19 pandemic, the EU Commission finalized amendments to the timeline, allowing countries an optional six-month deferral. Countries that have not announced that they will be deferring must adhere to the original dates of August 31, 2020 deadline for reporting historical arrangements (those dating back to June 25, 2018).

Although Finland will not defer, the countries that announced that they will be deferring for the full six months to January 1, 2021, include:

  • Belgium
  • Cyprus
  • Czech Republic
  • Ireland
  • Lithuania
  • Luxembourg
  • Slovakia
  • Netherlands
  • UK

For countries that do not announce, implementation is still slated to begin on July 1, 2020.

The pressure is on for taxpayers and their intermediaries

Although these proposed deadline changes would give MNEs and their intermediaries a little more time to prepare to meet these requirements and submit their first reports, the ongoing reporting deadlines are tight. Companies have only 30 days to gather and analyze data and then put it into the required forms and submit them. The challenge is compounded by the fact that each of the 27 EU countries and the UK has its own reporting system. The overarching message is clear: Every MNE must have a system in place that puts them in control of DAC6 reporting, and not the other way around.

Companies should not underestimate the effort required for the collection and accurate reporting of huge amounts of crucial cross-border arrangement information within an accelerated time frame. Failure to comply can result in multimillion-euro fines, reputational damage, and even criminal penalties. This work cannot be done manually. And outsourcing isn’t an option because most of the data must come from within the company and be analyzed before being transferred to the outsourced firm to put into the correct forms ― all within 30 days.

Taxpayers (corporations) are ultimately liable for noncompliance, but the burden of compliance responsibility is with their intermediaries: tax consultants, tax advisors, attorneys, and anyone else who has a hand in cross-border arrangements.

In addition to the many general compliance challenges related to DAC6, there are particularly thorny compliance issues for intermediaries:

  • Managing multiple levels of compliance requirements (such as local, domestic, foreign, and country-to-country).
  • Determining who has responsibility for what in an effort that involves multiple diverse participants.
  • Unearthing crucial information not related to the intermediary’s usual responsibilities. Such information can be very difficult to find, sometimes through deliberate efforts to conceal it.

 Three common misconceptions about DAC6 reporting

Misconceptions around DAC6 reporting can have an impact on intermediary follow-through and can even derail your compliance efforts. These are the three most common misconceptions:

  1. DAC6 only applies to the EU. Although DAC6 is an EU directive, a company does not need to be headquartered in the EU to be affected. US companies that have entities in the EU and conduct cross-border transactions with EU countries must comply as well.
  2. Reporting responsibility lies only with the EU-based intermediary. All intermediaries involved in transactions are responsible for making sure reporting takes place ― not just those located in the EU. And if for any reason the intermediary isn’t reporting a transaction, it is still the company’s responsibility to report it. It’s crucial that there is a coordinated effort across the business to make sure compliance takes place and that there are no open and unchecked assumptions about who has responsibility for what.
  3. Only big transactions need to be reported. It’s not the size of the transaction that determines whether it should be reported. Reportability is based on meeting the DAC6 hallmarks for reportability. Even routine transactions like purchasing an asset can meet reportability criteria, so it’s essential that taxpayers and intermediaries understand all the nuances of the DAC6 regulations.

Four steps to DAC6 reporting compliance

DAC6 doesn’t follow the path of typical reporting, where you explain what’s already happened. DAC6 requires transactions to be reported as they’re unfolding. This adds an extra level of complexity to a process that is already very complicated, given its cross-function and cross-country parameters and the level of reporting detail required.

Transactions can originate in any of several different departments within a company. Intermediaries may not be fully aware of what’s taking place across their companies, so real-time reporting can be particularly challenging. With so many participants and so much potential for crucial information to fall through the cracks, taxpayers and intermediaries must work together to create a foolproof, automated compliance program.

By taking the following steps in partnership, taxpayers and intermediaries can create a solid foundation for a compliance program that will see the enterprise through from first (historical) reporting to ongoing reporting:

  1. Design a reporting strategy, policy, and guidance that addresses how to recognize reportable arrangements clearly establishes responsibilities for both taxpayers and intermediaries (within and outside the EU) and ensures that all parties are well trained on DAC6 reporting requirements.
  2. Develop a process for managing and monitoring arrangements where there could be multiple intermediaries to ensure that efforts aren’t duplicated and details aren’t missed.
  3. Establish clarity on required disclosure criteria, as well as where national legislation and the EU directive intersect and where they diverge.
  4. Identify arrangements that have been reported and those that have not to meet the reporting requirements and prepare for potential audits through robust and complete transaction documentation.

Manage compliance with Thomson Reuters ONESOURCE™ DAC6 Reporter

A robust DAC6 compliance program must include both automated capabilities and repeatable workflows. Look for an automated workflow solution such as DAC6 Reporter, which includes all the data collection templates, reporting forms, analytics dashboards, and supporting information you need to meet DAC6 reporting requirements in all EU Member States and the U.K. Updates to DAC6 Reporter include flowcharts, hallmarks, form view, form XML, case management, audit tracker, and permissions. The tool addresses many of the compliance challenges that can interfere with timely and accurate reporting, which is of utmost importance to intermediaries.

DAC6 Reporter analyzes data from your tax arrangements and flags transactions that are subject to DAC6 mandatory disclosure. The tool is supported by a comprehensive database of DAC6 compliance rules ― by country — and provides monitoring and management guidance from its easy-to-use analytics dashboard. In addition, DAC6 Reporter can easily migrate any data that exists in other ONESOURCE solutions, saving significant data-entry time for first-time and ongoing reporting. And the tool facilitates collaboration and feedback across workgroups through its dedicated chat feature.

Ensure compliance with the right plan and the right tools

The cost of inadequate reporting or noncompliance with DAC6 is simply too high to risk and is entirely avoidable. Creating a robust compliance program based on thoughtful planning and supported by the right tools will protect and benefit your company for both the short and the long term.

 

 

Learn more about managing the DAC6 directive through these resources:

DAC6 REPORTER FOCUS: Defining the data you need to file DAC6 right the first time

DAC6 compliance and why it’s important (infographic)

DAC6 Reporter solution brochure

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