International Tax Panorama

DAC6 is going to be a game-changer by infusing transparency and fairness in taxation through mandatory disclosure requirements for reportable cross-border arrangements. However, there are complex technical, administrative, and procedural issues for the taxpayers and intermediaries while determining a reportable cross-border arrangement, which can be reflected in the new bill to implement DAC6 in the Netherlands. 

On 14 November 2019, the House of Representatives in the Netherlands adopted a bill to implement the European DAC6 Directive. The European Union’s council directive on administrative cooperation 2019/822, more commonly referred to as DAC 6, introduces mandatory disclosure requirements for taxpayers, tax intermediaries, and advisers to provide tax authorities with details of certain arrangements. Those certain arrangements have an EU cross-border element where they qualify within the prescribed “hallmarks” and also when they meet the main benefit test of obtaining a tax advantage, under the Directive.

While reporting isn’t required until 31 August 2020, transactions in scope must be reported if they occurred any time after 25 June 2018. As the DAC6 implementation deadline approaches, several Member States have issued draft DAC6 legislation, including the Netherlands. Thus, the Netherlands must transpose it into national law by 31 December 2019. However, the bill will take effect as of 1 July 2020 in accordance with DAC6.

DAC6 Implementation development in the Netherlands: 

Following a public consultation, the bill to implement DAC6 into Dutch law was presented to the Lower House on 6 July 2019. During that time, it was concluded that the Dutch implementation has wholly adopted the Directive without providing additional hallmarks or taxes. However, the explanatory notes, along with the draft legislation provided for the following few implementation guidelines :  

• It is up to the intermediary to decide whether an arrangement is “potentially” aggressive. 
• If another intermediary has already reported the cross-border arrangement (via the reference number), then all the inter-connected intermediaries can be relieved from its reporting obligation. 
• No penalty shall be levied on an intermediary if it concludes that a cross border arrangement is not reportable, based on a tenable tax position. 
• An arrangement set up with the intent to avoid double taxation may meet the main benefit test. 
• Penalty amount up to EUR 830,000 may be imposed if gross negligence or deliberate actions of an intermediary result in missed, late, or inaccurate reporting.
• It is the intermediary firm, and not individual advisors, that has a reporting obligation.

Subsequently, on 19 December 2018, an internet consultation was launched by the Dutch government, offering interested parties an opportunity to respond to the DAC6 bill.

On 31 October 2019, a draft decree was reportedly submitted in the Dutch Parliament in relation to the implementation of Council Directive (EU) 2018/822 of 25 May 2018 (DAC6) on reportable cross-border tax planning arrangements. After the Q&A session concluded by various members of the Dutch Parliament, the Deputy Minister provided further guidance, which is as follows: 

• It is explicitly stated that an arrangement is “ready for implementation” when it can be implemented. This will happen when a cross-border arrangement is designed for a specific relevant taxpayer (and thus, the reportable arrangement is qualified of being implemented). 
• There will be no “white list” or a list of “negative hallmarks” of reportable cross-border arrangements 
• Any changes which triggers a new hallmark (compared to the initial hallmark triggered) results in a new reportable cross-border arrangement.
• The related entity for which the in-house tax advisor provides its services will qualify as a relevant taxpayer. Also, it has been explicitly clarified that an individual in-house tax advisor cannot qualify as an intermediary itself. The reasoning is that only the entity affected, or being a “subject” or “user” of the arrangement, will qualify as the relevant taxpayer.
• Main benefit test : Artificiality of the arrangement will not be a necessary condition under the Main benefit test. Such an amendment in made in alignment with the “tax advantage” definition contained in the European Commission Recommendations of December 6, 2012. 
• A penalty shall not be imposed where an arrangement should have been reported, but it was “defendable” not to report a cross-border arrangement. The “defendable” threshold will depend on the relevant facts and circumstances of the case.
• Regarding hallmark E3 which concerns Intragroup transfers that concern more than 50% of the projected annual “EBIT” (earnings before interest and taxes), definition of EBIT has been provided for. However, it has been clarified that the EBIT should be used for commercial purposes and not for tax purposes. At the same time, the EBIT test must take place at a single entity level. 
• With respect to the reporting deadline, a secondary intermediary will not have to report before the primary intermediary (provided if it is situated in the Netherlands). 
• Mere payments with tax effect (not reflected in commercial figures) will be covered under hallmark C as ”non-existing” payments. Hallmark C concerns specific hallmarks related to cross -border transactions. 
• In  case of any transfer of assets between a head office and a permanent establishment, hallmark C4 will also apply if one party does not recognize the transfer. Hallmark C4 concerns Transfer of assets with material different valuation. 
• In the event of a reorganisation targeting a commercial objective without any relation to the exchange of information will not qualify as undermining the hallmark D1 reporting obligation. Hallmark D1 concerns specific hallmarks concerning automatic exchange of information and beneficial ownership.

Conclusion:

As the DAC6 implementation deadline is approaching Taxpayers and intermediaries who have operations in the Netherlands should be mindful of the implementation developments in the Netherlands. At the same time, they should review their policies and strategies for reporting tax arrangements so that they are well-prepared to meet the DAC6 obligations.