All You Need to Know about DAC6

As the international tax landscape undergoes transformational changes, the European Union (EU) has proactively introduced measures to foster transparency and curb tax avoidance. One such significant directive is DAC6. Here’s an insight into this directive and its implications, especially for entities operating within or connected to Cyprus.

1. What is DAC6?

DAC6, or Directive on Administrative Cooperation, refers to the EU Directive 2018/822. This legislation mandates the disclosure of certain cross-border arrangements (CBAs) that might potentially be used for tax evasion or avoidance.

2. The Core Objective:

The primary aim of DAC6 is to provide tax authorities with information concerning aggressive tax planning strategies. By doing so, it seeks to enhance transparency, discourage harmful tax practices, and strengthen the overall tax governance within the EU.

3. Key Features:

Cross-Border Focus: DAC6 specifically targets cross-border tax arrangements involving at least one EU Member State.

Hallmarks: The directive outlines certain ‘hallmarks’ or characteristics of transactions that might necessitate reporting. These hallmarks span various categories, from generic to specific, and some require a ‘main benefit test’ to ascertain the principal purpose of the arrangement.

Mandatory Reporting: Intermediaries, such as tax advisors, accountants, lawyers, banks, and consultancies, have an obligation to report the relevant details of any CBA that falls under DAC6. In cases where no intermediary is involved or if there’s professional privilege, the obligation might fall on the taxpayer.

4. Cyprus and DAC6:

Cyprus, as an EU member state, has implemented DAC6 into its national legislation. While adhering to the fundamental provisions of the directive:

Delayed Reporting: Due to the COVID-19 pandemic, Cyprus decided to defer the reporting deadlines, granting entities additional time for DAC6 compliance.

Local Guidelines: The Cyprus Tax Department released its guidance on DAC6, offering clarity on hallmarks, reporting obligations, and other operational aspects.

5. Penalties for Non-Compliance:

Entities failing to meet the DAC6 obligations could face substantial penalties in Cyprus. The nature and amount of penalties vary based on the severity of the non-compliance.

6. The Way Forward:

DAC6 emphasizes the importance of:

Evaluation: Entities must evaluate all their cross-border arrangements to determine if they fall under the purview of DAC6.

Documentation: Proper documentation ensures that intermediaries or taxpayers can substantiate their decisions regarding DAC6 disclosures.

Regular Compliance Check: Given the complexity and evolving nature of tax laws, it’s essential for entities to regularly review their DAC6 compliance status.

Conclusion:

DAC6 is an embodiment of the global shift towards greater tax transparency. While it adds another layer of compliance for entities, it also offers an opportunity to streamline cross-border arrangements and foster better tax practices.

For businesses in Cyprus or those with ties to the island, it’s crucial to be well-acquainted with the nuances of DAC6 and ensure full compliance. Advocates Cyprus stands at the forefront of this evolving landscape, offering expert guidance and solutions tailored to DAC6 regulations.

For comprehensive advice on DAC6 or any tax-related query, get in touch with us at [email protected] or dial +357 24 023370.

About Advocates Cyprus:

Advocates Cyprus is a luminary in legal and corporate services in Cyprus. Our team of dedicated professionals brings forth a blend of expertise and experience, ensuring that our clients navigate the intricate corridors of legislation with confidence and clarity.

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Published on: 06/10/23