The European Union (EU) legislation DAC6 – also known as the “Directive on Administrative Cooperation” – is aimed at reducing tax evasion and enhancing tax transparency. The directive mandates that intermediaries, including tax consultants, accountants, and lawyers, notify the tax authorities of the respective EU member states of certain cross-border arrangements that they have supported. The regulation covers a wide range of arrangements, including those using offshore firms, tax havens, or aggressive tax planning, that could be used to evade paying taxes.
On June 25, 2018, the regulation went into effect, and it had to be implemented into national laws by December 31, 2019 in EU member states. Within 30 days of the agreement being made available for execution or after the first step in implementation has been taken, whichever comes first, intermediaries must notify pertinent cross-border agreements. The facts of the agreement, the parties involved, and any potential tax advantages are included in the information reported.
WHAT ARE THE CHALLENGES OF DAC6
While DAC6’s primary goal is to combat tax avoidance, it has presented a number of difficulties for firms and intermediaries. The complexity of the reporting requirements is one of the major difficulties. The directive covers a wide range of agreements, and it might be challenging to understand the criteria for figuring out if an agreement needs to be disclosed. The reporting requirements of several EU member states, each of which has its own set of laws and regulations, are another challenge for intermediaries.
Another challenge is the possibility that the reporting requirements will breach customer confidentiality. Even if doing so would mean revealing private client information, intermediaries are required to notify pertinent cross-border agreements. This has prompted some intermediaries to seek legal counsel on how to comply with the reporting obligations while preserving client confidentiality since it has sparked concerns about how DAC6 may affect the relationship between intermediaries and their clients.