The European Union continues to fight cross-border tax fraud and take further steps against tax avoidance. The Directive on Administrative Co-operation has undergone its sixth amendment and is otherwise known as DAC 6. Many EU jurisdictions, plus Gibraltar, are now preparing their domestic regimes for compliance in the coming months.

DAC 6 requires EU countries to exchange information in three different forms: automatically, spontaneously and upon request. It requires intermediaries and, potentially, taxpayers to report certain cross-border arrangements made between EU member states or member states and non-member (third) countries. Arrangements are reportable if they qualify under a 'main benefit' test and/or fall within one of several ‘hallmarks.’ The hallmarks are broad categories that identify characteristics that are considered potentially indicative of aggressive tax planning.

Intermediaries will be required to first identify cross-border arrangements and then apply several tests to determine whether each cross-border arrangement qualifies as a disclosable arrangement. If it does, a disclosure will have to be made within 30 days. Details disclosed will include the identification of all the taxpayers, the relevant applicable hallmark(s), a summary of the arrangement and the value of the cross-border arrangement.

Gibraltar implemented the new DAC 6 regime with the Income Tax (Amendment) Regulations 2020. As a result, entities that are described as intermediaries will be obliged as of 1 October to report all disclosable cross-border arrangements for which they provide help and, on 30 November, any historical arrangements that became reportable between 25 June 2018 and 30 June 2020.

Intermediaries are broadly defined as anyone who designs, markets, organises, makes available or implements a report arrangement, or anyone who helps with reportable activities and knows or could be reasonably expected to know that they are doing so. Therefore, intermediaries include consultants, accountants, financial advisers, lawyers, banks, trust companies and insurance intermediaries. DAC 6 requirements call for intermediates to establish clear regimes and policies to spot cross-border arrangements and determine whether those arrangements are subsequently reportable.

The EU deferred the original date of 1 July 2020 because of the COVID-19 pandemic.

* Jamie Allan can be reached on +350 200 76651 or at jamie@fid.gi