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31 July 2020
The latest amendment to the EU Directive on Administrative Cooperation (2011/16/EC) (DAC 6) requires the mandatory reporting of certain cross-border tax arrangements and the subsequent automatic exchange of such information within the European Union.
DAC 6 is based on Base Erosion and Profit Shifting Action 12 and aims to increase tax transparency by identifying arrangements that involve aggressive tax planning at an early stage.
Although DAC 6 concerns only EU member states and Switzerland is therefore not obliged to incorporate it into national law, international groups based in Switzerland may be affected by the new directive through their subsidiaries or branches in the European Union.
The DAC 6 mandatory reporting regime was originally intended to take effect from 1 July 2020, obliging qualifying intermediaries or the respective taxpayer to disclose information on reportable cross-border tax arrangements up to 25 June 2018 to their tax authorities within 30 days. However, due to the COVID-19 pandemic, the European Council agreed on an optional six-month deferral of the DAC 6 reporting deadlines on 24 June 2020.
What arrangements must be reported?
Cross-border arrangements and hallmarks
A reportable cross-border arrangement means any arrangement that concerns at least one EU member state and a third country, including Switzerland, and meets at least one of the characteristics or features known as 'hallmarks' listed in Annex IV of DAC 6. These hallmarks are categorised into:
The generic hallmarks linked to the main benefit test include confidentiality clauses, performance-related remuneration and substantially standardised documentation that is available to more than one taxpayer without a need to be substantially customised for implementation.
The specific hallmarks linked to the main benefit test comprise:
The following specific hallmarks trigger the reporting obligation per se (ie, irrespective of the fulfilment of the main benefit test):
Main benefit test
As mentioned above, certain hallmarks will trigger a reporting obligation only if the main benefit test is satisfied. This will be the case if the main benefit or one of the main benefits that a person may reasonably expect to derive from an arrangement consists of obtaining a tax advantage.
In the context of the main benefit test, it is irrelevant whether the taxpayer has actually obtained a tax advantage, which means that the test is based on an objective point of view.
Who is obliged to report?
Intermediaries – but also, in some specific cases, taxpayers – are subject to the reporting obligations under DAC 6.
An 'intermediary' is any party that designs, markets, organises, makes available for implementation or manages the implementation of a reportable cross-border arrangement. This definition covers any party that knows or could be reasonably expected to know that they directly or indirectly provide aid, assistance or advice with regard to the relevant arrangements. As a result, a wide range of professionals (eg, consultants, accountants, financial advisers, lawyers, in-house counsels and banks) may be subject to reporting obligations under DAC 6. However, the relevant party must have a connection to the European Union, which will be true if they:
Therefore, Swiss intermediaries do not fall within the scope of DAC 6 and are not required to meet the related reporting obligations. If only a Swiss intermediary is involved in the arrangement or the involved EU intermediary is subject to a professional privilege and their duty to report is therefore waived, the reporting obligation will pass to the taxpayer.
For example, where a Swiss holding company grants a loan to an EU subsidiary and the applicable interest rate is determined based on the safe haven interest rates published annually by the Swiss Federal Tax Administration (SFTA), the criterion of a cross-border arrangement is met and one of the hallmarks – namely, the use of unilateral safe harbour rules – is also fulfilled, leading to a reporting obligation under DAC 6. In the absence of an EU intermediary, the reporting obligation is conferred on the relevant EU subsidiary, since the Swiss holding company and any Swiss intermediaries potentially involved remain outside the scope of DAC 6.
What happens in the event of non-compliance?
To ensure that the reporting obligations are complied with, individual EU member states will impose penalties of up to €700,000.
DAC 6 is an EU directive and, as such, need not be incorporated into Swiss law. Nor does it extend to companies having their registered seat in Switzerland. However, its impact on groups based in Switzerland may be significant. In certain circumstances, groups based in Switzerland may be affected by DAC 6 – for example, on account of intercompany loan relationships whose interest rate is determined on the basis of:
Considering the broad scope of DAC 6, it is crucial that Swiss-based groups identify qualifying intercompany transactions at an early stage and ensure that they comply with the applicable subsidiary reporting obligations in cases with no involvement of EU intermediaries.
For further information on this topic please contact Fabienne Limacher or Maurus Winzap at Walder Wyss by telephone (+41 58 658 58 58) or email (firstname.lastname@example.org or email@example.com). The Walder Wyss website can be accessed at www.walderwyss.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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