On May 25 2018, the Council Directive (EU) 2018/822 (DAC6 or the Directive), regarding the mandatory automatic exchange of information in the field of taxation in relation to so-called potentially aggressive cross-border tax planning arrangements, was approved.
The reporting obligations it brings will require tax intermediaries, and sometimes taxpayers themselves, to report regularly to the Spanish Tax Agency certain types of cross-border arrangements. This will require a thorough review and evaluation of the transactions carried out by businesses and, in certain cases, an internal control procedure will be needed to ensure compliance with this obligation.
Although two years have passed since the initial approval, the subject remains highly topical. Spain, alongside a large majority of EU member states, will only welcome the changes in the second half of 2020 and the beginning of 2021. For that reason, the Spanish legislator has been involved in giving final approval (with some delay with respect to the European authorities’ mandate) to the internal provisions transposing DAC6.
Very briefly, this Directive is in accordance with Action 12 of the BEPS Action Plan, the latest initiative on tax transparency across the EU. Its direct aim is for the tax authorities of the member states to obtain complete information (and at an early stage) on so-called “potentially aggressive tax arrangements” and for this information to be exchanged among those states.
Although DAC6 itself and its transposition rules make it clear that the fact of a transaction having to be reported does not make it unlawful, having that information on “potentially aggressive” cross-border arrangements will enable national tax authorities to react promptly against tax practices that they consider harmful, and so clamp down on tax avoidance and evasion in the internal market.
Moreover, by placing the reporting obligation primarily on the intermediaries (lawyers, advisors, marketers, etc.) or, if a legal professional privilege exists, on the beneficiary taxpayers themselves, it is expected to achieve a deterrent effect in the implementation of these types of arrangements.
After defining as ‘hallmarks’ the characteristics or features of a cross-border arrangement that present an indication of a potential risk of tax avoidance, the Directive and its Spanish transposition rules categorise and list the range of specific reportable transactions. In the Spanish case, there must always be a cross-border dimension (i.e. affect more than one member state or one member state and a third country) and, in certain specific instances only, also fulfil the 'main benefit test', i.e. show saving tax as one of their principal effects.
Although the Directive entered into force on June 25 2018, its provisions are applicable in Spain from July 1 2020. However, it should be noted that a six-month extension option has been granted by the European institutions to the EU member states as a result of the COVID-19 crisis, and it is highly likely that Spain will opt for the this postponement of the reporting obligations.
This timescale implies that anyone determined to have reporting obligations, both intermediaries and taxpayers, will need to gather and keep the necessary information relating to transactions performed on or after June 25 2018. This is in order to fulfil their future reporting obligations when the effective application date arrives, or face the relevant penalties (in addition to those expressly imposed in the General Taxation Law, they may also have to face damage to their reputation in such a sensitive area).
To do this, intermediaries and taxpayers with a presence in Spain, who are carrying out a thorough review of their internal information circuits and all the transactions or mechanisms brought into operation since June 25 2018, need to check whether they meet the requirements to be reported.
The identification of a greater or lesser number of reportable transactions will logically depend on the particularities and specific complexity involved for each economic operator and, in particular, on the existence of transactions with an international component.
After conducting a profound internal diagnostic and identification process in regard to which operators will probably need professional advice from DAC6-specialists, owing to new rules which more than often are unclear, the implementation of specific procedures may be key to ensuring the best compliance with this new chapter in tax reporting obligations.
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