Potential DAC6 Delay: A Short Breather Before Dash to Finish Line

May 26, 2020

Since the onset of the COVID-19 pandemic, global regulators have granted several targeted and temporary reliefs to certain regulatory implementation deadlines. One recently announced delay comes in the shape of a proposed deferral for the EU’s Sixth Directive on Administrative Cooperation, more commonly known as “DAC6.” This proposed delay comes as a welcome development for some asset managers, particularly those who were playing catch up. The additional time can now be used to ensure all aspects are fully understood and the required processes and procedures are put in place to ensure compliance.

The Proposed Delay

The European Commission (EC) have proposed a three-month delay to the reporting obligations under DAC6. If approved, the reporting regime will move to the following cycles:

  • Transactions identified for July 1, 2020 through October 1, 2020 are reportable by October 31, 2020
  • The date for reporting “historical” arrangements identified for the June 25, 2018 through July 1, 2020 period will shift from August 31, 2020 to November 30, 2020 
  • The date for the first mandatory exchange of information about reportable cross-border arrangements between EU member states extends from 31 October 2020 to January 31, 2021

These changes now require the EC’s proposal to get the approval of all 27 individual EU member states and the United Kingdom, who must update their domestic laws and filing deadlines accordingly. Since the countries are not formally obligated to grant the deferral, monitoring the developments in each EU member state remains crucial to meeting reporting obligations required under DAC6. It also opens the possibility of a fragmented two-tiered reporting cycle with some countries operating to original deadlines and others on the delayed cycle. This implementation fragmentation has already surfaced with Poland introducing DAC6 mandatory disclosure rules before most other countries. 

The EC, however, has not ruled out further timeline extensions. While these proposed deferrals are warmly welcomed from the industry, it does not change the fundamental requirement for organizations to comply with DAC6. Therefore, asset managers and management companies subject to DAC6 should continue and even increase their attention to this important change. In scope firms must introduce transaction screening and reporting procedures to ensure compliance with the new deadlines. 

Asset managers should not allow complacency to grow due to the small degree of latitude granted. The proposed extra time can be better spent getting to grips with the complexity of the directive. Let’s take a quick walk through the basics of DAC6 requirements and its terminology.

DAC 6 Overview

Transparency is high on the global agenda of every global regulator and government currently. Recent years have seen the introduction of several tax transparency and anti-avoidance measures across the EU and elsewhere. DAC6 follows this theme and adds to the current pile of tax related obligations of asset managers already having to comply with tax laws such as Base Erosion and Profit Shifting (BEPS), the Common Reporting Standard (CRS), and, of course, the Foreign Account Tax Compliance Act (FATCA). 

In 2018, the EC adopted DAC6 to further strengthen tax compliance throughout the EU.  The Directive’s primary goals are to assist EU tax authorities in identifying and closing tax avoidance loopholes. DAC6 seeks to consistently supervise and enforce tax laws across the EU and dissuade from the use of aggressive tax structures seeking to reduce tax obligations.   

DAC6 Hallmarks

In framing DAC6, the policymakers looked at certain existing practices often used to bypass tax laws or to obtain unintended tax benefits, or which resulted in obscuring the taxpayer in cross-border transactions. Using identified fact patterns, the EC identified common criteria in these practices and these criteria, referred to as “hallmarks,” form the basis for identifying reportable arrangements within the directive.

Cross-Border Arrangements

Not all arrangements that fall within one of the DAC6 hallmarks are reportable. The arrangement must also be cross-border in nature unless the implementing legislation expands the application to domestic arrangements as in the case of Poland and Portugal.  A cross-border arrangement may be between one EU member state and another or depending on the terms adopted under member state’s transposition of DAC6 it may include arrangements between an EU member state and a non-EU country. 

The Main Benefit Test

Further, some of the hallmarks require knowledge regarding the motivation for a transaction. This is referred to as the “main benefit test.” At its core, this test seeks to curb transactions conducted primarily for the purpose of obtaining a tax advantage.  Rather unhelpfully, the directive does not define tax advantage, but it is widely understood to mean an instance where a reasonable person would view the use of the arrangement to obtain a tax benefit not intended under the law.


Where an arrangement is reportable, such reporting must be completed within 30 calendar days of identifying the reportable arrangement. Further, DAC6 looks to the intermediary to report. But what exactly is an intermediary? 

DAC6 identifies two types of intermediaries, “promoters,” an intermediary who designs, organizes, or implements a reportable arrangement like lawyers and consultants and “service providers” who provide aid, assistance or advice relating to the arrangement like banks and insurance intermediaries. A single transaction may involve multiple intermediaries in its chain. 

In some instances, the intermediary will be unable to report due to factors such as privacy laws, client privilege, absence of an EU nexus, or even lack of knowledge, in such instances the reporting obligation falls back to the taxpayer. A taxpayer is any individual or entity with an EU nexus engaging in a cross-border transaction such as an asset manager, management company, or the fund itself. In some instances, a taxpayer may need to additionally submit an annual or periodic return indicating the use of a DAC6 reportable arrangement.

Reporting Requirements

As you would expect with any tax avoidance regime, there is a pretty hefty reporting obligation attached to in scope DAC6 transactions. This makes sense given its primary objective is to surface tax avoidance and evasion strategies with the aim of effectively shutting them down. The information that must be reported includes:

  • All involved intermediaries and taxpayers, including the name(s), tax residence(s), tax identification number(s), associated enterprises, and for individuals date(s) and place(s) of birth.
    • The arrangement and the hallmark(s) representing potential risk of tax avoidance or evasion, including an implementation timeline and the value of the arrangement.
    • All EU member states concerned and the applicable tax law the cross-border arrangement is subject. 
    • Identification of all other persons affected by the cross-border arrangement.

To reconfirm reporting deadlines, under the proposed delay, beginning October 1, 2020 upon identification of a reportable arrangement this information must be reported within 30 calendar days.

Bottom Line

There you have it. DAC6 has potentially been delayed but there remains no time to waste. That said, we have just barely scratched the surface on an extremely complex, detailed, fragmented, and slightly uncertain tax framework. The entire asset management industry still awaits a host of further detail spanning further guidance on the application of the hallmarks, undefined reporting schemas, and questions on who bears the reporting obligations. These uncertainties are amplified by the fact that local country implementation of the Directive across the EU is likely to be scattergun also. 

The potential DAC6 delay is welcome because it affords a little additional time for asset managers to assess their own business through a DAC6 lens. 

  • Do you have certainty about which of your activities may give rise to a reporting obligation?
  • Are you an intermediary or a taxpayer? Are you both? Are you neither?
  • Have you identified who will be the reporting intermediary for your current book of business?
  • In the absence of further guidance and ongoing uncertainties have you documented evidence of your analysis of DAC6’s impact on your business?

The time is now to engage with your counterparties and service providers to answer these questions. The potential delay provides some breathing room but with so much to do don’t leave yourself breathless by falling behind in the sprint to the DAC6 finish line. 

The BBH Global Tax Services group contributed to this article.

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