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Tax
Cross-border tax arrangements DAC6
regime. The reporting obligations only arise if one or more of these hallmarks is triggered. There are 2 types of ‘hallmarks’ – known as generic and specific hallmarks.
Generic hallmarks can be used by the authorities to catch new and innovative tax planning arrangements which may confer other benefits that do not give rise to obtaining a tax advantage and that is why they cannot be viewed in isolation, but must be considered along with the main benefits test (MBT).
Specific hallmarks are used to target known vulnerabilities in the tax system and techniques that are commonly used in tax avoidance arrangements such as loss creation. There are also specific hallmarks that look to hinder automatic exchange of information or beneficial ownership reporting, and transfer pricing.
The hallmarks themselves are categorised:
Category A Generic hallmarks – require MBT consideration Examples would be the use of standardised documentation and or structure which is made available to more than one taxpayer, a confidentiality condition or an arrangement where the intermediary is entitled to receive a fee based on the tax advantage received.
Category B Specific hallmarks – require MBT consideration Examples may be loss creation or buying a loss-making company to exploit its losses; converting income to capital; back to back intercompany loans with no other commercial function.
Category C Specific hallmarks for cross border transactions – some hallmarks require MBT consideration, others do not Examples may be deductible cross- border payments between associated enterprises where the recipient is essentially subject to no tax, zero or almost zero tax. Another hallmark is about deductions for the same depreciation on an asset claimed in more than one jurisdiction.
By Donna Barratt (GI), Senior Associate, PwC
The EU Council Directive 2011/16 (as amended by EU Council Directive 2018/822) in relation to cross-border tax arrangements, known as DAC6, has been in force since 25 June 2018 and it aims at transparency and fairness in taxation.
DAC 6 imposes a new obligation on EU-based tax consultants, banks, lawyers, and other intermediaries to disclose any cross-border arrangement that contains one or more features or “hallmarks,” if they are identified as intermediaries for the purposes of the Directive
There is no requirement to report on purely domestic arrangements and VAT, customs and excise duties are also outside the scope of the new reporting
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