The dynamics of international taxation is in a great transformation, especially in recent years, through the practices put into effect by tax authorities one after another. While this situation naturally causes groups that have been structured abroad for a long time to change their practice for years and to restrict the movement area with the additional obligations imposed. For potential entrepreneurs who are planning to invest abroad for the first time, it is added new question marks in their minds, while additional cost items to be paid to business partners in the target countries occur.
In one way or another, the basic truth is now that nothing will be the same in the international tax axis and the field of movement which was quite large in the old times will obviously begin to be restricted slowly, with each mandatory reporting obligation introduced within the principle of ‘transparency in taxation’. We will witness how this will cause investors to change their action plans over time, but these additional obligations are expected to lead to revising international structures and simplification in these structures in line with the needs and targets in the first place.
While the dynamics of international taxation are changing radically, we would like to publish a bulletin on Directive 2011/16 / EU on mandatory automatic exchange of information in the field of taxation in relation to reportable crossborder arrangements, which is also known as DAC6 (Directive of Administrative Cooperation), explaining what changes await investors who have investments in the European Union geography or people who are planning to invest in this region. In this series of articles, we will elaborate on the studies for transparency in international taxation, what DAC6 means, what changes it will bring, and what will be included in the scope of reporting in detail.
Before we get into the details, let’s make a final note about the implementation calendar of DAC6: In the meeting held by the commision of European Union member countries (Coreper) on June 3, 2020, a maximum 6-month delay from the first planned calendar for the DAC6 reporting was proposed.
While we prepared this article series, we got the information that the European Parliament also voted in favor of this postponement proposal on 19 June 2020. Beginning of the reporting period, 1 July 2020 on the regular calendar, will be postponed for sure, while which member states will continue with the determined first calendar and which member countries will tend to postpone these dates will become clear in the coming days. However, the unchanging truth is that, even after 6 months at the latest, the inevitable transformation in international taxation will be mandatory, and cross-border reporting obligations will enter our lives very soon.
1. The Concept of Tax Transparency and OECD’s Work in This Direction
The concept of transparency in tax law is the establishment of standards to reduce tax evasion attempts and the determination of the obligations on the states in order to turn this standard into an agreement between the parties and to take common steps towards automatic exchange of information.
Especially after the 2008 economic crisis, G20’s policy on “closing the period of bank secrecy” was introduced as a result of countries’ budget deficits, efforts to combat money and terrorist financing, and in 2009 important steps have been taken regarding the tax obligations of the countries for taxpayers in the international tax area.
Information stored by banks will no longer be subject to confidentiality, and the idea of subjecting information exchange in the international arena has been the first step in the forthcoming change and transformation process. The fact that the ‘secrets’, which were the greatest value of international banks until that time, will no longer have a secret value, is one of the most important factors that pushed both real people and institutions to search for solutions today.
The Global Forum for Tax Purpose Transparency and Information Exchange, which was established in the early 2000s under the Organization for Economic Cooperation and Development (“OECD”), which was focused on tax transparency since the 1990s, was restructured in September 2009 and has been studied on the implementation of international standards on tax transparency. The Forum includes the participation of 154 countries, also carries out studies on accessing ultimate beneficial owner information in order to determine the standards of tax transparency and increase the functionality of information exchange standards and encourages the implementation of internationally agreed standards for exchange of information for tax purposes.
2. Directive on Mandatory Information Obligations for Intermediaries in the EU
The European Union (“EU”), a member of the G20, as well as 17 countries among the world’s largest economies, gathered at the ECOFIN Council meeting on 13 March 2018 to adopt the standards set for tax transparency and to be implemented in the member states. They reached an agreement on mandatory information rules for intermediaries and taxpayers.
The EU adapted the Directive 2018/822 on Mandatory Disclosure Rules for Intermediaries (“Directive”) and Administrative Cooperation in the Field of Taxation (“DAC 6”) laid down as a result of the agreement. The mandatory disclosure rules mainly target intermediaries that offer “aggressive cross-border tax planning arrangements” in one or more member states.
As a result of the European Commission’s proposal June 5, 2018, the Directive on Administrative Cooperation (“DAC 6”) was introduced in the tax field, which introduced mandatory disclosure rules for intermediary institutions, and the final version of the Directive was published in the Official Journal of the European Union. It entered into force on June 25, 2018. The rationale for the Directive includes the purpose of helping member states maintain their “direct income tax (income and corporate tax) bases and increase tax revenues, and also the purpose of providing a fairer tax environment with those rules.
The Directive obliged Member States to adopt legislation, regulations and administrative provisions that will comply with by 31 December 2019 and to publish them in their official newspapers. Accordingly, the provisions adopted into the domestic legislation would come into force in all member states and the United Kingdom from 1 July 2020 as per the provisions of the Directive. Although the notifications within the scope of the Directive was going to made until 31 August 2020, it is on the agenda that this period will be postponed by the EU Commission to a later date due to Coronavirus Pandemi which effected all countries around the World.
3. The Concept of “Intermediary” Within the Scope of the DAC6
The notification obligation within the scope of the Directive applies to real or legal persons defined as “intermediaries” in prinipal. Intermediaries describes:
- Any person who provides or manages any “cross-border tax planning implementation, marketing, organization and implementation”,
- Any person who is knowledgeable or reasonably knowledgeable about the provision of support in relation to the “cross-border tax planning” to be reported,
The intermediaries covered by the Directive are designated as those who have any asset which will result in the taxpayer status (workplace, company and similar asset) within the scope of EU legislation and those who provide professional services at EU borders, registered or registered in the supervisory or regulatory body.
The rules set by the Directive are related to the potential aggressive tax planning design or regulation of tax professionals (professional accountants such as swornin financial advisors, self-employed accountants, in-house accountants, lawyers and tax advisors). It requires that these kinds of professionals to inform the tax authorities in the EU.