Reporting obligation under DAC 6: news and clarifications from the GFD

Published:
13. September 2022
Branch:

The General Financial Directorate has published an addition to the frequently asked questions and answers in relation to the reporting obligation on notifiable cross-border arrangements (DAC 6). We highlight the most important insights in the following article:

  • Only the tax-transparent entity itself (e.g. a publicly traded company or an investment fund), and not its individual investors or shareholders, will be considered a user of the cross-border reportable arrangement. However, if specific investors or shareholders are one of the parties to the contract or transaction and are thus directly involved in the relevant arrangement, they will also be regarded as users of the arrangement.    
  • If the user of the cross-border arrangement is a tax transparent entity, the notice of the arrangement must also list the shareholders as its affiliated entities. 
  • The preparation of a tax return, provision of advice on an already implemented cross-border arrangement or the assessment of an already implemented arrangement for compliance with DAC 6 by a tax consultant, lawyer or auditor, who has not been involved in its implementation, does not on its own result in a reporting obligation. However, if the activity establishes a new arrangement, or an change or addition to an existing arrangement, the notification obligation arises. 
  • Affiliated parties need to be mentioned in the notification of a cross-border arrangement only if they are directly affected by the arrangement. Moreover, mentioning affiliated parties is only relevant for those characteristics that require the arrangement to arise between affiliated parties. 
  • If a notification of a cross-border arrangement was made in the United Kingdom during the transitional period from 1 February 2020 to 31 December 2020, obliged persons in the Czech Republic do not need to make a notification, provided that there has been no change in the details since then.  As of 1 January 2021, this country is treated as a non-EU country. 
  • The main benefit test will not be met in a situation, where the arrangement gives rise to a tax advantage which is not a consequence of the fulfilment of a characteristic or if, although it is a consequence of the fulfilment of a characteristic, the acquisition of that advantage is not one of the main benefits of the arrangement, or which does not result in tax saving but, for example, in a simplification of administration.
  • The sale of a share in a Czech company between two foreign entities does not in itself meet the definition of a cross-border arrangement. However, it cannot be ruled out that this sale may be part of a composite arrangement. 
  • The characteristic of standardisation will not be met, if the implementation of the arrangement requires additional steps that constitute a substantial modification of the solution described in the documentation. 
  • The payment of dividends is not in itself a cross-border arrangement. However, the procedure prescribing the steps that would lead to the payment of a dividend, might under certain conditions, be one.   
  • If, in the context of a cross-border merger, the Czech parent company takes over the tax losses of the foreign subsidiary ceasing to exist while fulfilling the statutory conditions, the conditions of the characteristic feature of loss utilisation are not met without anything further
  • Capitalisation of a receivable may be part of a broader process fulfilling the characteristic of a change in the nature of income, e.g. where the aim is to achieve lower taxation of dividends compared to the taxation of interest between the companies involved.
  • The term “near-zero tax rate” means a nominal tax rate lower than 1%.
  • The provision of a loan from a foreign parent company is not considered a cross-border arrangement provided that one of the purposes of the loan is not to obtain a tax advantage.
  • Transactions in the ordinary course of business are generally not subject to notification. In exceptional cases, however, they may nevertheless become part of a composite arrangement.
  • The characteristic feature of multiple depreciation will not be met in a situation where the property is depreciated by both the permanent establishment and its foreign founder if they include the related income in their tax base in both jurisdictions. Similarly, this feature will not be met in the case of a cross-border sale of assets and subsequent commencement of depreciation in another tax jurisdiction. 
  • Fulfillment of the characteristic feature of multiple depreciation occurs in the case of a cross-border lease, when the subject of the lease is tax-depreciated by both the Czech lessor and the foreign lessee in the position of the economic owner.
  • A financial institution effecting a transfer of funds upon instruction from its client without further knowledge of the arrangement will not be considered an ancillary agent of such an arrangement. 
  • The provision of an interest-free or low-interest loan by a foreign related party meets the definition of a unilateral safe harbour giving rise to a reporting obligation. 

The above interpretation and the examples prepared by the GFD are far from explaining all the uncertainties related to the reporting obligation under the DAC 6 Directive. Hopefully there will be more practical tips and advice from the tax administration in the future. However, it is already clear that the tax administration intends to pay attention to the reporting obligation under DAC 6.

For this reason, and also in view of the wide range of potential situations that may be covered by the notification obligation, and the amount of the potential sanction of up to CZK 500,000, clients of consulting companies should also carefully consider whether a given transaction is not subject to the obligation to notify the tax authority, when planning any cross-border transactions.

Please do not hesitate to contact us if you have any questions regarding the reporting obligation. 

Author: Zuzana Kalincová, Adam Pinďák

Author: Adam Pinďák, Zuzana Kalincová