DAC 6 developments, deadlines, and the question of legal privilege

While the first reporting deadlines for most EU members expired on 31 January 2021 and respectively 28 February 2021, there are still questions outstanding about whether intermediaries are obliged to report arrangements to tax authorities, or if they can use the right to waiver due to professional privilege.

In 2020, countries across Europe implemented into their national legislation ‘EU Council Directive (EU) 2018/822 of 25 May 2018’ (commonly known as DAC6, which came into effect from June 2020). This requires EU member states to enforce intermediaries and relevant taxpayers to report information on certain cross-border tax arrangements to local tax authorities.

Postponements on reporting

Due to Covid-19, most EU member states decided on a six-month postponement of the reporting deadline, as many companies, financial institutions, tax advisors – and even tax authorities – faced difficulties in managing the challenges of 2020. There were some exceptions to this deferral: Germany and Finland, for instance, did not postpone their reporting terms, and Austria extended them only until the end of October 2020.  

In this context, the reporting terms for cross-border transactions in the vast majority of EU member states are:

• 31 January 2021 – for cross-border arrangements carried out between 1 July 2020 and 31 December 2020.
• 28 February 2021 – for cross-border arrangements carried out between 25 June 2018 and 30 June 2020 (originally 31 August 2020).
• 30 April 2021 – by which intermediaries must prepare the first report in connection with the marketable arrangements.
• 30 days from the triggering event, for the arrangements made starting from 1 January 2021.

Reporting entities and the question of professional privilege

As a general rule stated by DAC6 and the national legislation of EU member states, the primary reporting obligation lies with the intermediary (i.e. the service provider), but the reporting obligation can be reverted to the taxpayer (e.g. the user) if the intermediary is a non-EU resident when there was either no intermediary involved in the cross-border arrangement (i.e. in case of in-house arrangements), or the taxpayer was notified by one or all of the service providers (i.e. intermediaries) about their right to a waiver due to legal privilege.

Regarding the reporting process performed by the intermediary, the issue is whether the service provider, by law subject to professional secrecy, may furnish information to local tax authorities.

Generally, DAC6 regulations provide two scenarios in which the intermediary:

1. Reports by themselves the cross-border arrangements, which are subject to the reporting procedure and only under written consent of the relevant taxpayer.
2. In absence of written consent from the relevant taxpayer, the intermediary notifies without delay any other intermediary involved in the cross-border arrangement or, if another intermediary is not involved, notifies in writing the relevant taxpayer regarding the obligation to perform the reporting.

Such a notification should be made by the intermediary as soon as possible, once they are aware that an exemption from the reporting is applicable.

Case study: clarifying the privilege

Consider: a local entity representing a certain category of intermediaries (i.e. a chamber of fiscal consultants) asks the local tax authorities for clarification on the subject of professional privilege, given the fact that – at the same time – the obligations laid down in the directive are mainly applicable to intermediaries and the same regulation reinforces the obligation of professional secrecy [as stated by Article 8ab (5)].

In this context, the Romanian National Agency for Fiscal Administration (NAFA), for instance, formulated a point of view on the matter, stating: to the extent the intermediary is carrying out their activity according to the rules governing their profession, they may avail themselves in relation to the national tax authorities of the exception regarding their reporting obligation provided by the local legislation, which transposed the DAC6 provisions. They are, therefore, not able to report the arrangement if they did not receive the written consent of the taxpayer being assisted.

In this example, intermediaries are only required to notify the cross-border arrangement either to another intermediary known to them, if applicable, or to the taxpayer in question. The obligation to report to NAFA will, therefore, rest with the taxpayer, under the conditions covered by the local legislation (e.g. fiscal procedural code), if there is no other intermediary obliged to report.

Professional secrecy and public disclosure

It is also worth noting, in case of a violation of professional secrecy that the service provider will be subject to legal consequences provided by criminal law, given the fact that all EU member states banned, in one form or another, the public disclosure of ‘business secrets’. According to European jurisprudence, these concern not only a disclosure to the public, but also transmission to a person other than the one who provided the information, and when it may seriously harm the latter’s interests.

Many of the entities identified by the DAC6 Directive as obliged to report cross-border arrangements still have great expectations regarding present or future official guidelines that are trying to bring light to a great deal of subjects in relation to the DAC6 Directive. Nevertheless, there remains further analysis to be completed, on a case by case basis, concerning who bares the final obligation to report the arrangements (the intermediary or the user). It is clear that it will take more time for the current legislative deficiencies to be appropriately approached and addressed.