On May 8, 2020, the European Commission shared its formal proposal to extend certain filing deadlines under DAC6. The proposed directive would provide an additional three months to file information regarding cross-border transactions covered by DAC6. Under the proposal, the prior deadline of Aug. 31, 2020 for reporting historic arrangements will be moved to Nov. 30, 2020. Further, EU member states would have an additional three months in order to exchange information between their respective tax authorities. The proposal was put forth in response to the difficulties that businesses and member states are facing with the COVID-19 crisis.
While a unanimous agreement among the EU states will be required in order to pass this directive, it appears likely that the directive will be passed quickly as representatives of the EU member states are expected to meet and discuss the proposal.
The ‘historical reference period’ for a reportable cross-border arrangement under DAC6 will remain unchanged and run from June 25, 2018 up to June 30, 2020. Once the proposal is approved, reportable cross-border arrangements that are either made available for implementation, are ready for implementation, or where the first step in its implementation has been made between June 25, 2018 and June 30, 2020 must be reported by Nov. 30, 2020. Further to the guidance, cross-border arrangements relating to the period of July 1, 2020 to Sept. 30, 2020 (the ‘new’ reference period), would now be reportable from Oct. 1, 2020 to Oct. 31, 2020. Finally, EU member states would begin exchanging information with one another beginning Feb. 1, 2021 under the proposed directive.
The extension will provide additional time to meet the filing deadlines, however as many multinationals have been focusing their efforts towards the pandemic response, they should move swiftly in assessing their DAC6 obligations. The European Commission has stressed the importance for EU member states to have tax revenue in order to finance the economic impact of the COVID-19 virus. As a result, governments will be more motivated than ever to ensure tax fairness by preventing tax avoidance and tax evasion. Further guidance around explanations for unclear definitions and consequences as it relates to DAC6 is not expected to be provided in the upcoming period.
It is imperative that internationally active companies take advantage of the additional time granted to review cross-border tax arrangements and determine engagement in any reportable transactions under DAC6. The extension of time should also be utilized to document the reasoning behind why a transaction would or would not be reportable. Taxpayers that are unsure of their obligations under DAC6 should consult with their tax advisors to review cross-border arrangements and determine the appropriate response to DAC6. For further information, please see our white paper.