Issue link: https://maltatoday.uberflip.com/i/1442703
D AC6 was implemented into Mal- tese legislation by Legal Notice L.N. 342 of 2019, with effect from July 1, 2020. e Commissioner for Rev- enue deferred the first reporting deadlines by six months in view of the COVID-19 pandemic. DAC6 arose out of Action 12 of the OECD's base erosion and profit shiing (BEPS) project, which recommended that jurisdictions should introduce a regime for the mandatory disclosure of aggressive cross-border tax planning arrangements. e DAC, under Directive 2011/16 EU, has requirements for exchanging infor- mation about tax rulings, advance pric- ing agreements, EU Common Reporting Standards, country-by-country report- ing and beneficial ownership. Compa- nies should not underestimate the effort required for the collection and accurate reporting of huge amounts of crucial cross-border arrangement information within an accelerated time frame. e Regulations brought about several changes, mainly as regards the manda- tory automatic exchange of information in the field of taxation in relation to re- portable cross-border arrangements. Following the conclusion of negotia- tions between the UK and the EU on a Free Trade Agreement, HMRC made an announcement on 31 December 2020 that reporting under DAC6 would only be required for arrangements that meet Hallmark D. Last January, 2020, the Maltese Com- missioner for Revenue published de- tailed guidance on the DAC6 reporting requirement for intermediaries and tax- payers. e 29-page guidance provides information on intermediaries, relevant taxpayers, reportable arrangements, the hallmarks, information to be reported, and penalties for non-compliance. Ac- cording to the guidance, the term 'tax advantage' should be broadly interpreted and includes a repayment of tax, a tax re- lief, a reduction in the tax charge, a tax deferral or an absence of taxation. In terms of the Regulations for the 27 states, local intermediaries are required to file information within their knowl- edge, possession or control on report- able cross-border arrangements to the Malta Commissioner for Revenue. Fail- ing to report information or failing to re- port complete and accurate information will result in penalties of €200 plus €100 per day of default, up to €20,000. A pen- alty of €2,500 will also apply for failing to maintain documentation and informa- tion for a minimum period of five years. Furthermore, it imposes a penalty of €1,000 plus €100 per day of default, up to €30,000 for failing to comply with a request for information by the Com- missioner. Essentially, this Directive stipulates the obligation to report an ar- rangement by the taxpayer but this only applies if there is no intermediary or where the intermediary is a non-EU in- termediary or where the taxpayer is no- tified by the intermediary that it has the right to a waiver due to legal professional privilege. us, the Maltese legislation exempts intermediaries from the obligation to report where the reporting of such infor- mation would constitute a criminal of- fence by virtue of disclosing professional secrets confided in him/her by reason of his/her calling, profession or office. Who are the intermediaries? ese in- clude advocates, notaries, legal procura- tors, accountants, auditors, employees and officers of financial and credit in- stitutions, trustees, officers of nominee companies or licensed nominees, li- censed investment service providers and licensed stockbrokers. Legislation requires an intermediary who is exempt from reporting to inform within seven working days any other in- termediary or if there is no such inter- mediary, the relevant taxpayer of their reporting obligations in Malta and to provide the Commissioner for Revenue with an annual update containing a list of the said reportable cross-border ar- rangements in a form which is to be de- termined by the Commissioner. Due to a Covid-19 extension, any trans- actions reportable under DAC6 and which occurred between 25 June 2018 and 1 July 2020 will need to be disclosed by 28 February. Other transactions re- portable between 1 July 2020 and 31 December 2020 to be disclosed by 31 January. One must appreciate that the directive requires a number of prepa- rations since it is retroactive. Typically, one notes that there is a big rush to com- ply with the targets of the legislation by intermediaries, who can be individuals or companies. DAC6 in fact imposes mandatory dis- closure requirements for certain ar- rangements with an EU cross-border element where the arrangements fall within certain "hallmarks" mentioned in the directive and in certain instanc- es where the main or expected benefit of the arrangement is a tax advantage. ere will have to be a mandatory auto- matic exchange of information on such reportable cross-border schemes via the Common Communication Network, which will be set up by the EU. ese hallmarks invariably include confidentiality agreements regarding tax advantages, intermediary fees con- tingent on tax benefits or standardised documentation or structures that are tailored to a participant's individual cir- cumstances. Examples of other hallmarks that may indicate aggressive tax avoidance include buying of loss-making entities to reduce tax liability, the conversion of income to capital, gifts or other types of reve- nue taxable at a lower rate, round-trip transactions and deductible cross-bor- der payments involving no- or low-tax jurisdictions or that benefit from other preferential regimes. e legislation is vast as it also high- lights double taxation deductions or re- lief, transactions that sidestep exchange of information and beneficial ownership reporting obligations and transfer pric- ing involving hard-to-value intangible assets or transactions that have the effect of lowering taxable profit in the future. To clarify what needs to be disclosed, one can define an arrangement that in- cludes at least an EU member state and another jurisdiction, where at least one of the following conditions must be met: • Participant/s, not resident same ju- risdiction; or • Participant/s simultaneously tax resi- dent in two or more jurisdictions; or • Participant/s has Permanent Estab- lishment (PE) in another jurisdiction where part or whole arrangement takes place; or • Participant/s carries on business in other jurisdiction where not tax resident and has no PE; or • Arrangement impacts the identifica- tion of UBO or Transfer Pricing. Ideally, intermediaries make good use of proven technology to speed up what may be a substantial administrative bur- den. It is understandable that as unpaid gatekeepers, we sympathise with inter- mediaries who are now faced with the need to seek specialist expertise to track variations in the law from country to country, as well as the potentially large number of retrospective transactions or arrangements that must be reviewed. We at PKF Malta offer such services, each tailored to the willingness and ca- pacity of our clients to help them comply with DAC6. Have you filed for DAC6? George Mangion George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island 8 OPINION 13.1.2022