Intermediaries are going to be impacted by new, mandatory disclosure rules, says Fabrice Chatelain, Director at BearingPoint, an international RegTech solutions provider. They need to prepare now.
What is the EU directive on Mandatory Disclosure Rules for intermediaries (DAC6)?
It’s a new regulation that affects any EU intermediaries — including banks, financial institutions, lawyers, tax advisors, asset managers, etc — be they companies or individuals who create, market, organise or manage cross-border arrangements for their clients.
They will have to disclose information to the tax authorities about these cross-border arrangements, including the date of the arrangement, its value and, in some cases, ifits purpose is to provide a tax advantage. And, of course, they must also disclose the identities of the tax payers and any other intermediaries involved.
Timing is critical. They will have to report within 30 days after the scheme is “made available” for implementation; is “ready” for implementation, or when “first step” in the implementation has been made — whichever occurs first.
What is the purpose of DAC6?
The idea is to target aggressive tax arrangements — even if those arrangements are legal — and make them more transparent.
When does DAC6 come into force?
The directive was published on 25 June 2018, so intermediaries have to monitor and collect information about cross-border arrangements from that date and get ready to report it when DAC6 comes into force on 1 July 2020. Which means they have to act now.
However, there is one other thing to consider that makes DAC6 more complex: each country can set its own agenda and reporting calendar. For example, Poland decided to implement Mandatory Disclosure Rules early — from 1 January this year — and add additional reporting rules. We know that other countries are also considering extending the scope of the directive.
How big will the change be for those affected?
It will impact intermediaries’ processes and ways of working. This may require team training and the implementation of new systems, new technology and new software so that information can be collected and reported effectively.
To further complicate matters from a technical point of view, the format of the reporting could be different in various countries. None of this should be underestimated and it will probably have an impact on costs.
Will there be penalties for non-compliance?
Penalties will be decided country by country, but we can assume that these will align with penalties for other regulations, and could be significant.
How should intermediaries be preparing for DAC6?
Firstly, be aware of the detail of the regulation by reading the DAC6 directive. Secondly, they should assess its impact for their business, because different hallmarks (the characteristics to be monitored under the new regulation)will apply to different types of intermediaries. But the main message is: don’t wait until 2020. Prepare now and collect the necessary data so you will be ready to report it when DAC6 comes into force.