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The 6th Directive on Administrative Cooperation (DAC6), or Directive 2018/822/, obliges intermediaries—including lawyers, accountants, consultants, financial institutions, and service providers—to report advice or implementations of cross-border arrangements that could be considered aggressive tax planning to local tax authorities.
In some cases, this responsibility may fall on the taxpayers themselves.
The directive aims to promote transparency in cross-border transactions and curb tax avoidance within the EU by assessing certain objective indicators, or “hallmarks,” that could signify tax planning schemes.
Hallmarks are the core indicators used to evaluate whether a cross-border arrangement must be reported.
Some hallmarks require the arrangement to meet the “main benefit test,” which evaluates whether the primary purpose of the arrangement is to gain a tax advantage.
Other hallmarks, which do not rely on the main benefit test, are triggered by specific circumstances that intermediaries are expected to recognise.
Several Belgian Bar Associations and the Institute for Accountants and Tax Advisors challenged the implementation of DAC6 in Belgium, leading the Belgian Constitutional Court to seek guidance from the European Court of Justice (ECJ).
The ECJ ruled on these challenges in two landmark cases: on December 8, 2022 (Case C-694/20), and on July 29, 2024 (Case C-623/22).
These rulings addressed issues of non-discrimination, equal treatment, legal certainty, and legal professional privilege. Below are the key takeaways from these decisions:
The ECJ determined that the DAC6 Directive violates the principle of legal professional privilege by requiring lawyers to notify other intermediaries of reportable arrangements.
Under the DAC6 Directive, if a lawyer is exempt from reporting to the tax authorities due to legal professional privilege, they were still expected to notify other intermediaries involved in the arrangement.
However, the ECJ ruled that this undermines the confidentiality of client-lawyer relationships, so lawyers are no longer required to notify other intermediaries.
While tax consultants, accountants, notaries, and auditors often operate under professional secrecy obligations, the ECJ clarified that the legal professional privilege exemption applies only to lawyers.
This is due to the specific role lawyers play in the judicial systems of Member States. The ruling limits this exemption to legal professionals with specific titles (such as advocaat, solicitor, avocat, barrister, etc.) under Directive 98/5.
Other professionals are still required to inform other intermediaries, though they are exempt from reporting directly to the tax authorities.
Although DAC6 was initially focused on direct taxes, it is designed to capture a broader scope of aggressive tax planning strategies.
The reporting obligations extend beyond corporate income tax to include other direct and indirect taxes, excluding VAT, customs duties, and excise duties (which are covered under separate EU cooperation laws).
The ECJ confirmed that despite the potential severity of sanctions for non-compliance, the definitions within DAC6 are sufficiently clear and precise.
These definitions were found to be abstract but well-defined for the intended purpose. For instance:
DAC6 imposes a 30-day reporting obligation on intermediaries.
This period starts from the earliest of three possible events:
However, the ECJ clarified that intermediaries who are simply advising on the arrangement—such as lawyers or tax consultants—should report from the time the arrangement moves from the conceptual stage to the operational stage.
For “promotor” intermediaries, this period begins once the arrangement is ready for execution, but for “service provider” intermediaries, their reporting period begins after they complete their advisory role.
DAC6 is a key piece of legislation designed to enhance transparency around cross-border tax planning arrangements.
The rulings by the ECJ reinforce the principle of legal professional privilege for lawyers but limit this exemption to them alone, leaving other professionals subject to reporting obligations.
These decisions have clarified several aspects of DAC6, ensuring that intermediaries are fully aware of their responsibilities and that aggressive tax planning arrangements are reported promptly to the relevant tax authorities.
If you have any queries about DAC6, or international tax matters in general, then please get in touch.
A non-cooperative tax jurisdiction is a country or territory that does not follow international tax transparency and information-sharing standards.
These jurisdictions often have low or no taxes and strict privacy laws, making them attractive to individuals and businesses looking to avoid or evade taxes in their home countries.
However, because these jurisdictions do not cooperate with international efforts to combat tax avoidance, they are often labelled as “non-cooperative” by organisations like the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD).
Non-cooperative tax jurisdictions make it easier for individuals and businesses to hide their income and assets, reducing the amount of tax revenue that countries can collect.
This can lead to significant losses for governments, which depend on taxes to fund public services like healthcare, education, and infrastructure.
In addition, non-cooperative jurisdictions often allow companies to shift their profits to low-tax or no-tax countries, a practice known as profit shifting.
This deprives the countries where the profits were actually made of tax revenue, contributing to **base erosion**.
The **EU** and the **OECD** maintain lists of non-cooperative tax jurisdictions. These lists are based on criteria like:
Countries that do not meet these criteria may be placed on a black list or grey list of non-cooperative jurisdictions.
Countries and territories on these lists may face penalties or sanctions.
For example, businesses operating in or through non-cooperative jurisdictions may be subject to higher taxes or stricter reporting requirements in other countries.
In some cases, non-cooperative jurisdictions may also face restrictions on accessing international financial markets.
Non-cooperative tax jurisdictions contribute to global tax avoidance and profit shifting, depriving countries of much-needed revenue.
By identifying and penalising these jurisdictions, the EU and OECD aim to create a fairer global tax system where companies and individuals pay their fair share of taxes.
If you have any queries about this article or on international tax matters more generally, then please get in touch.
The ongoing battle over Digital Services Tax (DST) has put Ireland in a tough position.
With the European Union (EU) pushing for a tax on digital services provided by large tech companies, Ireland must decide where it stands—supporting the EU or maintaining strong ties with the United States, home to many of these tech giants.
The US government views these taxes as discriminatory because they primarily target American firms like Google, Facebook, and Amazon.
The DST is a tax levied on the revenues generated by large multinational digital companies that provide services such as social media, online advertising, and e-commerce platforms.
These taxes aim to address the gap where companies generate large revenues from countries where they have no physical presence, meaning they often pay minimal taxes.
The EU has been pushing for a 3% DST across its member states, with many countries already implementing it on a national level.
Ireland, as a key hub for US tech companies in Europe, finds itself at the heart of this debate.
Ireland is home to the European headquarters of major tech companies like Facebook, Google, and Apple (for our recent article on the EU’s ruling on Apple – see here).
These companies have set up in Ireland largely due to the country’s 12.5% corporate tax rate and other favourable tax policies.
The US has raised concerns that the DST unfairly targets American companies and could lead to retaliatory tariffs.
While the EU is keen on creating a unified DST, Ireland is balancing its economic dependence on the US tech sector with its obligations as an EU member.
Ireland’s decision will have significant consequences for its relationship with both the US and its EU partners.
Ireland faces a complex decision in the US-EU DST standoff. Its role as a tech hub makes it crucial to these discussions, and whatever path it chooses will shape its tax landscape for years to come.
If you have any queries about this article on Digital Services Tax, or tax matters in Ireland, then please get in touch.
Alternatively, if you are a tax adviser in Ireland and would be interested in sharing your knowledge and becoming a tax native, then please get in touch. There is more information on membership here.
On 12 September 2024, the European Commission unveiled a set of new tax proposals aimed at simplifying tax rules and closing loopholes that big corporations sometimes use.
The key part of this package is the Business in Europe: Framework for Income Taxation (BEFIT), which proposes a single set of tax rules across the EU.
Another important element is the directive focused on harmonising transfer pricing rules.
These proposals could reshape how companies across Europe pay taxes.
Let’s take a closer look at what these proposals include.
BEFIT stands for Business in Europe: Framework for Income Taxation. It’s a new proposal from the European Commission aimed at creating a common set of tax rules for businesses across the EU.
Right now, every country in the EU has its own tax laws. Under BEFIT, businesses would calculate their profits using the same formula, no matter where in the EU they operate.
On the one hand, this might potentially reduce the complexity and cost of doing business across borders, and it would also make it more difficult for companies to shift their profits to low-tax countries within the EU.
However, it will also effectively erode the control that a country has over tax as a method of shaping its economic policies – what good a carrot offered to businesses if the EU rules simply cancel it out?
Another big part of the new proposals is the plan to harmonise transfer pricing rules across the EU. Transfer pricing refers to the prices that one part of a company charges another part for goods or services.
Sometimes, companies use transfer pricing to shift profits to parts of their business located in countries with lower taxes.
This practice has been controversial, as it allows companies to avoid paying taxes in higher-tax countries.
The new directive would create a standard set of transfer pricing rules across the EU. This would make it harder for companies to use transfer pricing to reduce their tax bills.
The idea is to ensure that companies pay taxes in the countries where they actually make their profits, rather than shifting those profits around to save money.
The European Commission’s proposals are arguably part of a larger effort to create a neutral tax system across the EU where there is no tax competition amongst member states.
If these proposals are accepted, they could have a big impact on how businesses operate in the EU. Companies would need to adjust to the new rules and might have to pay more taxes in some countries.
However, this would also effectively water down each member state’s ability to control their own tax affairs which would be controversial.
By creating a single set of rules across the EU, the European Commission hopes to prevent tax avoidance, ensure that businesses pay their fair share of taxes and that tax competition is moved from the equation when it comes to where a company might choose to do business.
However, for many, this will represent evidence of over-reach by the EC.
If you have any queries about this article on New EU tax proposals, or tax matters in the European Union, then please get in touch.
Alternatively, if you are a tax adviser in the European Union and would be interested in sharing your knowledge and becoming a tax native, then please get in touch. There is more information on membership here.
On January 5, 2023, a new EU directive came into force that provides rules on corporate
sustainability reporting – the Corporate Sustainability Reporting Directive (CSRD).
This will significantly change the sustainability reporting requirements for companies. CRS reporting is therefore becoming increasingly important.
The aim of the new CSR Directive is to close previous gaps in the reporting regulations, expand the requirements overall and thus create binding standards for reporting at EU level for the first time.
The European Commission published the proposal for the new directive back in April 2021.
The Commission was then able to agree on a compromise with the Council and the European Parliament in June 2022, which was finally formally adopted by the EU Parliament and the Council.
The new directive was published in the Official Journal of the European Union on December 16, 2022.
The member states had to transpose the new directive into national law within 18 months of its
entry into force, i.e. by July 2024.
Previously, the Non-Financial Reporting Directive (NFRD) applied to certain companies within the EU and had been in force since 2014.
It contained regulations for companies of public interest and aimed to enable stakeholders to better assess the contribution of the respective company to sustainability.
In contrast to the regulations in the new CSRD Directive, however, the scope of application was
rather limited.
The new CSR-Directive extends the reporting obligation to a large number of additional companies.
From around 11,600 companies previously affected, around 49,000 companies now fall within the
scope of the directive.
Specifically, the directive applies to corporations and commercial partnerships with exclusively
limited liability shareholders, provided that
Micro-enterprises are not included.
The scope of application will be gradually expanded; for financial years starting from January 1, 2024, the regulations will initially only apply to public interest entities with more than 500 employees, from 2025 they will apply to all other large companies as defined by accounting law and from 2026 they will generally apply to capital market-oriented small and medium-sized enterprises. However, the latter have the option of deferral until 2028.
The new directive contains the following important changes:
The Corporate Sustainability Reporting Directive (CSRD) marks a critical step in the EU’s pursuit of enhanced transparency in corporate sustainability practices. By expanding the reporting scope to cover a larger number of companies, the directive ensures that sustainability reporting is as important as financial reporting.
With double materiality, companies are now accountable for both their impact on the environment and the effect of sustainability issues on their business. Additionally, the introduction of a standardised electronic format underlines the EU’s commitment to digital transparency and the comparability of sustainability data across the region.
In essence, the CSRD paves the way for businesses to adopt sustainable practices, providing crucial data that will help drive the EU’s broader sustainability goals forward.
If you have any queries about the EU Corporate Sustainability Reporting Directive (CSRD), or other international tax matters, then please get in touch.
Since 2004, one of the most discussed cases in the world of international tax has been the Apple and Ireland tax deal.
Apple, one of the biggest tech companies globally, was able to benefit from Ireland’s favourable tax regime.
This allowed Apple to pay very little tax on the profits it earned in Europe.
But this deal caught the attention of the European Commission (EC), which believed that the tax arrangement between Apple and Ireland may have been a case of unlawful state aid.
The EC decided to investigate, and now, after many years of legal battles, the EU is about to make a ruling on the case.
Apple used a special arrangement with Ireland to declare much of its European profits in Ireland, a country known for having very low corporate tax rates.
By doing this, Apple avoided paying higher taxes in other European countries where it was making profits.
The European Commission believes that the tax benefits Apple received from Ireland are a form of state aid, meaning that the Irish government gave Apple an unfair advantage over other companies.
This kind of state aid is against the EU’s rules because it distorts competition between companies. The EC argues that Apple should have paid much more tax on its profits.
The EU’s final decision through the European Courts of Justice (ECJ) could force Apple to pay billions of euros in back taxes.
In fact, the European Commission already ordered Apple to pay €13 billion in back taxes in 2016, but both Apple and Ireland challenged this ruling.
Apple claims that it has paid all the taxes it owes, while Ireland argues that its tax system is fair and in line with EU rules.
This ruling is important not just for Apple and Ireland but for all multinational corporations operating in Europe.
If the EU rules against Apple, it could set a precedent that other big companies benefiting from similar deals will face tougher scrutiny.
This could mean higher taxes for other companies in the future.
The EU’s upcoming ruling on Apple and Ireland’s tax deal is a landmark moment in the ongoing battle to make sure that multinational companies pay their fair share of tax.
While some companies use clever strategies to reduce their tax bills, the EU wants to ensure that all businesses operate on a level playing field.
The outcome of this case could have long-term effects on tax policies across Europe, and companies will be watching closely to see what happens next.
If you have any queries about this article on EU Tax Ruling on Ireland’s Apple Deal, or any other international tax matters, then please get in touch.
Country-by-country reporting (CbCR) is a tax rule that helps governments keep an eye on big multinational companies.
It makes these companies tell the government where they are earning their money and how much tax they are paying in different countries.
This is super important because some companies try to move their profits to countries with very low taxes (often called “tax havens”) so they don’t have to pay as much tax in the countries where they really make their money.
Recently, the European Union (EU) has been working on updating its CbCR regulations, but there are some parts of the new rules that aren’t clear.
That’s why two big accounting firms, KPMG and PwC, are asking for more clarity.
KPMG and PwC are two of the world’s largest accounting firms. They help big companies understand, follow and plan around tax laws.
With the new EU CbCR rules, these firms are concerned that the way the rules are written might confuse companies, especially when it comes to how they should report their data.
The firms are specifically worried about how companies should use XBRL, a special computer language used for reporting financial data.
The rules say companies must use XBRL, but they don’t explain exactly how, which is where the confusion comes in.
If the rules are not clear, companies might report their information the wrong way. This could lead to misunderstandings with tax authorities, fines, or even legal trouble.
For companies, making sure their tax information is correct is important because mistakes can be very costly.
By asking for clearer guidance, KPMG and PwC hope that the EU will help companies avoid these issues and make it easier for everyone to follow the rules.
The EU is expected to listen to feedback from KPMG, PwC, and other organisations before making any final decisions.
Hopefully, they will take this opportunity to provide clearer instructions on how companies should report their data, especially using XBRL.
Even though this might sound technical, it’s actually really important.
Clearer rules will help big companies follow the law and pay their fair share of taxes.
And when everyone pays their fair share, governments can use that money to provide important services like schools, hospitals, and roads.
If you have any queries about this article on CbCR, or other tax matters in general, then please do get in touch.
The European Commission has initiated an infringement procedure against the Netherlands, challenging its current tax regime that provides a withholding tax (WHT) reduction exclusively to domestic investment funds, while excluding foreign funds..
This development may compel the Netherlands to reassess and potentially amend this discriminatory practice to align with EU law.
The infringement procedure enhances the likelihood that foreign multi-investor investment funds could successfully reclaim WHT paid in the Netherlands.
WHT refund applications for the 2021 tax year must be submitted by the end of 2024 to avoid being barred by the statute of limitations.
On 25 July 2024, the European Commission announced its decision to initiate this infringement procedure against the Netherlands through a letter of formal notice (INFR 2024/4017).
In the formal notice, the Commission challenges the Dutch WHT regime, which is seen as infringing upon the fundamental freedom of the movement of capital as outlined in Article 63 of the Treaty on the Functioning of the European Union (TFEU) and Article 40 of the European Economic Area Agreement.
The issue lies in the Dutch tax law that grants WHT reductions solely to domestic investment funds, excluding foreign funds that are otherwise comparable to Dutch investment vehicles.
This procedure could force the Netherlands to reconsider its approach to taxing foreign investment funds, particularly those with multiple investors, a practice that has been in place for many years.
The infringement procedure follows significant decisions by Dutch national courts, which were influenced by the Court of Justice of the European Union (CJEU) ruling in the Köln Aktienfonds DEKA case (CJEU case C-156/17, decision dated 30 January 2020).
In a ruling on 9 April 2021, the Dutch Supreme Court (Hoge Raad der Nederlanden) decided that foreign investment funds are not entitled to a refund of Dutch WHT.
Under current Dutch law, domestic investment funds effectively receive a reduction in Dutch WHT on dividend income through an offset mechanism applied to the WHT paid by distributing Dutch companies.
However, this offset is not available to foreign investment funds, creating a discrepancy that makes non-Dutch investment funds less appealing to Dutch investors and investments in Dutch companies less attractive to foreign funds.
Despite criticism, the Dutch Supreme Court upheld this regime, arguing that the tax situations of Dutch and foreign funds are not objectively comparable, and therefore, the regime does not constitute a restriction on the free movement of capital.
The European Commission’s infringement procedure could lead to significant changes in the Netherlands’ taxation of foreign investment funds.
Infringement proceedings are initiated under Article 258 TFEU when the Commission identifies potential breaches of EU law.
If a Member State fails to correct an identified breach, the Commission may issue a reasoned opinion and eventually refer the case to the CJEU.
Should the CJEU rule against the Netherlands, the country would be required to take corrective measures.
Failure to comply could result in the Commission imposing financial penalties under Article 260 para. 2 TFEU.
The Netherlands has two months to respond to the Commission’s concerns; otherwise, the Commission may escalate the procedure.
In summing up, the European Commission’s infringement procedure against the Netherlands marks a critical juncture for the country’s tax regime concerning foreign investment funds.
If upheld, this action could necessitate substantial changes to align Dutch tax practices with EU law, particularly in ensuring that foreign funds are treated equitably.
The potential repercussions include not only financial penalties but also a broader impact on the attractiveness of the Netherlands as an investment destination.
As the Netherlands faces the challenge of responding to the Commission’s concerns, the outcome could set a precedent for how similar cases are handled across the EU, reinforcing the principle of non-discrimination within the internal market.
If you have any queries about this article on the EU Infringement Procedure v Netherlands Fund Tax Rules, or Dutch tax matters in general, then please get in touch.
Cyprus has become a premier destination for creating trusts, thanks to its robust legal framework and generous tax incentives.
The concept of a trust, considered one of the most significant legal innovations in English jurisprudence, allows individuals and corporations to meet various objectives, such as asset protection, estate planning, and confidentiality.
In Cyprus, the legal system supports a wide range of trust types, including fixed trusts, discretionary trusts, and charitable trusts, each designed to serve different needs.
One of the most notable trust structures in Cyprus is the “international trust.”
Following the 2012 amendments to the International Trusts Law 69(I)/92, Cyprus has become one of the most competitive jurisdictions for establishing international trusts, offering unique benefits compared to other locations.
This type of trust allows individuals to take advantage of the country’s favorable legal and tax environment while enjoying significant flexibility.
To create a Cyprus international trust, certain criteria must be met:
The term “resident” refers to someone who resides in Cyprus for more than 183 days in a tax year or a company that is managed and controlled within Cyprus.
Setting up a Cyprus international trust provides numerous benefits, including:
These trusts offer an excellent solution for high-net-worth individuals seeking strategic asset planning, particularly for those with complex family arrangements.
Settlors can reserve certain powers when establishing a Cyprus international trust.
These powers might include the ability to revoke or alter the trust, appoint or remove trustees or other key positions, or give specific instructions to the trustee.
Cyprus international trusts can continue in perpetuity, as the rule against perpetuities has been excluded.
The 2012 amendments to the Cyprus International Trusts Law have positioned Cyprus as a leading jurisdiction for setting up international trusts.
The comprehensive legal framework provides unparalleled protection and flexibility, allowing settlors, trustees, and beneficiaries to structure their family or business arrangements to meet their unique needs and objectives.
With these advantages, Cyprus stands out as an attractive destination for creating trusts with significant tax benefits and legal security.
If you have any queries about this article on Cyprus Trusts, or tax matters in Cyprus more generally, then please get in touch.
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All you need is your local tax knowledge of Cyprus and any other regions around the world!
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