DAC6 Deadline Extension

Further extension of deadline for submission of reports without penalties being imposed.

The Law on Administrative Cooperation in the Field of Taxation has been amended on 18^th March 2021, implementing Council Directives (EU) 2018/822 and 2020/876 regarding the mandatory automatic exchange of information in the field of taxation (commonly known as DAC6). The implementation had retroactive effect from 1^st January 2021, and the first submission of information regarding reportable cross-border arrangements was initially set for 30 June 2021.

On 26^th February 2021 the Cyprus Tax Department had issued an announcement, stating that no penalties would be imposed for filings effected up to 30^th June 2021 in respect of arrangements with a triggering event between 25^th June 2018 and 31^st May 2021.

The Tax Department issued an additional announcement on 4^th June, further extending the deadline to 30^th September 2021. As such, any arrangements with a triggering effect between 25^th June 2018 and 31^st August 2021 can now be filed up to 30^th September 2021, without any penalties.

DAC6 in brief

In a nutshell, DAC6 applies to cross-border arrangements with an EU nexus, i.e. concerning either more than one EU Member State, or a Member State and a third country. In case where such arrangements meet at least one of a series of “hallmarks” which indicate potentially aggressive tax planning, then with a view to prevent harmful tax practices, DAC6 imposes an obligation to intermediaries to submit information to their local tax authorities regarding such arrangements (termed “reportable cross-border arrangements”).

The information on reportable cross-border arrangements needs to be filed with the tax authorities through the Government Gateway Portal “Ariadni”, via uploading an XML file.

Fines for failure or delay in reporting are substantial, and may reach €20.000 per reportable arrangement.

“Intermediaries” are defined as any persons with an EU nexus that design, market, organize or make available for implementation, or manage the implementation of, a reportable cross-border arrangement. Intermediaries include (but are not limited to) accountants, auditors, tax advisors, service providers, bankers, fund managers and lawyers.

“Hallmarks” are essentially a series of characteristics which indicate potentially aggressive tax planning. If a cross-border transaction meets at least one of the hallmarks, it becomes reportable for DAC6 purposes. Hallmarks are categorized as follows:

1. Generic hallmarks: arrangements whose tax benefits are subject to confidentiality clauses, or give rise to performance fees, or mass-marketed schemes
2. Specific hallmarks: contrived acquisition of loss-making companies, conversion of income into capital or other forms of exempt income, circular transactions resulting in round-tripping of funds
3. Specific hallmarks relating to deductible cross-border transactions between related entities: Arrangements giving rise to tax deductions without a corresponding amount of taxable income on the other jurisdiction, certain double reliefs or deductions, or other mismatches
4. Specific hallmarks regarding automatic exchange of information and beneficial ownership
5. Specific hallmarks relating to transfer pricing