Financial associations are asking the European Commission to extend the deadline for implementation of requirements for intermediaries to report cross-border tax arrangements that promote avoidance until 2021 because of complications from the coronavirus.
In May 2018 the Economic and Financial Affairs Council adopted Council Directive (EU) 2018/822, which amended Directive 2011/16/EU, the directive on administrative cooperation (DAC), and introduced new mandatory tax reporting rules for some cross-border arrangements. The 2018 directive, known as DAC6, requires EU member states to incorporate its provisions into national legislation by December 31, 2019, for implementation starting July 1, 2020.
Financial intermediaries — including lawyers, tax advisers, asset managers, banks, insurance companies, and others who participate in tax planning — have until August 31 to make their first report on cross-border arrangements of their clients. DAC6 would apply to reportable cross-border arrangements for which the first step of implementation took place on or after June 25, 2018.
In an April 20 letter to EU Tax Commissioner Paolo Gentiloni, the leaders of 10 major financial associations said DAC6 implementation should be delayed until 2021 because some EU member states were late to incorporate the directive, and there is a “lack of detailed guidance and reporting schema details.” The letter says these issues are exacerbated by the coronavirus outbreak, which has disrupted companies’ operations, reduced workforce counts, and reallocated IT resources.
“If COVID-19 further delays the release of the reporting schema and validation rules further, that will mean intermediaries and governments will have limited time to ensure appropriate reporting technology for the filing and receipt of data is in place and this would jeopardize a qualitative reporting,” the letter says.
A spokesperson for the commission said that amending the implementation date would require a “complicated procedure,” involving a new, unanimously approved directive. Given that, the commission will consider practical difficulties for member states to implement DAC6, as long as those are related to the pandemic, the spokesperson said.
The fight against tax evasion and tax avoidance is a priority for the commission, and it directly affects efforts to combat the coronavirus with EU resources, the spokesperson said, adding that Gentiloni is expected to respond to the letter “in due course.”
DAC6 is inspired by action 12 (mandatory disclosure rules) of the OECD’s base erosion and profit-shifting project and the United Kingdom’s long-running disclosure of tax avoidance schemes regime. Germany and the United Kingdom were early supporters and adopters of the directive.
Among the letter’s signatories are chief executives and managing directors of private capital provider Invest Europe, the European Banking Federation, and the Alternative Investment Management Association. They argued that delaying the implementation date and reporting deadline “would give our members time to introduce new processes once workforce levels and IT capacity have recovered.”
Because the legislation applies retroactively from June 25, 2018, delaying the reporting deadline would only affect the timing of the disclosures to member states, the signatories wrote.
The letter also requests a review of the situation at the end of September 2020 to assess whether a further extension of the deadline is required.