George M. Mangion is a partner in PKF Malta, an audit and business advisory firm
Companies in Malta, especially those which do cross-border activities, are alerted to become DAC6 complaint. This directive arose out of Action 12 of the OECD’s base erosion and profit-shifting (BEPS) project, which recommended that jurisdictions should introduce a regime for the mandatory disclosure of aggressive cross-border tax planning arrangements. The DAC rules, under Directive 2011/16 EU, have requirements for exchanging information about tax rulings, advance pricing agreements, EU Common Reporting Standards, country-by-country reporting and beneficial ownership. Reportable transactions, which occurred between 25 June 2018 and 1 July 2020, will need to be disclosed by 28 February. Other transactions reportable between 1 July 2020 and 31 December 2020 to be disclosed by 31 January.
Local companies 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. In terms of the Regulations, local intermediaries are required to file information within their knowledge, possession or control on reportable cross-border arrangements to the Malta Commissioner for Revenue. Essentially, this Directive stipulates the obligation to report an arrangement by the taxpayer but this only applies if there is no intermediary or where the intermediary is a non-EU intermediary or where the taxpayer is notified by the intermediary that it has the right to a waiver due to legal professional privilege. Thus, the Maltese legislation exempts intermediaries (such as accountants, lawyers, notaries) from the obligation to report where the reporting of such information would constitute a criminal offense by virtue of disclosing professional secrets confided in him/her by reason of his/her calling, profession or office.
The Maltese legislation requires an intermediary who is exempt from reporting to inform within seven working days any other intermediary or, if there is no such intermediary, 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 arrangements in a form which is to be determined by the Commissioner. Failing to report information or failing to report complete and accurate information will result in penalties of €200 plus €100 per day of default, up to €20,000. A penalty of €2,500 will also apply for failing to maintain documentation and information 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 Commissioner.
One must appreciate that the directive requires a number of preparations since it is retroactive. DAC6 in fact imposes mandatory disclosure requirements for certain arrangements with an EU cross-border element where the arrangements fall within four “hallmarks” mentioned in the directive and in certain instances where the main or expected benefit of the arrangement is a tax advantage. There will have to be a mandatory automatic exchange of information on such reportable cross-border schemes via the Common Communication Network, which will be set up by the EU. These hallmarks invariably include confidentiality agreements regarding tax advantages, intermediary fees contingent on tax benefits. 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 revenue taxable at a lower rate, round-trip transactions and deductible cross-border payments involving no- or low-tax jurisdictions or that benefit from other preferential regimes.
The legislation is vast as it also highlights double tax deductions or relief, transactions that sidestep exchange of information and beneficial ownership reporting obligations and transfer pricing. To clarify what needs to be disclosed, one can define an arrangement that includes at least an EU member state and another jurisdiction, where at least one of the following conditions must be met:
- Participants not resident same jurisdiction; or
- Participant/s simultaneously tax resident in two or more jurisdictions; or
- Participant/s has Permanent Establishment (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 on the identification of UBO or Transfer Pricing.
Ideally, intermediaries make good use of proven technology to speed what may be a substantial administrative burden. At PKFMALTA we offer such services, each tailored to the willingness and capacity of our clients to help them comply with DAC6. Please contact Dr Marilyn Formosa at firstname.lastname@example.org