International transactions? Don’t forget to report them!
With the DAC6 Directive, Europe wants more transparency in the advice given by various ‘structures’ with an international flavour (‘Directive on Administrative Cooperation’). Therefore, a regulation was developed, which has meanwhile been transposed into Belgian law. What does it mean for you? Will you have to take urgent action?
The government imposes on so-called “intermediaries” (middlemen), but also on the taxpayers themselves, the obligation to report certain “international arrangements”. There is even a retroactive effect for arrangements set up since 25 June 2018! The first notifications must be made before 31 January 2021.
Not all international arrangements need to be reported. Simply put, it is necessary that the “participants” involved in the arrangement have their tax residence in various countries or that they carry out activities in multiple countries.
But what is an arrangement? In any case, this goes beyond a mere “act” or “transaction”. From the parliamentary preparation of the law, we can deduce, for example, that a tax return, a second opinion or keeping accounts is not an arrangement.
The obligation to report only applies to international arrangements that meet certain essential characteristics or so-called “hallmarks”. Unfortunately, these are often very unclearly defined. The tax authorities have already published a ‘FAQ’ that should help us in case of interpretation problems.
We attempt to summarise things for you as clearly as possible. After all, you have to check all these criteria in order to assess whether you are involved in an international arrangement that you have to report.
Main benefit test
For some of these hallmarks, you only need to report the arrangement if one of the main purposes of your arrangement is to obtain a tax benefit (or at least that such a benefit can reasonably be expected). This is called the “main benefit test”. In these cases, the tax and non-tax considerations for a transaction must be balanced.
Hallmarks with main benefit test
Below is a very brief overview of cases that fall under the notification obligation, but only if the main benefit test is also met.
- An arrangement in which a taxpayer or other person commits to confidentiality and on this basis is not allowed to disclose to other intermediaries or to the tax authorities how the arrangement can result in a tax benefit.
- An arrangement whereby the intermediary claims a fee which is dependent on a tax benefit being achieved.
- An arrangement that makes use of standard documents or standard structures that can be used in multiple situations without substantial changes.
- An arrangement whereby a loss-making company is taken over with the intention of deducting these losses from other results.
- An arrangement resulting in the conversion of income into capital, gifts or other categories of income that are taxed less or are exempt from tax. The Belgian tax authorities have clarified that this “hallmark” only applies in case of pre-existing income.
- An arrangement which includes circular transactions resulting in the round-tripping of funds by means of interposed entities without commercial objectives.
- An arrangement involving deductible cross-border payments between two or more related companies whereby these are treated favourably for tax purposes by the recipient.
For the following cases a notification is obligatory, even if tax purposes are absent!
- The same depreciation is deductible in more than one jurisdiction.
- In more than one jurisdiction, you claim double taxation relief for the same income or asset.
- An arrangement involving transfers of assets where there is a material difference in the amount being treated as payable in consideration for the assets in the jurisdictions involved
- An arrangement that may result in undermining international reporting requirements for bank accounts.
- An arrangement where the legal or beneficial ownership is non-transparent through the use of certain persons, legal constructions or structures that lack substance.
- An arrangement involving the use of unilateral safe harbour rules.
- An arrangement involving the transfer of hard-to-value intangibles between associated companies.
- An arrangement involving a major cross-border transfer of functions and/or risks and/or assets within the group. A transfer of registered office may fall under this reporting obligation.
Who must report?
In principle, the obligation to report is placed on the ‘intermediaries’, i.e. the middlemen who devise, offer, set up, make available, etc. the structure.
However, there is an exception for intermediaries who are subject to professional secrecy. They are not allowed to report themselves, but must inform any other intermediaries or the taxpayer that the latter has a reporting obligation. This professional secrecy applies, among others, to Belgian accountants, tax advisors and auditors. They may, however, assist the taxpayer in fulfilling the reporting obligation.
The notification must be made through a portal provided by the government.
If you do not comply with the reporting obligation, the government can impose a fine. In Belgium, this amounts to 1,250.00 EUR to 100,000.00 EUR per arrangement that must be reported.
The notification must, in principle, be made within a period of 30 days starting no earlier than:
- the day after the arrangement is made available for implementation by the intermediary;
- the day after the cross-border arrangement subject to notification is ready for implementation;
- the moment when the first step in the implementation of the cross-border arrangement subject to notification has been taken.
Due to the corona pandemic, the entry into force of this legislation has been delayed. As a result, the following deadlines apply to international arrangements:
- arrangements from 1 July 2020 to 31 December 2020: 31 January 2021;
- arrangements from 25 June 2018 to 30 June 2020: 28 February 2021;
- arrangements from 1 January 2021: 30 days from the earliest of the above dates.
This legislation imposes a special responsibility on all of us. In view of their professional secrecy, Belgian accountants, tax advisers and auditors are not allowed to make the notification. In most cases, however, international structures that fall under the notification obligation are accompanied by multiple intermediaries. They may then have to make the notification.
If no other intermediaries are involved, or if they are also not allowed to report due to professional secrecy, the taxpayer must report himself. We can, of course, assist you in this!
In addition, we check whether an international transaction is subject to the reporting obligation of DAC6. The high fines are an incentive for us to deal with this meticulously!