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Nexia Ebner Stolz

Tax Advice

Specifications of the federal ministry of finance regarding DAC 6 reporting obligations

Since 1 July 2020, certain cross-border tax arrangements must be reported to the tax authorities (DAC6 reporting obligations). After publishing the draft of a letter of interpretation in July 2020, Germany’s Federal Ministry of Finance (BMF) unveiled the final version on 29 March 2021. In the over 70-page document, the BMF provides its interpretation of the many undefined legal concepts in the statutory provisions on DAC6 and whitelists standard cases that would generally not lead to a reporting obligation.

While the BMF let­ter of inter­pre­ta­tion should make it easier to com­ply with the repor­ting obli­ga­ti­ons in practice, nume­rous legal terms are still very much open to inter­pre­ta­tion. Each spe­ci­fic case must also be ana­ly­sed to deter­mine whe­ther or not the rele­vant situa­tion has to be repor­ted.

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Legal Frame­work

Cross-bor­der tax arran­ge­ments which meet spe­ci­fied cha­rac­te­ristics (hall­marks) are requi­red to be repor­ted to the tax aut­ho­ri­ties wit­hin 30 days. Yet, the repor­ting obli­ga­ti­ons are by no means limi­ted to tax avo­i­dance stra­te­gies. Situa­ti­ons that are cle­arly wit­hin the limits set by the legis­la­tion and do not pre­sent any indi­ca­tion of abuse also have to be recor­ded.

The situa­tion has to be repor­ted to the Federal Cen­tral Tax Office (Bun­des­zen­tral­amt für Steu­ern, BZSt) by the inter­me­diary (nota­bly a tax advi­sor, lawyer, audi­tor). In some cases the full or part of the repor­ting obli­ga­tion lies with the rele­vant tax­payer (“user” of the arran­ge­ment).

The large num­ber of unde­fi­ned legal terms in the sta­tutory pro­vi­si­ons makes it more dif­fi­cult to deter­mine whe­ther a repor­ting obli­ga­tion exists in the spe­ci­fic case. To exp­lain these terms and cla­rify ques­ti­ons of legal dif­fe­ren­tia­tion with rele­vance for actual situa­ti­ons, the Federal Mini­s­try of Finance pub­lis­hed a com­pre­hen­sive let­ter of inter­pre­ta­tion on 29 March 2021.

Insights from the BMF let­ter of inter­pre­ta­tion

In addi­tion to pro­vi­ding detai­led expla­na­ti­ons on who is spe­ci­fi­cally requi­red to ful­fil the repor­ting obli­ga­ti­ons, the BMF spe­ci­fi­cally addres­ses the dif­fe­rent hall­marks. Cer­tain hall­marks only lead to a repor­ting obli­ga­tion if one of the main bene­fits expec­ted to be deri­ved from the arran­ge­ment is the obtai­ning of a tax advan­tage (main bene­fit test).

As one of the topics the BMF spe­ci­fies in which cases – after the main bene­fit test has been per­for­med – a tax arran­ge­ment is repor­ta­ble under the hall­marks of a “stan­dar­di­sed arran­ge­ment”, “the con­ver­sion of income”, “cir­cu­lar tran­sac­ti­ons”, or “pre­fe­ren­tial or (vir­tually) tax-free intra-group pay­ments”.

Irre­spec­tive of the main bene­fit test, intra-group cross-bor­der pay­ments that are deduc­ti­ble as busi­ness expen­ses for the payer, for example, lead to a repor­ting requi­re­ment if the payee is a resi­dent in a state on the EU- or OECD-black­list of unco­ope­ra­tive sta­tes. This list of sta­tes is available on the web­site of the Federal Cen­tral Tax Office (www.bzst.de), to which the BMF makes refe­rence in its let­ter of inter­pre­ta­tion.

The BMF also added a whi­te­list to its expla­na­ti­ons set­ting out the stan­dard cases that do not tend to lead to a repor­ting obli­ga­tion in connec­tion with the hall­marks that are sub­ject to the main bene­fit test. For example, the exer­cise of tax opti­ons or the use of tax exemp­ti­ons or allo­wan­ces will in gene­ral not con­sti­tute a tax advan­tage qua­li­fying as a main bene­fit.

What needs to be done?

With the pub­li­ca­tion of the final ver­sion of the BMF’s let­ter of inter­pre­ta­tion the offi­cial legal opi­nion of the tax aut­ho­ri­ties on nume­rous issues rela­ting to DAC6 is now available. This pro­vi­des grea­ter cla­rity as to which cases require a com­pre­hen­sive ana­ly­sis to ensure com­p­li­ance with the DAC6 repor­ting obli­ga­ti­ons. Howe­ver, the BMF’s expla­na­ti­ons do not pro­vide instruc­ti­ons on how to pro­ceed in each indi­vi­dual situa­tion. In view of the vast num­ber of pos­si­ble tax sce­na­rios and opti­mi­sa­tion pos­si­bi­li­ties, the BMF let­ter of inter­pre­ta­tion does not pro­vide a con­clu­sive list or gui­de­li­nes for exa­mi­ning each spe­ci­fic case.

This gives rise to the fol­lo­wing con­s­i­de­ra­ti­ons for your com­pany:

Is your com­pany requi­red to ful­fill repor­ting obli­ga­ti­ons?

To what extent could your com­pany have repor­ta­ble tax arran­ge­ments? Con­trary to what the name sug­gests, ordi­nary group situa­ti­ons may also fall under the repor­ting obli­ga­tion.

In indi­vi­dual work­shops we will cla­rify with you whe­ther your com­pany is affec­ted. We will jointly iden­tify (poten­tially) repor­ta­ble situa­ti­ons (impact ana­ly­sis) based on spe­ci­fic real-life cases.
 
Is effi­ci­ent Ful­fill­ment of the repor­ting obli­ga­ti­ons ensu­red?

Effec­tive com­p­li­ance with the repor­ting obli­ga­ti­ons requi­res clear pro­ces­ses that incor­po­rate all divi­si­ons of the com­pany rela­ted to poten­tial DAC6 repor­ting obli­ga­ti­ons. Fol­lo­wing our joint work­shop or based on an ana­ly­sis of your com­pany’s struc­ture and pro­ces­ses, we will deve­lop DAC6 pro­ces­ses for your com­pany. Toge­ther we can sum­ma­rise our fin­dings in the form of custo­mi­zed DAC6 gui­de­li­nes which you can make available to all rele­vant par­ties in your com­pany. The DAC6 gui­de­li­nes will ref­lect the typi­cal situa­ti­ons in the com­pany with the invol­ve­ment of the res­pon­si­ble per­sons or depart­ments as well as the resul­ting steps for action and thus inc­rease pro­cess effi­ci­ency.

Are your exis­ting pro­ces­ses up to date?

The BMF’s inter­pre­ta­tion of 29 March 2021 pro­vi­des more cla­rity regar­ding a num­ber of cases in which repor­ting obli­ga­ti­ons may exist. Taking these insights into acco­unt, you should con­s­i­der whe­ther your exis­ting DAC6 pro­ces­ses can be adap­ted or impro­ved. In a fol­low-up work­shop we will work toge­ther with you to deter­mine to what extent you should modify your pro­ces­ses.

How will the fin­dings of the ana­ly­sis be recor­ded?
 
The fin­dings of the ana­ly­sis of past arran­ge­ments con­tain important infor­ma­tion for hand­ling com­pa­ra­ble future situa­ti­ons and thus offer con­s­i­de­ra­ble poten­tial for opti­mi­sa­tion. To har­ness this poten­tial, it is advisa­ble to have well-struc­tu­red docu­men­ta­tion. Effi­ci­ent pro­ces­ses can often be deve­lo­ped from iden­ti­fied repor­ta­ble arran­ge­ments so that com­pa­ra­ble future con­s­tel­la­ti­ons can be iden­ti­fied in good time and repor­ted in a timely man­ner. It is also help­ful to docu­ment situa­ti­ons for which a DAC6 report was rejec­ted for good rea­son fol­lo­wing an appro­priate assess­ment of the indi­vi­dual case. This app­lies in parti­cu­lar to cases in which a repor­ting obli­ga­tion is denied due to the main bene­fit test not being met.
 
Sub­mis­sion of reports?

Dif­fe­rent tech­ni­cal pro­ce­du­res are available for repor­ting such arran­ge­ments. We are able to advise you on the advan­ta­ges and disad­van­ta­ges of the indi­vi­dual pro­ce­du­res. In addi­tion, we can also sub­mit the reports on your behalf if you are unable to or do not wish to do so your­self.
 
Repor­ting obli­ga­ti­ons abroad?

As the repor­ting obli­ga­ti­ons are based on EU law, cor­res­pon­ding regu­la­ti­ons are in place in the other EU mem­ber sta­tes. We cla­rify whe­ther the repor­ting obli­ga­tion ori­gi­na­tes in Ger­many or in other EU coun­tries. Through our Nexia net­work, we receive first-hand infor­ma­tion on the spe­ci­fic form the DAC6 repor­ting obli­ga­ti­ons take in the rele­vant EU coun­try. In coope­ra­tion with our Nexia part­ners, we are also happy to sup­port you in the sub­mis­sion of any DAC6 reports abroad as requi­red.
 
Com­p­li­ance ensu­red?

The reports sub­mit­ted on your behalf in Ger­many and abroad ful­fil the cor­res­pon­ding repor­ting obli­ga­ti­ons. Further­more, we will assist you in ensu­ring that the requi­red infor­ma­tion is inclu­ded in your tax returns from 2019 so as to ful­fil the sta­tutory obli­ga­ti­ons and avoid admi­ni­s­t­ra­tive offen­ces. To ensure this in the future as well, we sup­port you to define pro­ces­ses for your com­pany and inte­g­rate them into your exis­ting com­p­li­ance mana­ge­ment sys­tem as requi­red.
 
Ques­ti­ons?

Please con­tact your desi­g­na­ted advi­sor at Ebner Stolz, who is able to con­sult our team of experts at any time on issues rela­ting to the repor­ting obli­ga­ti­ons for cross-bor­der tax arran­ge­ments.

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