The Commissioner for Revenue (CfR) has published the Guidelines on the Mandatory Automatic Exchange of Information in relation to Cross-Border Arrangements (the “Guidelines”) issued via Subsidiary legislation 123.127 which focuses on the transposition of the DAC6 into Maltese law and should be read in conjunction with the Cooperation with Other Jurisdictions on Tax Matters Regulations.
DAC6 aims to provide Member States tax authorities with additional information in order to obtain information on potentially aggressive or abusive tax planning schemes, to identify their users and reduce the promotion of such schemes. Taxpayers and intermediaries entering into or advising on cross border arrangements involving EU jurisdictions or an EU member state and a third country and which fall under one or more of the specified ‘hallmarks’, are required to monitor and report such transactions and disclose same accordingly.
Below the highlights of the Guidelines.
1.The DAC6 in a nutshell
EU Directive (Council Directive 2018/822/EU), regarding the mandatory exchange of information in the field of taxation when these arrangements involve cross-border arrangements, has been transposed into Maltese law by means of Legal Notice 342 of 2019 according to which intermediaries that design, market, organize, make available or manage the implementation of reportable cross-border arrangements must provide to the tax Authorities certain information. The aim of the Directive is therefore imposing transparency obligations on persons which fall under the definition of ‘Intermediary’ and ‘taxpayer’. Intermediaries and taxpayers, when so required, must report such information to the Commissioner within thirty days beginning on the earliest of:
- The day after the reportable cross-border arrangement is made available for implementation;
- The day after the reportable cross-border arrangement is ready for implementation;
- When the first step in the implementation of the reportable transaction has been made
Fall within the reportable transactions all those arrangements subject to taxes according to the Directive including in particular income tax, corporate tax, trade tax whereas VAT is exempt.
The reporting obligations apply to those who the Directive defines as Intermediary.
1.1 Who is an Intermediary
In line with the DAC6, the Maltese law envisages two different types of intermediaries:
- Primary Intermediaries are persons who are involved in the designing, marketing or making available for implementation or managing the implementation of a reportable cross border arrangement; and
- Secondary Intermediaries are persons providing aid, assistance or advice with respect to designing, marketing, assisting with, advising on, organising or managing the implementation of a particular reportable cross-border arrangement or know or could reasonably be expected to know to be involved in providing such aid, assistance or advice.
The concept is therefore not limited to tax experts but it may also include other professionals including lawyers, accountants, auditors and others if they qualify as intermediaries within the meaning of the law. However, and subject to certain conditions, an intermediary whose profession is referred to in the Professional Secrecy Act has the rights to waive its obligation of filing information on a reportable cross-border arrangement.
In situation where there is no intermediary because the intermediary waived the obligation to report on the basis of professional secrecy, then the obligation shifts on another intermediary however, if there are no other intermediaries involved or the taxpayer itself designs and implements the arrangement, such obligation relies on the relevant taxpayer.
However, intermediaries are expected to report such arrangements to the Maltese tax Authority only if there is a direct nexus between the intermediary and Malta. Such nexus there exist when one of the following situations arise:
- The Intermediary is resident for tax purposes in Malta;
- The intermediary has a permanent establishment in Malta through which the services with respect to the arrangement are provided;
- The Intermediary is incorporated in Malta or governed by the laws of Malta; or
- The Intermediary is registered with a Maltese professional association related to legal, taxation or consultancy.
2. The ‘Main Benefit Test’ and the different ‘hallmarks’
Cross border arrangements are reportable if they fall within one of the five different categories of hallmarks (A – E) set out in the Directive and which represent some characteristics of tax avoidance or aggressive tax planning. The hallmarks may be split in two different categories the first of which is linked to a ‘main benefit test’ (A – C) whilst the second one includes hallmarks (C – E) that are taken into account irrespective of whether the main benefit test is fulfilled.
Cross-border arrangements falling within the first category of hallmarks will only be reportable if the main benefit test proves positive that is when one of the main benefits expected from an arrangement is a tax advantage.
3. Information to be reported
The following information will need to be reported under the DAC6:
- Identification of the taxpayer and intermediaries involves;
- Details of the hallmarks that generated the reporting obligations;
- A summary of the arrangement;
- The date on which the first step has been made available or will be made available;
- Details of the national provisions on the basis of which the report is made;
- The value of the arrangement;
- The identification of the member state of the relevant taxpayer(s) and any other member states which are likely to be concerned by the reportable cross-border arrangements; and
- The identification of any other person in a member state likely to be affected by the reportable cross-border arrangement.
4. Reporting deadlines and penalties
In light of the Covid-19 pandemic, the deadlines first set have been deferred as follow:
- For reportable cross-border arrangements the first step of which was implemented between the 25th June 2018 and the 30th June 2020, the filing deadline is 28th February 2021.
- For reportable cross-border arrangements where the triggering event for the report took or takes place between the 1st July 2020 and the 31st December 2020, the period of 30 days for filing information will commence on the 1st January 2021.
- Professional waiving their obligations are required to notify another intermediary or the relevant taxpayer of their obligation within 7 working days from the date the trigger point arises. However, with respect to cross-border arrangements subject to reporting period from 25th June 2018 to 31st December 2020, notification is to be made by not later that the 12th January 2021.
Penalties may be imposed including where the intermediary or the relevant taxpayer fails to report the relevant information within the stipulated deadlines or in a complete and accurate manner. In such circumstances the penalties consist of a one-time penalty of €200 and a penalty of €100 for every day of default up to a maximum of €20,000
Where the intermediary or the relevant taxpayer fails to comply with a request for information made by the Commissioner for Revenue, a one-time penalty of €1,000 applies and a further penalty of €100 for every day of default up to a maximum of €30,000.