The General Financial Directorate (GFD) has published a new list of questions and answers on the obligation to report cross-border arrangements (reporting under DAC 6), which complements the December 2020 document and sheds new light on this reporting obligation. Below we summarise the most important general information.
According to the GFD, members or partners of transparent taxable entities (such as unlimited (liability) companies or mutual funds) who are not participating in the arrangement as investors should not be considered arrangement users. Therefore, only the relevant tax-transparent entity has a reporting obligation under DAC 6.
In the case of a cross-border arrangement created within a corporate group by another member entity (the GFD gives a tax or legal department as an example), the following situations may arise:
- If the member entity has only proposed the arrangement but is not participating itself, it has a reporting obligation as an intermediary.
- When the member entity creates an arrangement in which it is itself involved as a user, it does not report the arrangement from the position of an intermediary but from the position of a user.
The GFD also clarifies a tax advisor’s relationship to the reporting obligation under DAC 6 when preparing a tax return. The involvement of a tax advisor, attorney or auditor providing services after the arrangement has been implemented does not qualify for reporting as an intermediary. Similarly, the provision of advice relating to an arrangement already implemented in which the tax advisor was not involved does not qualify as reportable by the tax advisor as an intermediary or a secondary intermediary. According to the GFD, even a tax advisor's assessment of the reporting obligation for an already implemented arrangement does not trigger an intermediary reporting obligation. Changes to standardised arrangements consisting of a change of name, registered office, or the dissolution or merger of a person or company are not subject to the reporting obligation either.
If the intermediary has their domicile, permanent residence, registered office, or place of management in the Czech Republic, the reporting obligation always arises in the Czech Republic even if the tax savings occur outside the Czech Republic.
On the assessment of the main benefit test, the GFD states that for arrangements reportable under DAC 6, the causal link between the hallmark and the anticipated tax advantage must be fulfilled.
- If the arrangement results in a tax advantage which is not the result of the fulfilment of a hallmark, the main benefit test does not need to be performed and no reporting obligation arises.
- If the arrangement results in a tax advantage due to the fulfilment of a hallmark, the main benefit test is not automatically met, as it is necessary to assess whether gaining the tax advantage is the main benefit or one of the main benefits of the arrangement put in place.
The main benefit test is not met if the tax advantage does not represent a tax saving but only a simplification of tax administration, etc.
We end by adding the statistics from the ﬁnancial administration, showing a total of 154 reports filed under DAC 6 as at 30 June 2022, including reports of historical arrangements.
We will look at examples of specific arrangements contained in the GFD's information in the next issue of the Tax and Legal Update.