The GFD issues additional information on reporting under DAC 6

The General Financial Directorate (GFD) has published a list of questions and answers on the new obligation to report cross-border arrangements (DAC 6 reporting).

The GFD states that reporting must be made via an electronic form available on the Czech financial administration’s website or through third-party applications (the file must meet all the requirements and have an XML structure). The authority receiving the reports is the Specialised Tax Authority, and the form can be completed in both Czech and English. If the data is provided in English, the tax administrator may additionally request the translation of some of the provided information.

Obliged entities do not have to report a reportable cross-border arrangement if they have already filed a report containing the same data in another EU member state or if another obliged entity has filed a report on that arrangement containing the same data in one of the EU member states. In such cases, the GFD recommends keeping the identification numbers generated by the respective tax authority – A-ID (arrangement identification number) and D-ID (report identification number); these identification numbers may serve as proof of compliance with the reporting obligation.

Where an intermediary has informed the user that they have exercised professional confidentiality, the user's approach shall depend on other factors, in particular the type of the arrangement and the existence of other intermediaries. If multiple intermediaries are involved in the arrangement,  the user shall only become an obliged entity as the last one.  In many cases, an agreement between the parties involved in the arrangement will also be important.

According to the GFD, an arrangement is reportable if the following two facts occur simultaneously:

  • the existence of a person who proposes such an arrangement (an intermediary, a taxpayer, their employee, etc.); and
  • the existence of a specific proposal aiming to give the taxpayer a tax advantage.

According to the GFD, the existence of a tax advantage is a condition that should always be met, not just in connection with hallmarks linked to the main benefit test. If the above conditions do not occur simultaneously, the arrangement is not reportable, according to the GFD. This interpretation, however, does not follow from the wording of the law or the EU directive, and we would not therefore recommend not reporting an arrangement solely on the grounds of the absence of a tax advantage.

As regards the interpretation of individual hallmarks, the document clarifies that the main benefit test involves examining whether there is a causal link between a hallmark (i.e. a characteristic feature of an arrangement) and a tax advantage that can be expected if the arrangement is used. The arrangement will meet the main benefit test if one of the main benefits which its user may reasonably expect, having regard to all relevant facts and circumstances, is obtaining a tax advantage.

The document also comments on two specific hallmarks. As for individual binding assessments of transfer pricing (APAs), these should generally not meet the hallmark of the use of unilateral safe harbour rules (Article E(1)) because when issuing the APAs, the Czech Republic follows internationally accepted standards. According to the GFD, this also applies to the GFD D-10 Instruction on Low Value-Adding Intra-Group Services.

As for the exemption of dividend payment (either under the EU Parent-Subsidiary Directive or under Czech legislation), the GFD subsumes this under the hallmark of the payment benefiting from a full exemption from tax in the jurisdiction where the recipient is resident for tax purposes (Article C(1)(c)), where it is also necessary to assess whether or not the main benefit test has been satisfied. In our view however, this hallmark should only apply to deductible cross-border payments. Exempt dividend payments are more likely to fall under the hallmark of multiple relief from double taxation, which is met without satisfying the main benefit test.

The first deadline for reporting historical arrangements is 30 January 2021. This is the deadline for reporting cross-border arrangements whose first step was taken between 1 July 2020 and 31 December 2020, and arrangements made available or ready for implementation between 28 August 2020 and 31 December 2020, regardless of when they are implemented.

Arrangements whose first step leading to implementation was taken between 25 June 2018 and 30 June 2020 must be reported by 28 February 2021.

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