eu mandatory dac6 reporting rules for tax planning .../media/files/insights/... · 4/16/2020 ·...
TRANSCRIPT
April 16, 2020
EU Mandatory DAC6 reporting rules for tax planning arrangements
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Agenda Presenters
Pie Geelen
Dutch Tax Advisor
DLA Piper US
m
Shee Boon Law
Head of Knowledge -
International Tax
DLA Piper UK
sheeboon.law@dlapiper.
com
Marica De Rosa
Italian Tax Advisor
DLA Piper US
marica.derosa@dlapiper.
com
1. Introduction
2. EU Mandatory Reporting DAC6
• Why
• Who + case study
• What + case studies
• Where + case study
• When
3. Case studies
4. The DLA approach to long term DAC 6 compliance
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• No sign yet of postponement of first filing deadline due to Covid-19
• Companies are now making active push to becoming compliant
• Project typically consist of two major parts:
• Put the right processes in place (Control Framework), and
• Assessment of transactions initiated since June 25, 2018, catch up phase (reportable or not)
3
Introduction
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• DAC6 is a binding EU Directive – effective in all Member States of the EU from July 1, 2020
• The objective of DAC6 is to create transparency for taxing authorities with respect to certain tax
planning strategies
• Non-compliance can result in material fines in Europe and a compliance deficiency from a
financial statement perspective
• The first filing deadline is August 31, 2020 therefore companies are now working towards
compliance with these rules
• Transactions entered into BEFORE June 25, 2018 are outside of the scope of DAC6
Why:
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EU Mandatory Reporting Requirements – DAC6
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• In principle the reporting requirement lies with (tax) advisors (so called ‘intermediaries’)
• Advisors will have to put their own reporting process in place
• US Advisors in principle are not required to report in Europe
• However, (US) companies can also have a reporting requirement themselves in certain situations
• Moreover, companies typically want to manage the reporting of their transactions by their (tax)
advisors in particular when there are multiple advisors across multiple jurisdictions
• Therefore, DLA is engaging with companies to assist with the compliance process and the
technical assessment of transactions to determine if they are reportable
Who:
5
DAC6
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Case study 1: Who has to report?
Transaction: EU Co 1 capitalized Cayman and Cayman
onlends to EU Co 2
Advisory involvement: US tax department has engaged
two accounting firms. Firm 1 for design and Firm 2 for
implementation assistance. In addition a law firm has
provided a 2nd opinion on the transaction. All 3 firms have
local representatives in EU Co 1 and EU Co 2
Who has an obligation to report?
US
EU Co 1
EU Co 2 Cayman
1.
2.
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• The DAC6 Directive identifies 20 different types (“Hallmarks”) of reportable transactions
(“Arrangements”), including among others:• Standardized planning schemes;
• Loss planning;
• Use of transfer pricing safe harbors
• Use of low-tax, no-tax, or non-cooperative jurisdictions
• Transfer of hard to value intangible assets
• Reporting includes all taxes (excluding VAT, custom, excise and social security) and is not limited
to corporate tax
• For a number of the Hallmarks an escape is available if it can be demonstrated that obtaining a
tax advantage is not the main benefit or one of the main benefits of the transaction
• The number one focus of most companies currently is to identify their reportable transactions
What:
7
DAC6
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Case study 2: reportable transactions
Are these transactions reportable?
1. EU Co owns IP and entered into a CSA with US prior to
2018
2. In December 2018 EU Co temporary onshored its IP to
the US
3. Post December 2018 EU Co pays a royalty for the use of
the IP
4. The royalty income in the US is subject to the FDII
regime, or
5. The US has NOL’s against which the royalty income is off
set
US
EU CoIP
1. 2.
IP planning
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Case study 3: reportable transaction
Transaction: EU Principal operates with local distributors
and transitions to LRD model on cost-plus basis
Is this a reportable transaction?
• Transfer of functions and risks
• Reduced income at EU Co 2 level
• Transfer pricing safe harbors
• Cost plus (or contract manufacturing) in general
US
EU Co 1
Principal
EU Co 2
Distributor
LRD
to
C+5%
Intra group conversion arrangement
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Case study 4: reportable transaction
Transaction:
• A US multinational has a group financing structure that
provides financing into EU member states via a financing
entity in Malta. The group financing entity is taxed in Malta
at 35% but refunds are provided upon distribution by the
group financing entity, which reduces the effective tax rate
to 5%. Is the group financing structure reportable?
• Is there any reporting obligation if the financing structure is
done via Hong Kong/Singapore where the income
qualifies for foreign-source exemption?
Group financing structure
US Co
Malta Co
EU Co
Interest
Interest
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• In principle transactions need to be reported by EU advisors or taxpayers in the relevant EU
jurisdictions
• But, reporting will be done in a centralized data base allowing the sharing of reports among EU
Member States
• Advisors in principle need to report in all jurisdictions (subject to ‘proof’/notification)
• Taxpayers can elect to file in one jurisdiction (subject to ordering rules)
• Local implementation rules to consider in case of one-jurisdiction filing
Where:
11
DAC6
• EU Co1 is buying a real estate portfolio located
in EU country 2 from a third party seller in the
US. Both the sell side and the buy side are
advised by a law firm and a big-four accounting
firm (all three jurisdictions are involved). The buy
side enters into an acquisition arrangement
(based in your country) that triggers the reporting
obligation under EU MDRs.
• What would you do to comply with the EU
MDRs?
12
Acquisition tax planning
Case study 5: Who and where?
Sell side
(non-EU)
No active tax planning
Advisors in one EU country and one non-
EU country are involved
Buy side
(EU)
Acquisition structure includes a related party financing arrangement that triggers reporting
obligation
Advisors in two EU countries are involved
Where do you have to report?
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• The first reporting date is August 31, 2020 for transactions initiated on or after June 25, 2018 to
July 1, 2020
• For transaction initiated as of July 1, 2020 reporting has to take place within 30 days
When:
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DAC6
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The DLA approach to long term DAC 6 compliance
14
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Sample DAC6 Project Workstream
PHASE 1 PHASE 2 PHASE 3
Control Framework
• Establish internal organizational
project ownership
• Design internal control framework
• Design process to manage 3rd party
intermediaries
• Design communication protocols with
internal and external stakeholders
(e.g., C-suite and auditors)
• Develop strategy with respect to
compliance and controversy risk (e.g.
legal professional privilege, audit files)
Implementation of Catch-Up Phase
• Identify reportable arrangements
• Determine appropriate reporting
party, with consideration of
intermediaries involved and legal
professional privilege
• Ensure consistency in disclosure
filings (e.g., location, timing, and
content)
• Manage and/or minimize multiple
reporting obligations (i.e., different
countries and different
intermediaries)
• Ensure first filing by the August 31,
2020 filing deadline
Ongoing Compliance and Monitoring
• Ensure that system is in place for
compliance within 30 days (and periodic
reporting for marketable arrangements)
• Repeat Phase 2 steps in respect of each
transaction within the 30-day timeframe
• Validate process designed in Phase 1
and execution of Phase 2 based on filing
experience of August 31, 2020
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Phase 1 and Phase 2 run concurrently and to be completed before first filing date on August 31, 2020
Three Phases to long term compliance
Attorney Client Privileged & Confidential
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Thank youAny questions?
16
Pie Geelen
Dutch Tax Advisor
DLA Piper US
m
Shee Boon Law
Head of Knowledge -
International Tax
DLA Piper UK
sheeboon.law@dlapiper.
com
Marica De Rosa
Italian Tax Advisor
DLA Piper US
marica.derosa@dlapiper.
com