How is Belgium interpreting the European DAC6 directive?
BDO develops DAC6 reporting tool
in a previous edition of To The Point (03/2019), we took a closer look at the reasoning behind, and implications of, the new DAC6 tax reporting obligation as set out in the European Directive 2018/822. Belgium transposed this directive into Belgian legislation in the nick of time. The tax administration subsequently published a list of Frequently Asked Questions to further clarify the reporting obligation. A new development is the 6-month postponement in reporting tax arrangements to the Belgian tax authorities, which has been granted to taxpayers and intermediary service providers such as BDO. Meanwhile, BDO has developed a DAC6 reporting tool to help clients fulfil their reporting duty.
Authors: Gert Hooyberghs, Senior Consultant, Olivier Michiels, Partner BDO Tax
What does the DAC6 say? In brief, the EU requires Member States to collect information from taxpayers and intermediary service providers such as BDO regarding cross-border tax arrangements entailing a potential risk of tax avoidance. This information is centralised in a European database, accessible to all European tax administrations, in order to discourage ‘aggressive tax planning’.
European Member States had until 31 December 2019 to transpose the European directive into national legislation. Despite political complexities and a caretaker government, Belgium managed to transpose the directive just in time, on 20 December 2019.
The directive applies to any form of tax levied by, or on behalf of, a Member State, including by local authorities. VAT, customs duties, excise duties and social security contributions are not covered, and these items fall outside the scope of application.
However, European Member States are free to expand the scope to include such exceptions after all, and also to require the reporting of both domestic and cross-border arrangements. Belgium opted for neither. Consequently, in Belgium the new reporting obligation applies to income tax, miscellaneous duties and taxes, inheritance tax and gift, registration and mortgage duties, as well as court fees. Furthermore, the country is only targeting cross-border arrangements.
This law also devotes considerable attention to professional secrecy and its limits, which can be invoked by intermediary service providers such as BDO to avoid the need to report. In such cases, the obligation shifts to the taxpayer. Initially that is, as the taxpayer may grant the intermediary permission to carry out the required reporting. If the taxpayer withholds permission, the intermediary is still obliged to provide the taxpayer with the necessary information to allow the latter to submit a correct report.
Furthermore, Belgium has opted to adopt the DAC6 Directive’s provisions virtually unchanged. This is a missed opportunity for greater clarity; despite an extensive explanatory memorandum to the Belgian law, many questions remain as well as numerous unresolved practical issues.
Frequently Asked Questions
The publication of an FAQ at the end of June confirms the fact that the new law leaves many questions unanswered. The tax administration’s worthy attempt to speak plainly and to answer various key questions spans nearly 60 pages. Unfortunately, the FAQ still fail to clarify all ambiguities.
Here is a brief overview of the most important clarifications:
It is not possible to obtain an advance ruling to determine whether a given cross-border arrangement must be reported.
The explanatory memorandum states that the simple application of a national tax regime cannot be considered an arrangement. The FAQ confirms this and adds several examples of transactions that are not regarded as arrangements.
For certain hallmarks, obtaining a tax advantage must be an important motive (the so-called ‘main benefit test’). The FAQ clarifies the need to analyse the arrangement in its entirety to determine this. Possible tax benefits obtained in countries outside the EU must be taken into account as well. Moreover, the administration confirms that the mere application of a foreign tax regime (preferential or otherwise) or mere avoidance of double taxation won’t meet this criterion in and of itself.
In principle, cross-border arrangements established between 25 June 2018 and 30 June 2020 and subject to a reporting obligation needed to be reported by 31 August 2020 at the latest. Due to the current circumstances resulting from the COVID-19 pandemic, the federal tax administration has postponed this deadline by 6 months as an administrative tolerance. This means the deadline has now shifted to 28 February 2021.
Tax arrangements established between 1 July and 31 December 2020 must be reported by 30 January 2021 at the latest.
For arrangements established from 1 January 2021, no postponement will be granted and the normal reporting period of 30 calendar days will apply.
Meanwhile, the European Commission has announced that it will use the extra time created by the postponement to further optimise its international exchange scheme. This will of course also affect the Belgian tax administration’s desired national reporting scheme.
Taxpayers and their intermediary service providers who provide incomplete information about cross-border arrangements that are subject to a reporting obligation may be penalised through administrative fines ranging from EUR 1,250 to EUR 12,500. Failure to report or late reporting can lead to a fine of EUR 5,000 to EUR 50,000. In the case of fraudulent action or harmful intent, the limits increase to EUR 2,500 and EUR 25,000, and EUR 12,500 and EUR 100,000, respectively.
The administrative fines apply per arrangement and are progressive in nature, with multiple infringements resulting in more severe penalties.
Do you have any questions about the new DAC6 legislation? Are you looking for help with the analysis of your situation? Would you like more information or a demonstration of our reporting tool? If so, please do not hesitate to contact the experts from our Tax team: firstname.lastname@example.org.