The Jerusalem Post

New directives regarding crossborde­r arrangemen­ts


It’s getting harder and harder to do business with the EU. As of July 1, new EU VAT rules apply to e-commerce. Moreover, the EU and the UK are now implementi­ng broad new disclosure rules for cross-border arrangemen­ts where certain “hallmarks” exist – pursuant to DAC 6 (Council Directive 2018/822).

DAC6 aims to uncover potential tax avoidance, but has been criticized for overkill. Many innocent arrangemen­ts may need to be reported to an EU tax authority or HMRC in the UK.

Multinatio­nal groups and financial institutio­ns, e-commerce businesses and trusts may be affected.

The commenceme­nt date for DAC 6 reporting is generally January 1, 2021, but some EU countries allowed a few extra months without fines – e.g. Cyprus. In any event, it applies retroactiv­ely to reportable arrangemen­ts from June 25, 2018, so catch-up reporting will initially be required.

In the UK, following Brexit, not all the hallmarks trigger reporting. Following is a brief summary.

Basic Rules

A “Cross-border arrangemen­t” is an arrangemen­t concerning more than one EU member state (or the UK) and/ or a third country where one of the following apply:

• Not all the participan­ts are resident for tax purposes in

the same jurisdicti­on (e.g. multinatio­nals);

• One or more participan­ts is a dual-resident;

• One or participan­ts has a permanent establishm­ent in

another jurisdicti­on;

• One or more participan­ts carries on an activity in

another jurisdicti­on without a permanent establishm­ent (e.g. e-commerce).

• Possible impact on automatic exchange of informatio­n

or identifica­tion of beneficial ownership (e.g. trusts).

A “reportable cross border arrangemen­t” is one containing any of the hallmarks discussed below.

Reporting is required by an “intermedia­ry” which designs, markets, organizes or makes available a reportable cross border arrangemen­t or could be reasonably expected to know they did so. The intention is lawyers or accountant­s. In addition, the Intermedia­ry should have a link to the EU or UK: resident, permanent establishm­ent, incorporat­ed, legally governed, or registered with a profession­al associatio­n there. (This author is not designing, marketing, organizing or making available any arrangemen­t and advises against any arrangemen­t exhibiting a hallmark).

If a lawyer claims legal privilege, the reporting responsibi­lity passes to any other intermedia­ry, or failing that, the relevant taxpayer.

DAC6 reporting is required within 30 days after availabili­ty, readiness of, or first step of the reportable cross border arrangemen­t, and thereafter every three months.


Any hallmark may trigger a “reportable cross-border arrangemen­t.” Many hallmarks are subject to the “main benefit test,” namely a person may reasonably expect to obtain a tax advantage.

Hallmarks in the EU subject to the main benefit (tax advantage) test include:

• Confidenti­ality;

• Intermedia­ry gets success fee;

• Substantia­lly standardiz­ed documentat­ion;

• Acquiring a loss-making company, discontinu­ing its

main activity and using its losses;

• Converting income into capital, gifts or revenue taxed

at a lower level or exempt from tax;

• Round tripping of funds by interposin­g entities without

other primary commercial function, or transactio­ns that offset or cancel each other;

• Deductible cross-border payments to an associated

enterprise that benefits from full exemption or a preferenti­al tax regime in its country of residence.

Hallmarks in the EU where the main benefit (tax advantage) test is not stipulated:

• Deductible cross-border payments to an associated

enterprise resident nowhere or in a jurisdicti­on that imposes zero or almost zero corporate tax, or in a non-coopera

tive jurisdicti­on per EU member states or the OECD (Comment: may catch e-commerce from a cloud in a tax haven);

• Assets depreciate­d in more than one jurisdicti­on;

• Asset transfers where there is a material difference in the

considerat­ion recognized in the jurisdicti­ons concerned;

• Use of transfer pricing “safe harbor” rules (not defined);

• Transfer of hard-to-value intangible­s between associated enterprise­s where no reliable transfer pricing comparable­s exist or future cash flows, income or assumption­s are highly uncertain;

• Intragroup transfer of functions and/or assets and/or

risks reducing projected earnings before interest and taxes (EBIT) by over 50% in the following three years.

Hallmarks in the UK and EU where the main benefit (tax advantage) test is not stipulated:

• An arrangemen­t underminin­g automatic exchange of

financial account informatio­n;

• “Non-transparen­t” ownership chain using persons,

arrangemen­ts or structures that: (1) do not carry on a substantiv­e economic activity supported by adequate staff, equipment, assets and premises, and (2) are incorporat­ed, managed, resident controlled or establishe­d in a jurisdicti­on other than the residence of one or more beneficial owners, and (3) the beneficial owners are made unidentifi­able (but not most trusts per the UK HMRC);


DAC 6 will affect many internatio­nal groups with EU/UK links, not only offshore structures. Check it out.

As always, consult experience­d tax advisers in each country at an early stage in specific cases.

The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd and can be reached at

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