The DAC recast: a single framework for tax cooperation

Directive on Administrative Cooperation in the field of taxation (DAC)

Alongside the Tax Omnibus, the European Commission proposes to recast the Directive on Administrative Cooperation in the field of taxation (Directive 2011/16/EU, DAC). The proposal consolidates the directive and its successive amendments into a single instrument and introduces a set of targeted simplifications, without lowering the level of protection against tax fraud, evasion and avoidance. The principal changes are as follows:

• DAC and its eight amendments are consolidated into a single directive;
• reporting of cross-border arrangements (DAC6) is narrowed, with a carve-out for groups subject to the Pillar Two Directive;
• digital platform reporting thresholds for the sale of goods (DAC7) are reduced;
• notification obligations for country-by-country reporting and top-up tax filing (DAC4 and DAC9) are merged; and
• a central tool is introduced to verify taxpayer identification numbers.

Codification into a single instrument

The DAC and its eight successive amendments are codified into a single recast directive. The provisions are rearranged and renumbered to give more emphasis to the automatic exchange of information; the provisions on one-off exchanges are removed; and the references to technical implementation in each exchange article are replaced by a single empowerment for the EC to adopt implementing acts.

Cross-border arrangements (DAC6)

The reporting of potentially aggressive cross-border arrangements is narrowed. A targeted carve-out exempts entities subject to the Pillar Two Directive, on the basis that the 15% minimum tax neutralises the aggressive planning and that tax administrations already receive substantial information on those groups. The carve-out applies only where no benefit is granted within the group that would reduce taxation below 15%.

In line with the case law of the Court of Justice of the European Union (Case C-623/22, Belgian Association of Tax Lawyers), the definition of a reportable arrangement is limited to arrangements that are actually implementable, and the relevant taxpayer is a taxpayer that begins to implement the arrangement.

In the list of hallmarks, the category A hallmarks are removed as they have limited value for tax administrations. The reference in hallmark C1 to the OECD list of non-cooperative jurisdictions is replaced by a reference to the Code of Conduct assessment. The substance criteria in hallmark D2 are to be developed by a Council implementing act.

The deadline for reporting by intermediaries is extended from 30 to 90 days. The reporting period is calculated from the first concrete step in implementation. Further, the treatment of legal professional privilege is updated in line with the case law of the Court of Justice (Cases C-694/20 and C-623/22 Belgian Association of Tax Lawyers). Further guidance will be issued on the application of the main benefit test to the hallmarks in order to ensure a consistent application across Member States.

Digital platforms (DAC7)

The reporting thresholds for the sale of goods through digital platforms are reduced. The activity threshold (currently fewer than 30 relevant activities during the reportable period) is removed and the monetary threshold below which a seller of goods is exempt from reporting is raised from EUR 2,000 to EUR 3,000.

Country-by-country reporting and top-up tax filing (DAC4 and DAC9)

The notification obligations for multinational groups under country-by-country reporting (DAC4) and the central filing of the top-up tax information return (DAC9) are streamlined. In place of two separate notifications operating under different timelines, a group may file a single notification covering both, on a common template adopted by the Commission and by a harmonised deadline aligned with the country-by-country reporting timeline. The notification filed with one tax authority is then exchanged with the other relevant authorities.

Taxpayer identification

A new tool is introduced to improve the accuracy of taxpayer identification numbers (TINs). The Commission is to develop a centralised system allowing the digital and automated verification of a TIN before information is reported. Its use is optional for reporting entities, but where a TIN is verified through the tool — or where the European Unique Identifier (EUID) is used instead — the reporting entity need only report the taxpayer’s name and identifier, reducing the volume of identification data to be reported and the subsequent need for correction.

Completeness of information exchange (DAC1)

Two changes affect the automatic exchange of information on categories of income and capital. First, the concept of available information is broadened, so that Member States must exchange information held not only in the registers of their tax authorities but in all registers and databases of their national administrations, reflecting the “once-only” principle. Second, the category of life insurance products is deleted, as it was exchanged by only a limited number of Member States and largely duplicated the reporting of financial account information; the six remaining categories must all be exchanged where the information is available.

Beneficial ownership of real estate

The proposal adds a new exchange of beneficial ownership information in respect of real estate, in line with developments at the OECD. This is supported by access for tax authorities to the new interconnected register on real estate established under the updated EU anti-money-laundering framework. Taken together, the new exchange and the register access give tax administrations a complete view of who ultimately owns immovable property across the EU.

Other measures

The proposal also aligns the directive with the updated EU anti-money-laundering framework and gives tax authorities access to national pension registers. It makes joint audits available as an additional cooperation tool, alongside administrative enquiries and simultaneous controls, and allows simultaneous controls of non-compliant third-country platform operators. It further strengthens the use of exchanged information, including the sharing of statistics with national statistical offices and reporting on performance indicators, and moves the country-by-country and top-up tax return templates to implementing acts.