Persons required to report

In principle, the reporting obligation falls on the intermediary (A). However, where there is no intermediary or the intermediary is not located in the EU (possibly through a permanent establishment), or where the intermediary is unable to report because of legal professional privilege or secrecy rules, the obligation to report lies with the relevant taxpayer (B).

According to the Directive (§ 21 of the revised Art. 3 of Directive 2011/16/EU on “Definitions”), “intermediary” means:

Any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement.

Any person that, having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement.

The first kind of intermediary mentioned above is referred to as a “promoter”. The second kind is referred to as a “service provider”.

The FTA state that an intermediary may be any person, professional or not. It also considers that the concept of intermediary does not imply that the intermediary has legal personality or is rewarded; nor does it assume that the intermediary belongs to a given professional category.

A promoter is a person who:

• “designs” an arrangement, i.e. plans, suggests or develops a concrete arrangement, i.e. an arrangement whose main characteristics are defined; or
• “markets” an arrangement: according to the FTA, an arrangement is deemed to be “marketed” when it is offered to third parties on a market; or
• “organises” an arrangement: this includes the preparation and the coordination of an arrangement; or
• “manages the implementation” of an arrangement: this includes the management of the concrete execution of the arrangement.

A service provider is a person who provides “aid, assistance or advice”.

According to HMRC this could include providing finance, expertise or knowledge, sharing experience or offering accounting advice.

If a person provides aid, assistance or advice, there is then the question of whether it is provided with respect to designing, marketing, organising, making available for implementation or managing the implementation of a reportable cross-border arrangement.

HMRC give an example of a bank providing finance to a company that was carrying out an arrangement that was being implemented by a third party promoter to show in principle that the bank would be providing “aid” in relation to the managing of the implementation of the arrangement.

However, according to the Directive, the service provider “shall have the right to provide evidence that [he] did not know and could not reasonably be expected to know that [he] was involved in a reportable cross-border arrangement. For this purpose, that person may refer to all relevant facts and circumstances as well as available information and their relevant expertise and understanding”.

According to HMRC (Consultation document, § 3.4; IEIM621050) and the Belgian tax authorities (Q&A updates on 15 June 2020, § 8.1.3), this defence (offered to service providers but not promoters) exists because a service provider might only be involved in part of a wider arrangement, such as a bank providing finance. It might therefore not have knowledge of the wider arrangement and, crucially, whether the arrangement triggered any hallmarks. In such a scenario, it is reasonable that the bank is not expected to make a report, because it did not know, and could not reasonably be expected to know, that it was involved in a reportable arrangement.

The expression “reasonably expected to know” is clearly inspired by the Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures released by the OECD in 2018. This Model contains a Rule n° 1.3. which states that “the standard of ‘reasonably be expected to know’ must be determined by reference to the Service Provider’s actual knowledge based on readily available information and the degree of expertise and understanding required to provide the relevant services”.

This standard is also explained by HMRC as follows (§ 3.6): “HMRC does not expect service providers to do significant extra due diligence to establish whether there is a reportable arrangement. A service provider should do the normal due diligence it would for the type of transaction and the client(s) in question. If a service provider failed to do its normal due diligence or found ways to be wilfully ignorant by purposefully not asking particular questions, then it may still meet the test that it could reasonably be expected to know”.

The Luxembourg Tax Administration (LTA) (Clarification of Interpretation, Intermediary – person who could reasonably be supposed to know) specifies that proof shall be provided by any means upon request by the LTA. Furthermore, the LTA explains (Clarification of Interpretation, Obligation of transmission of intermediaries – information of which they are aware) that intermediaries do not have a specific obligation to actively seek out information that they do not hold in the first place and that goes beyond existing professional obligations.

HMRC and the FTA also take the view in their guidelines on DAC6 that service providers are not considered intermediaries as long as they intervene or become aware of the arrangement after it has been implemented (on the assumption that they have provided no advice, aid or assistance relating to the arrangement). This is the case for example if an auditor, examining a company’s accounting records, identifies a transaction which is reportable. In such a case, the auditor would not be an intermediary simply by virtue of having knowledge of an arrangement, provided that he did not do anything else which would bring him into the intermediary category (BOI-CF-CPF-30-40-10-20 n° 80).

Similarly, the FTA state that a counsel, different from the counsel at the origin of the scheme, whose mission would only consist in assessing whether or not a cross-border arrangement is reportable, should not be considered as an intermediary (ibid.).

The Belgian tax authorities (Q&A, question 8.1.7) adopt a flexible approach to the notion of intermediary by considering that is not subject to the reporting obligation as an intermediary a person who:

• provides general advice on the tax consequences of a transaction or carries out a risk analysis such as, for example, the simple execution of a due diligence in case of buyout, and becomes aware of an already existing arrangement;
• draws up and files a tax return;
• assists the taxpayer during a tax audit;
• only updates a transfer pricing benchmark;
• draws up transfer pricing documentation for existing structures;
• is consulted on the possibility of regularising income;
• provided that it cannot be considered as an intermediary because of its involvement in the design, marketing, organisation, availability for implementation or management of the implementation of the cross-border scheme subject to the reporting obligation.

This is also the position of the Dutch tax authorities, that have stated that descriptive work of an existing cross-border arrangement should not be reported. Examples of this are: filing a tax return, only updating a transfer pricing benchmark, drawing up transfer pricing documentation on existing arrangements, drawing up due diligence reports or a “tax white paper” and carrying out a (tax) audit.

The Italian Ministry of Economics and Finance has provided a definition of the standard of knowledge for the service provider which is in line with the “reasonably expected to know” test as defined by the OECD, and has further specified that, unless proof of the contrary is provided, the standard of knowledge is not considered to be met for routine banking and financial transactions.

According to the European Commission, intermediaries are identified by the tax planning activities, rather than through their affiliation to a certain professional group. Therefore, the concept of “intermediary” includes lawyers, accountants, tax and financial advisers, banks and consultants (Commission staff working document, Impact Assessment accompanying the Directive proposal, COM(2017) 335 final, SWD(2017) 237 final, 21 June 2017). The concept of intermediary should also include notaries and experts in financial assessment, as well as any company that designs a scheme for itself or other companies of the same group (Q&A mentioned above, § 8.1.1).

Moreover, where an individual employed by a firm (company, partnership, etc) takes actions on behalf of the firm, which fall within the definition of intermediary in DAC6, it is the employing firm, and not the individual employee, who is the intermediary, and who is required to make the report as necessary. Individuals may still have to make reports if they are sole traders and are not employed by a firm.

Where there is a failure to comply with the requirements in the regulations, it will be the firm, rather than an employee of the firm, who is liable for the penalty.

According to the Luxembourg Tax Administration (Clarification of Interpretation, Obligation of transmission for intermediaries –transmission by a permanent establishment), insofar as a permanent establishment does not, in principle, have a legal personality distinct from that of the parent company, the declaration made by a permanent establishment of a company exempts the latter from making the declaration itself. The cross-border arrangement will have to be declared in the Member State in which the intermediary, i.e. the parent company, resides for tax purposes. The foregoing applies whether or not the services related to the arrangement are provided by the parent company or by the permanent establishment. On the other hand, if the parent company is established in a third state to the European Union (EU), and has a permanent establishment in Luxembourg which provides services relating to an arrangement, the declaration must be made to the EU Member State in which the parent company (= intermediary) has a permanent establishment through which services are provided for the arrangement, in this case to Luxembourg.

The Dutch tax authorities share this view: if an intermediary’s head office is located in a Member State, then the declaration is to take place there. If outside the EU, the declaration needs to take place in the intermediary’s permanent establishment (if located in the EU).

According to the Directive (§ 22 of the revised Art. 3 of Directive 2011/16/EU on “Definitions”), “relevant taxpayer” means:

Any person to whom a reportable cross-border arrangement is made available for implementation, or who is ready to implement a reportable cross-border arrangement or has implemented the first step of such an arrangement.

According to the FTA, the relevant taxpayer is the user of the reportable cross-border arrangement (BOI-CF-CPF-30-40-10-20 n°230).

According to HMRC (§ 4.2), a person does not have to have implemented or have started to implement the arrangement, nor do they have to have decided that they will implement the arrangement. Simply having an arrangement made available to them for implementation, or being ready to implement an arrangement, is sufficient.

According to the FTA, an arrangement is “made available for implementation” when the characteristics of the arrangement have been determined and the arrangement is brought to the taxpayer’s knowledge ((BOI-CF-CPF-30-40-10-20 n°250).

HMRC also explains (§ 4.3 et seq.) that an arrangement can be made available to a relevant taxpayer in many different ways. A taxpayer could approach an intermediary seeking advice or ideas, and the intermediary could make available an arrangement in response to that request.

Equally, an arrangement could be made available in the course of other work between an intermediary and a client if, for example, the intermediary identifies a potential need and suggests the arrangement as a solution.

The arrangement could also be made available to prospective clients. This could include advertising the arrangement online or offering it to potential clients in person. The full details of the arrangement do not need to be finalised in order for the arrangement to be made available, as long as the essence of the arrangement is identifiable. For example, if an arrangement has been developed and is offered to a client, but the client backs out of implementing it, the arrangement has still been ‘made available’ and so is reportable.

A taxpayer is “ready to implement” an arrangement when the taxpayer’s goal is to implement the arrangement and the taxpayer is able to implement the first step.

Lastly, the FTA have clarified that the first step of the arrangement “has been implemented” when it has been executed. The implementation of this first step is assessed on a case-by-case basis. The following steps may be considered as the “first step” of implementation of a cross-border arrangement: the signature of a legal document, a decision made by a shareholders’ meeting to implement an arrangement or the accounting recording of an operation.

While the distinction between taxpayer and intermediary is generally clear-cut, there may be situations when it is blurred by a number of factors.

This is particularly the case within groups of companies where the top holding company of the group provides advice to the subsidiaries. In such a case, the holding company of the group may act as an intermediary. The FTA draw a dividing line between two situations as follows:

• where the holding company designs an arrangement used by herself and other companies of the same group, it should be considered as an intermediary and a relevant taxpayer;
• where the holding company designs an arrangement on behalf (or in the interest) of other companies of the same group only, it should be considered as an intermediary.