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New reporting obligations for cross-border tax arrangements

Authors

Terézia Rusnáková
Terézia Rusnáková
Junior Associate
Bratislava

Expertise

New reporting obligations for cross-border tax arrangements 

The amendment to Act No. 442/2012 on International Assistance and Cooperation in Tax Administration, which entered into force on 1 July 2020, introduces a new tax reporting obligation. From our experience, taxpayers are still insufficiently familiar with this new reporting obligation.

The reporting obligation stems from the EU Directive (DAC6) and aims to prevent aggressive and sophisticated tax planning and savings structures. Information disclosed to tax authorities in individual EU Member States is subsequently exchanged with tax authorities within the EU.

What to report?

The reporting obligation covers cross-border tax arrangements that pose a risk of undesirable tax optimisation. To determine whether there is such a risk, it must be assessed whether the arrangement includes some of the characteristic features contained in the Annex to the Act (Hallmarks). Even perfectly legitimate transactions that do not aim to optimise tax—such as customary cross-border transactions between group members, or reorganisations—may trigger a reporting obligation. For example: 

  • One company in the group uses standard model documents for its activities that do not need to be significantly adapted to the specific situation (such as model contracts for financing or rent),
  • Purchase of a loss-making company, and
  • Capitalisation of receivables (debt /equity swap).

The reporting obligation does not affect the transaction’s timing (i.e., the tax authority does not have to approve the transaction). A penalty of up to EUR 30,000 may be imposed for breaching the reporting obligation.

Who should make the report?

In practice, it is usually the taxpayer who must make the report. Legal or tax advisors may also fulfil the reporting obligation on the taxpayer’s behalf. However, this does not happen automatically. The taxpayer must first instruct his advisers to fulfil the reporting obligation and then release them from the duty of confidentiality. In some other Member States, by contrast, the taxpayer’s advisors are the ones affected by the reporting obligation and must report the transaction without regard to the client’s wishes.

By when?

The law provides for the following dates. The decisive date is the date on which the transaction was carried out: 

  • by 31 January 2021 for transactions carried out between 1 July 2020 and 31 December 2020,
  • by 28 February 2021 for transactions carried out between 25 June 2018 do 30 June 2020, and
  • up to 30 days after transactions carried out on or after 1 January 2021.

To Dos  

We recommend that you check your previous cross-border transactions and implement an internal monitoring and evaluation system. In addition, we recommend implementing internal processes to ensure you comply with the reporting obligation in a timely manner.