1. Background

• 1.1 Council Directive 2011/16/EU (“the DAC”) provides for the sharing of taxpayer information between the tax administrations of EU Member States. The DAC was amended by Council Directive (EU) 2018/822 (the “DAC6”) to introduce a mandatory disclosure regime for certain cross-border transactions that could potentially be used for aggressive tax planning.
• 1.2 The EU mandatory disclosure regime requires “intermediaries” and, in certain circumstances, “relevant taxpayers”, to provide information regarding ‘reportable cross-border arrangements’ to the tax authorities of Member States. This includes information in relation to reportable cross-border arrangements the first step of which was implemented between 25 June 2018 and 30 June 2020 (the “lookback” reporting period). There is then automatic sharing of information between Member States.
• 1.3 In Ireland, the disclosure regime is provided for by the following legislation:
  • (a) Chapter 3A of Part 33 of the Taxes Consolidation Act 1997 (“TCA”) introduced in Finance Act 2019 (and amended by Finance Act 2020); and
  • (b) the European Union (Administrative Cooperation in the Field of Taxation) Regulations 2012, as amended.
• 1.4 The disclosure regime became effective in all Member States on 1 July 2020 with a ‘look-back’ reporting period for reportable cross border arrangements the first step of which was implemented between 25 June 2018 and 30 June 2020. However, Ireland, along with many other Member States, due to Covid-19, exercised an option given in Council Directive (EU) 2020/876 to defer the first disclosures of information for 6 months.
• 1.5 Revenue guidance has been published on the DAC6 regime and this can be found on the Revenue website.
• 1.6 This note seeks to summarise points of note regarding the DAC6 and also addresses the immediate reporting requirements in relation to ‘reportable cross-border arrangements’. This note does not purport to be a full examination of the issues and obligations under DAC6.

2. Reportable cross border arrangement

• 2.1 A cross border arrangement is defined in the Irish legislation as an arrangement concerning either more than one Member State or a Member State and a third country where at least one of the following conditions is met:
  • (a) Not all of the participants in the arrangement are resident for tax purposes in the same jurisdiction;
  • (b) One or more of the participants in the arrangement is simultaneously resident for tax purposes in more than one jurisdiction;
  • (c) One or more of the participants in the arrangement carries on a business in another jurisdiction through a PE situated in the that jurisdiction and the arrangement forms part or the whole of the business of that PE;
  • (d) One or more of the participants in the arrangement carries on an activity in another jurisdiction without being resident for tax purposes or creating a PE situated in that jurisdiction;
  • (e) Such arrangement has a possible impact on the automatic exchange of information or the identification of beneficial ownership.
• 2.2 The definition is accordingly expansive but must concern at least one Member State. In practice, Revenue guidance provides information on when this condition will be met.
• 2.3 A reportable cross border arrangement is a cross border arrangement that falls under certain ‘hallmarks’. These are listed at Annex IV of the DAC and are grouped into the following five categories:
  • (a) Generic hallmarks linked to the ‘main benefit’ test;
  • (b) Specific hallmarks linked to the ‘main benefit’ test;
  • (c) Specific hallmarks related to cross-border transactions (with some linked to the ‘main benefit’ test);
  • (d) Specific hallmarks concerning automatic exchange of information and beneficial ownership; and
  • (e) Specific hallmarks concerning transfer pricing.
• 2.4 These categories are explored in greater detail in the Revenue guidance referenced above at 1.5. See also the useful commentary on the categories also in ‘EU Mandatory Disclosure: Crunch Time for DAC6 Filings’ – David Fennell – Irish Tax Review (2020) Vol. 33/4
• 2.5 The main benefit test is satisfied if it can be established that a ‘tax advantage’ is the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to obtain from the arrangement. It is a test that is objective and seeks to discern the core or main purpose of the particular arrangement. In many cases, where commercial transactions are involved, this test will not be met and where hallmark categories incorporate this ‘main benefit’ test, this will require careful review. In particular, for intermediaries (which includes solicitors – see below) will in many cases be capable of identifying if an arrangement falls under a particular hallmark category but it will be more difficult to discern if the ‘main benefit’ of the arrangement was to secure a tax advantage.
• 2.6 It is important to note that some of the hallmark categories – see for example the hallmarks in relation to transfer pricing – will not have a ‘main benefit’ test and the existence of an arrangement falling under the category will be sufficient.

3. Reporting deadlines

• 3.1 Reporting deadlines can be summarised as follows:
  • (a) Where arrangements were made available or ready for implementation, or implemented (or aid or assistance provided) between 1 July 2020 and 31 December 2020, the reporting requirements must be met by 30 January 2021;
  • (b) For the look-back period between 25 June 2018 and 30 June 2020, where the first step of the arrangement was first implemented, the reporting requirements must be met by 28 February 2021;
  • (c) For transactions from 1 January 2021, the reporting obligation will arise within 30 days from when the arrangements are made available or ready for implementation, or implemented (or aid or assistance provided).
• 3.2 Significant penalties can apply in the absence of reporting obligations being met although Revenue has confirmed that penalties should not apply where non-reporting has been the result of an objective decision making process.
• 3.3 The form of reporting is under ROS but for solicitors, who have reporting obligations, the form of providing reports and content will depend on whether legal professional privilege applies to the transaction. This is discussed further below.

4. Reporting obligations on solicitors

• 4.1 In the absence of intermediaries, the reporting obligations under DAC6 and the TCA will fall on the taxpayers participating in the arrangements.
• 4.2 There are two forms of intermediaries under the guidance and whilst there are requirements concerning the presence of the intermediaries in the EU, it should be noted that solicitors who are members of the Law Society (and any taxation or accounting body in Ireland) will be intermediaries.
• 4.3 The first form of intermediary is one who actively design and advise on reportable cross border arrangements for clients. This would in some cases include solicitors or tax advisers.
• 4.4 The second form of intermediary is any person that knows, or could reasonably be expected to know, that it is providing aid, assistance or advice with respect to the design, marketing, organising, making available for implementation of a reportable cross-border arrangement. Under this category, there is no onus on service providers to carry out additional Due Diligence or inquiries to ascertain the nature of the transaction other than use information in the carrying out of the services.
• 4.5 The main difference between the two forms or category of intermediary is that the second form is entitled to rely on the fact it did not know they were involved in a reportable arrangement.
• 4.6 As to which category of intermediary exists will depend on the nature and extent of the involvement in the arrangement.
• 4.7 Where the services make the solicitor an intermediary, the reporting obligation will fall on the partnership of which the solicitor is a partner or employee.
• 4.8 Where there is no intermediary, or there is only an intermediary with no nexus to the EU, the reporting obligations fall on the relevant taxpayer. This will also arise where legal professional privilege (LPP) applies. A relevant taxpayer is generally any person to whom the reportable cross-border arrangement is made available for implementation.
• 4.9 In relation to solicitors who are intermediaries in relation to the reportable cross-border arrangement, there is also the issue of whether LPP applies. Where the information to be reported in relation to the reportable cross-border arrangement is subject to LPP, then the level of reporting will be reduced but the solicitor will then be obliged to inform his or her client that reporting obligations will arise for the client. The solicitor is still required to report the name of the client and this will trigger an inquiry where the client has not separately reported. In many cases, the client may choose to waive LPP in which case the reporting obligations will fall back on the solicitor.
• 4.10 In relation to assessing the existence of LPP, the following points might be noted:
  • (a) The name of the client may not attract privilege meaning that even where the transaction attracts LPP, a solicitor may have to disclose the name of the client;
  • (b) LPP will generally only exist in the context of the provision of legal advice. Legal assistance – comprising perhaps of implementation steps in a transaction – will not qualify for LPP unless the disclosure of same informs on the legal advice provided;
  • (c) Where LPP applies, and as above, Revenue will expect details of the name of the relevant taxpayer in the arrangements so clients will have to be made aware of this and may, as a result, waive LPP. Where this occurs, there is a full reporting requirement on the intermediary and the reporting deadlines apply with no extension of time.
  • (d) Where the arrangements involve other intermediaries, a solicitor should also inquire as to whether those intermediaries have reported the transaction as this reporting may remove the need to report separately. This does require the solicitor to obtain a copy of the unique transaction ID number assigned by the revenue authority to the filing made along with written confirmation that such other intermediary has made a return and (1) provided the specified information to the Revenue Commissioners under section 817RC or (2) where such other intermediary has made a return to a competent authority of another member state, a copy of the specified information provided to that competent authority.

5. Practical steps for solicitors

• 5.1 As the matters requiring analysis under DAC6 are complex, and in relation to new assignments, solicitors will be required to carry out a full analysis on whether any assignment falls to be considered a reportable cross-border arrangement. The risk of non-compliance is significant and is a risk that falls on solicitors who are intermediaries.
• 5.2 This analysis for new assignments should be carried out at the point of engaging with clients on a new transaction. It should not be left to a time when the transaction has progressed given the reporting deadlines (that generally apply from the date of when the arrangements are made available for implementation and not the possibly later date of implementation).
• 5.3 In short, solicitors should have DAC6 compliance steps incorporated into their general risk management steps.
• 5.4 In relation to an assignment, each solicitor will be required to assess:
  • (a) Whether a transaction is reportable before engaging with the client - it is for the solicitor to form their own view based on the information available to them (assuming they fall within category 2) as to whether a hallmark is breached;
  • (b) If there is a reportable cross border arrangement and under which hallmark it falls – this will require some discussion with the client who may take a different view on the nature of the transaction particularly where there is a ‘main benefit’ test;
  • (c) If the solicitor is a category 1 or category 2 intermediary and, particularly if category 2, whether the information held is sufficient to form a view on whether the transaction is a reportable cross border arrangement. The differences in due diligence to be exercised by a solicitor between category 1 and 2 will need to be noted once the category is established;
  • (d) Whether the client accepts there is a reportable cross border arrangement. If the client does not consider there is such an arrangement, this does not absolve the solicitor from carrying out an independent assessment;
  • (e) Whether the arrangements involve other intermediaries who may have reported the reportable cross border arrangement. If so, the obligations of the solicitor to separately report will not exist provided the unique ID number of the arrangements is provided by the other intermediary and written confirmation that such other intermediary has made a return and provided the specified information to the Revenue Commissioners under section 817RC or, where such other intermediary has made a return to a competent authority of another member state, a copy of the specified information provided to that competent authority ;
  • (f) Whether LPP applies and, if so, whether the client wishes to waive LPP.
• 5.5 For historic assignments which were made available for implementation from 25 June 2018, the Taxation Committee (through some of its representative members) has obtained some guidance on the immediate reporting obligations for 30 January 2021 and 28 February 2021. These can be summarised as follows:
  • (a) Solicitors should have reference to the amended guidance in section 4.10 of the Revenue guidance;
  • (b) For solicitors filing in relation to reportable cross border arrangements between 1 July 2020 and 31 December 2020 (due by 30 January 2021), and where LPP is considered to apply in relation to the transaction, the filing should be completed through the excel DAC6 (as there are issues with the ROS system for filing reports where LPP applies). See guidance on the Revenue website;
  • (c) The excel DAC6 can also be used for filings in relation to reportable cross border arrangements between 25 June 2018 and 30 June 2020 (due by 28 February 2021);
  • (d) For filings in (b) and (c) above, Revenue has agreed that where LPP applies, they will accept details of taxpayer and intermediaries and a full LPP review on other specified information will not be required
  • (e) For reporting deadlines falling after 28 February (the 30 day deadline applies from the date the reportable cross border arrangements are available for implementation), a full LPP analysis should have occurred ;
  • (f) For all reporting above, the client’s name will be expected to be provided even where LPP applies. There may be situations where the client’s name will infringe on LPP but it is expected that this will only be in very limited situations. Solicitors should ensure that clients are aware of these matters;
  • (g) If a client waives LPP, the full reporting obligations will fall back on the intermediary in relation to the reportable cross border arrangement. The reporting deadline of 30 days from the earliest date will apply with no extension so there is a need for a solicitor to query the position with a client early in the process to ensure the reporting deadlines are met;
  • (h) Revenue have agreed for the January and February filings only that where LPP applies they will accept details of taxpayer and intermediaries and that a full LPP review on other specified information is not required.