EU and the rest of the world – full transparency becoming the new reality

The EU’s new reporting regime (commonly referred to as DAC6) is a real game changer. Tax planning becomes full transparent. But this is not just another reporting regime, this has also a strategic impact on companies and individuals, also in Switzerland. Time to think about this is now. So what is DAC6 all about?

The directive takes aim at a wider range of tax planning schemes, across all industries, which involve taxpayers with some type of nexus within the EU. It puts the responsibility on the advisors (and in some cases taxpayers themselves) to report details of the tax planning scheme to their local EU government. This mechanism of requiring either advisors or taxpayers to report ensures that there is no loophole for non-reporting where an EU nexus is involved. It also means that non EU advisors as well as non EU taxpayers with an EU nexus also need to be aware of and prepare for these new rules.

Once the reported information is swapped between EU Member States (and note that all EU Member States will have access to relevant information regarding tax schemes), it will become a lot easier for EU governments to close off tax loopholes or schemes which advisors have identified for their clients. This might still lead to a cat and mouse game between EU Member State tax authorities and some advisors as new schemes are devised and then legislated against by local governments.

The EU is currently finalizing the administrative steps in finalizing the directive including approval by the Economic and Financial Affairs Council (ECOFIN) last Friday.

The information to be reported for relevant schemes is both broad and comprehensive. It includes, inter alia, details of the scheme itself, the advisor, and the taxpayers involved.

Therefore you not only have to think about the immediate challenges of capture, analyze and monitor all your tax arrangements globally (and then potentially report them), but also on what the strategic impact of this new transparency initiative is.