European Commission proposal for a recast of the Directive on Administrative Cooperation

DAC6 imposes an obligation on intermediaries and – under certain circumstances – relevant taxpayers to report specific cross-border arrangements with an EU nexus to the tax authorities. A central objective is the simplification of DAC6, which is currently estimated to cost businesses up to EUR 340 million annually. The DAC6 changes are to be adopted by 31 December 2027, with most relevant provisions applying from 1 January 2028.

Entities within the scope of the Pillar 2 Directive are carved out from DAC6 reporting. This carve-out does not apply where the ultimate parent entity is located in a jurisdiction with a qualified side-by-side regime, unless (i) the relevant entity is subject to a qualified domestic top-up tax (QDTT) for the relevant tax period, and (ii) no refund or direct or indirect financial benefit is granted in relation to that tax. The rationale is that the 15% global minimum tax is expected to neutralise the aggressive tax planning incentives targeted by DAC6, and that tax administrations already receive substantial information on in-scope MNE groups through Country-by-Country Reporting (DAC4) and the Globe Information Return (DAC9).

The DAC Recast proposes that the reporting period commences when the first step in the implementation is made. This entails replacing the current three-limb trigger - i.e. when an arrangement is made available for implementation, is ready for implementation, or when the first step has been taken - with a single trigger. The term ‘first step in the implementation’ refers to concrete measures that make the arrangement’s execution irreversible or legally binding. An example is the signing of contracts that enable the implementation. Accordingly, the definition of ‘reportable cross-border arrangement’ is streamlined to cover only arrangements that are implementable, and the definition of ‘relevant taxpayer’ is narrowed to include only the person who has implemented the first step of a reportable arrangement.

An further change is the extension of the reporting deadline from 30 to 90 days, with the aim of improving the quality and completeness of the reported information.

Following the relevant CJEU judgments, the DAC Recast proposes an amendment to the legal professional privilege waiver. The definition of legal professional privilege should be understood to apply only to intermediaries which are lawyers and other professionals that are legally authorised to ensure legal representation. Where an intermediary has invoked the legal professional privilege waiver on the basis of pursuing its professional activities under one of the professional titles referred to in Article 1(2)(a) of Directive 98/5 (for example the professional titles of ‘advocaat’, ‘avocat’, or ‘rechtsanwalt’), the intermediary should notify without delay its client of the client’s reporting obligation. Other legal professionals authorised to ensure legal representation, but falling outside the scope of the above directive, must notify, without delay, any other intermediary or, if there is no such intermediary, the relevant taxpayer of their reporting obligations.

It is proposed to remove the generic Category A hallmarks in their entirety. The generic nature of these hallmarks has been proven to have little value in fighting tax fraud, evasion and avoidance. Furthermore, with respect to Hallmark C1 (deductible payments to associated enterprises in certain jurisdictions), the reference to the OECD list of non-cooperative jurisdictions is replaced with a reference to the work of the EU Code of Conduct Group.

The Commission states that it will issue guidance on a more harmonised application of the main benefit test, ensuring that DAC6 reporting obligations remain proportionate and effective. However, such guidance is missing in the current proposal.

The Unshell proposal, also referred to as ATAD3, was introduced to combat tax abuse by EU ‘shell companies’. However, Member States have been unable to reach consensus on the Unshell proposal. The Council therefore proposed to integrate the Unshell proposal into the DAC Recast.

The DAC Recast proposes to further develop the substance criteria in Hallmark D2 in a Council implementing act within five years, thereby allowing the DAC Recast to proceed without delay. Although the proposal does not explicitly determine the applicable voting procedure for the Council implementing act, the adoption of such measures would, in all likelihood, require unanimity in the Council. This is because the implementing act would effectively establish substantive tax rules, and measures of such significance in the field of taxation are, under EU law, generally adopted by unanimous agreement of the Member States.

Not only must the Member State of the relevant taxpayer(s) and any other Member States likely to be concerned by the reportable cross-border arrangement be disclosed in the DAC6 report, but any third country jurisdictions involved must also be identified. In addition, any other person likely to be affected by the reportable cross-border arrangement must be included in the DAC6 report, including those located in third country jurisdictions.

Pillar 2 MNE groups may benefit from a targeted carve-out from DAC6. In addition, the scope of reporting is limited to arrangements that are actually implemented, while the extended reporting deadline reduces pressure on the reporting process.

DAC7 introduced reporting obligations for digital platform operators, requiring them to collect and report personal and financial information in respect of certain sellers using their platforms for the supply of goods, the rental of immovable property, the provision of personal services or the rental of means of transport.

The DAC Recast includes the following amendments, intended to apply as from 1 January 2028:

• Platform operator definition: Clarification that entities, acting as intermediaries between a platform and sellers, qualify as platform operators (e.g., certain aggregator and merchant‑of‑record structures).
• Exemption for small and medium‑sized platform operators: Introduction of an exemption for platform operators facilitating relevant activities with an annual value of less than EUR 50,000.
• Reporting threshold for sales of goods: Removal of the current transaction‑count threshold and increase of the monetary threshold from EUR 2,000 to EUR 3,000.
• Group situations: Exclusion from reporting of sellers that are related to the platform operator, for example where activities are performed by a company via a group company’s platform or website.

Currently, MNE groups in scope of Country-by Country Reporting (CbCR) and Pillar 2 are faced with separate notification obligations for CbCR and Pillar 2 purposes, with different deadlines. It is proposed to allow MNE groups to file a single, central notification within the EU covering both CbCR and Pillar 2.

The Commission intends to develop an automated tax identification number (TIN) verification tool. This tool is to be made available to both tax authorities and reporting entities by no later than 31 December 2030.

Currently, information is automatically exchanged in respect of income from employment, director’s fees, pensions, royalties, life insurance products, non-custodial dividends, and ownership and income from immovable property. It is proposed to remove the exchange of information on income from life insurance products and to include beneficial ownership of immovable property.