DAC 6 – new reporting obligations to combat aggressive tax planning schemes

Article written by Florin Gherghel, Tax Manager Ensight Finance

DAC 6 – reporting obligations

Order 1029 / 2020 was published in Official Gazette no. 407 as of 18 May 2020 regarding the tax return to be used for reporting cross-border arrangements.

Starting with July 1, 2020, the new obligations for reporting cross-border arrangements to the tax authorities come into force. These obligations are established by Ordinance 5/2020, which transposes, in the Fiscal Procedure Code, the European Directive 2018/822 regarding the automatic exchange of information in the fiscal field, the so-called DAC 6 Directive.

The aim of these reporting obligations is to combat aggressive tax planning schemes, as EU member states want to protect their tax system and to avoid the reduction of national tax revenues.

A reportable cross-border arrangement is an arrangement between entities from different states (specific conditions for the existence of an arrangement are mentioned), having a potential risk of tax avoidance, including at least one of the hallmarks / characteristics mentioned in the annex to the Ordinance 5/2020.

Some examples of reportable cross-border transactions would be: the transfer of taxable profits to tax havens where taxes do not exist or are very low, transactions with companies without economic substance (“mailboxes”) registered in low-tax jurisdictions, the acquisition of a loss-making company and the use of losses for the reduction of their own tax obligations, the conversion of income into capital or other income categories that are taxed at a lower level or are exempt from paying taxes, circular transactions through which money flows between companies in several jurisdictions with more favorable tax treatment, etc.

These arrangements must be reported by intermediaries (e.g. persons designing or providing assistance in designing a cross-border arrangement) or by relevant taxpayers (e.g. companies implementing a cross-border arrangement) within 30 days of becoming aware of the existence of a cross-border arrangement / making the arrangement available.

The reporting obligation falls primarily on the intermediaries involved (lawyers, tax consultants, experts). Intermediaries who, according to the law, are subject to an obligation of professional privilege, will report cross-border arrangements that are subject to reporting only with the written consent of the relevant taxpayer. In the absence of the written consent, an intermediary subject to an obligation of professional privilege must notify another intermediary to perform the reporting, and, in the absence of other intermediary, the reporting obligation rests with the relevant taxpayer.

Reportable cross-border arrangements for the period between 25 June 2018 and 1 July 2020 must be reported by 31 August 2020.

The tax authorities have not yet published the guide for the application of these provisions, as there are many question marks regarding the reportable transactions.

We also draw attention to the existence of significant fines for non-compliance with the above provisions: (i) failure to report or reporting with delay by intermediaries or relevant taxpayers is sanctioned with a fine between RON 20,000 and RON 100,000; (ii) the non-fulfillment by the intermediary of the obligation to notify another intermediary or of the relevant taxpayer, in case the intermediary is subject to the professional privilege, is sanctioned with a fine between RON 5,000 and RON 30,000.

Order 1029/2020 published the tax return through which the information regarding cross-border arrangements will be reported online to the tax authorities.

Back to News