EU citizens and businesses have the freedom of cross border trade but since direct taxation is not consistent across the Member States, this meant that fair competition regulations could not be implemented.
To ensure the harmonisation of complete and correct VAT obligation taxations in the destination EU Member State, the European Commission introduced VAT for cross-border e-commerce returns for companies/suppliers carrying out cross-border sales of goods or services (mainly online). The new EU regulation is expected to ensure fair competition for EU businesses and combat VAT evasion and fraud.
With the advent of the Covid-19 pandemic and in consideration of the difficulties that businesses and Member States are confronting, the European Commission issued an announcement on 8 May 2020 for the postponement of the VAT e-commerce package by six months. Therefore, instead of these rules applying from 1 January 2021 they would apply from 1 July 2021. This would also provide time for the adaptation of existing IT systems and the establishment of these systems by the Member States.
In addition, the European Commission proposed postponement deadlines in filing and exchanging information under the Directive on Administrative Cooperation (DAC). The DAC directs all EU Member States to share certain information for taxable periods, in particular due to the increased opportunities for investors to invest abroad in a wide range of financial products. The proposed extension is for the filing deadlines of DAC2 and DAC6.
In brief, DAC2 is the reciprocal automatic EU Members States’ exchange of financial reportable account information, which includes interest, dividends or other income generated by a financial account as well as gross proceeds from a sale or redemption and account balances. Financial institutions will be required not only to adapt their systems but also to communicate with their customers on matters relating to due diligence, data protection and best practices. The European Commission has proposed for DAC2 to be deferred by three months until 31 December 2020. The tax measures affect only the extended timeline for financial reporting purposes.
DAC6 is a new EU mandatory disclosure obligation (to their national tax authority), from intermediaries such as financial and professional bodies or taxpayers, that are involved in designing and promoting cross-border schemes that have certain hallmarks or features related to tax and tax reporting. This may concern one EU Member State or an EU Member State and a non-EU country. The increased mobility of both capital and persons has shaped the move of taxable profits to more beneficial tax areas resulting in a reduction in the taxpayer’s bill and a reduction in tax revenue in certain jurisdictions. DAC6 is being introduced to increase the level of tax transparency and to provide Member States’ tax authorities with more information on resolving harmful tax practices.
DAC6, which is the EU directive on cross-border tax arrangements, will apply from1 July 2020. This means that the postponement, only affects reporting until a later date.
Assuming that the proposal is accepted, the deferrals will be amended as follows:
It is essential to understand the impact of DAC6 and to ensure that taxpayers and intermediaries conform and fulfill their requirements and obligations under DAC6 on and after 1 July 2020.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on a specific matter before acting on any information provided. For further information, please contact Elizabeth Michael at Elizabeth.Michael@kyprianou.com