Cross-border transactions are retroactively reportable!

25. June 2019

On 8 May, the EU Reporting Obligations Act (EU-Meldepflichtgesetz, EU-MPfG) was sent for review within the context of the Tax Fraud Prevention Act (Abgabenbetrugsbekämpfungsgesetz) 2020; the review period ended on 28 May 2019. The EU Reporting Obligations Act will transpose the requirements of the DAC 6 Directive into Austrian law. DAC 6 provides for mandatory disclosure and an automatic exchange of information concerning cross-border arrangements. The reporting obligation applies to arrangements implemented since 25 June 2018.

What is the DAC 6 Directive?

Directive (EU) 2018/822 of the Council of 25/05/2018 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements, OJ L 2018/139, 1.; hereinafter referred to as the “DAC 6 Directive” for short.

What are cross-border arrangements?

The term “arrangement” is not defined independently by the law. The explanatory notes on § 3(2) EU-MPfG merely state that an arrangement may include more than one step or one part and may also involve a series of arrangements.

The required cross-border element cannot be fulfilled by the mere fact that a transaction or activity is carried out abroad. According to the law, a “cross-border” situation already arises when not all of the parties involved in the arrangement are tax resident in the same territory or when one of the parties involved is tax resident in several territories at the same time.

Please note! The scope of the EU-MPfG should include not just arrangements that are inappropriate, in the sense that they are “abusive”, but also “general” arrangements”!

How is the reporting obligation established?

A cross-border arrangement is reportable if the prerequisites of § 5 or § 6 EU-MPfG are met:

§ 5 defines indicators of unconditionally reportable arrangements which lead to a reporting obligation without satisfaction of the main benefit test. These may include:

  • Payments between affiliated companies if the recipient is not tax resident in any territory
  • Transfer pricing arrangements with unilateral safe harbour rules, relocation of functions or transfer of intangible property

§ 6, on the other hand, covers indicators of conditionally reportable arrangements which are also contingent on satisfaction of the main benefit test. These may include:

  • Purchase of loss-making companies (shell company purchase)
  • Circular capital transfers
  • Arrangements involving low-taxing jurisdictions

Cross-border Transactions with tax advantage

The main benefit test is deemed to have been satisfied if the main benefit or one of the main benefits of the arrangement is obtaining a tax advantage (domestically or abroad). The tax advantage may relate to any type of tax, with the sole exception of VAT, customs, excise duties and compulsory social security contributions.

A reporting obligation applies primarily to the “intermediaries” within the meaning of § 3(3) EU-MPfG, i.e. advisors in a broader sense. However, if the advisor is subject to a statutory obligation of confidentiality, the reporting obligation passes to the relevant taxpayer! As the typical intermediary (lawyer, notary, tax advisor) in Austria has a professional legal obligation of confidentiality, the reporting obligation will often therefore apply to the taxpayers themselves. If arrangements are self-conceived, the relevant taxpayers themselves also have a reporting obligation.

When should arrangements be reported and what penalties are provided for?

Arrangements created between 25/06/2018 and 01/07/2020 must be reported from 01/07/2020 to 31/08/2020. Arrangements from 01/07/2020 onwards must be reported to the new anti-fraud office within 30 days.

Any violation of the reporting obligation is legally defined as a breach of financial regulations and will occur if

  • a report is not made or is incomplete, or
  • the reporting obligation is not met on time.

In the draft amendment to the Financial Criminal Code (Finanzstrafgesetz, FinStrG), Austria has opted for fines of up to EUR 50,000 for intent and up to EUR 25,000 for gross negligence.

TPA Tip concerning DAC6 reporting obligation

Cross-border transactions should be recorded on a daily basis so that any reporting obligation can be assessed in good time. Your TPA advisor will be happy to assist you in terms of how to proceed.

Contact our experts