Today our office was home to the first DAC-Partner workshop and if I were to pick one word to describe the event, it would be INSTRUCTIVE. Ok, it’s two of them: VERY INSTRUCTIVE.

And this was thanks to our partners, all the 24 participating managers of the Tax/Compliance departments of high flying companies (keep it at that: the most profitable company in Romania, the biggest employer, the most powerful Romanian tech brand name etc.), in industry, services, including providers of intermediation services. I’m once again thankful to them for, through their active participation*, helped me and NNDKP colleague Silviu Bădescu to better understand the specific concerns of the business environment about this DAC6 over-reporting requirement. Also, I think that the cross-fire of questions and answers generated by our free talks helped us get a better sense of what we know and what we don’t know for now, about how the Directive is to be transposed through the new adopted Government Ordinance (OG, in Romanian) 5/2020.

By the way, let us mention that 23 of the 24 participants (that is 95%**) expect the ANAF (The Romanian Tax Administration) clarification guidelines to be the first factor to help their compliance with DAC6. Ranking second is ”clearer procedures in the matter at the level of their own group”. Then follow ”automation of the reporting process”, ”training for the tax department” with the ”delegation of compliance process to intermediary involved in transaction / a third party” factor coming last. This order is completely explainable to our participants as highly knowledgeable professionals (half of whom have known of DAC6 for more than six months): they realized, particularly once national legislation was published, that DAC6 was about the transactions of their companies and, since they are relevant taxpayers, they / their companies must be in control of reporting.

For that matter, 90% of them said they favoured the concept that their intermediary report solely with taxpayer’s consent, as also suggested by OG5. And 95% of them said they would appoint a company officer to be responsible for supervising transactions for DAC6 purposes.

To note that the big companies, while using a consultant (that is 65% of our respondents), mostly apply arrangements/transactions prepared by the specialist departments of the company / Group (hence the above mentioned need for clear Group-wide reporting procedures to be in place).

Sure thing, assigning the reporting responsibility is a thorny issue (as shown by 55% of the votes), particularly in terms of compliance costs (40% believe that such costs would be increased by at least 25%), at which point I brought up the automated solutions built for the purpose of DAC6, such as the VinciWorks solution, which is also available in the UK market. I once again assert my willingness to hold DEMO sessions at any time to show how such a solution can help you better manage the data you need for your DAC6 compliance (click here to sign up for a DEMO session). I equally want to re-emphasize that this automatic solution, well, won’t promptly tell you you should report this, you shouldn’t report that!

Yes, this is the great challenge, classifying / identifying the transactions to report, as also pointed out by our participants (90% of the answers).

For 100% it’s all clear – less than a quarter of their transactions involve a tax advantage. However unanimity vanishes when it comes to the percentage of the transactions that should be reported under DAC6. There are taxpayers that see a reporting percentage going as high as 50% of their transactions (15% of the votes) taking into consideration that there is a wide reporting area going beyond the main benefit test (which, by itself, offers a generous margin of interpretation as it is). And things become more complicated when it comes to the relationship with related parties: for 45% of the respondents, their inter-company transactions account for more than 50% of the total number of transactions (in 17% of the cases the threshold of 75% of the transactions is exceeded). As it is known, for ”Category E” (hallmarks concerning transfer pricing), reporting does not depend on the existence of a tax benefit. Likewise, for some of the ”Category C” transactions involving deductible payments between associated enterprises, it is not necessary the existence of a tax advantage. This is why more than half of the respondents agree that documenting intra-group transactions (economic substance, market analysis) helps minimize uncertainty related to the DAC6 reporting.

And while we’re at no-test transactions, the issue of transactions with parties residing in countries that do not have an agreements on automatic exchange of information in place with Romania was raised during the workshop. Even though not every single transaction falling under ”Category D” with entities in such countries is automatically reported, it is advisable to check the existing status of the automatic exchange of information here, on OECD’s official website.

In terms of the actual analysis of transactions, taxpayers identify their own major types of transactions with a reporting potential as follows (multiple choice):

• Payments that enjoy a preferential tax treatment in the jurisdiction where payment beneficiary is tax resident - 55%
• Loan conversion into capital/debt to equity swap - 45%
• Payments to beneficiaries being tax residents in jurisdictions deemed as non-cooperative - 35%
• Transfers of intangible assets - 30%
• Transfer of a production operation concurrently with transfer of services and/or intangible assets as part of a business restructuring process - 15%
• Other - 40%

Once again, what seems obvious at first glance is that there is reporting potential in these types of transactions. It takes a review of each individual transaction (first of those which have become effective since 25 June 2018 until now) – which review should be first undertaken by the beneficiary company (the relevant taxpayer), then by the company together with the involved intermediary, and if need be (for instance, where divergences are encountered by the two parties), the opinion of a third party observer should be sought. Both how we report and not report (that position-paper whereby we explain our decision not to report) transactions become crucial points in the economy of the DAC6 compliance process, which is not completed upon filing the DAC6 statement (statement which may look like this, see TPS’ article in July 2019).

A significant number of respondents already consider the effects of post-reporting: 60% already expect that reporting be followed by their company being classified under a higher tax risk.

Under such circumstances cases where DAC6 may have an impact are expectable, as is a potential need to change a company’s business model, including the type of its transactions – as believed by 75% of the participants in the DAC-Partener workshop.

To them and to our other business partners, we promise to keep standing by to ensure that the impact of DAC6 is not just easy to manage, but also that it ends up appearing as propitious for the (financial) health of that company / group.

Continue to rely on us! That being said, we look forward to seeing you at our next interactive and instructive DAC-Partner workshop (February 26). Please click here to sign up!

 

Thank you for your trust

TPS & NNDKP Team

 

Notes:

* For the precise reason that we sought and keep seeking interactive workshops, where everyone is given an opportunity to air their views, we decided to cap the number of participants at 25 individuals. We will keep such restriction for the next workshops as well.

** The questionnaire in this piece was administered using a real time audience surveying automated platform. In order to make them more suggestive, we expressed results as percentages and as wholes (please consider this in any conversion into absolute data.)

 

DAC6 Resources

Questionnaire + Answers, TPS workshop, February 2020

DAC6 - Implementation Status, EU level, TPS, January 2020

Evaluation of the Directive on Administrative Cooperation, European Commission, September 2019

DAC6 - an introduction, TPS, July 2019

Legislation