Intermediaries’ challenges with Mandatory Disclosure Reporting (DAC 6)

4 June, 2019


The European Union requires that you as an advisor file arrangement that qualify for mandatory disclosure with tax authorities. In this article we will illustrate some practical issues in connection with implementing a process for being compliant with the new regulations. In addition, we address the need of a system solution to manage this compliance burden.

What is it all about?

The EU Council Directive 2018/882/EU (DAC 6) provides for mandatory disclosure of information to Tax Agencies by intermediaries on “potentially aggressive tax planning schemes with a cross-border element.” The Directive is based on the BEPS OECD Action 12.

The first occasion for filing is latest August 31, 2020. However, reportable arrangements must be collected now, since arrangements should be filed retroactively, starting from June 25, 2018. Any arrangement should be filed within 30 days of implementing the arrangement, starting from the first filing date. This provides a very short timeframe and frequent filing for the intermediary.

An intermediary is defined as any individual or business engaged in the designing, marketing, organizing, making available for implementation or managing the implementation of potentially aggressive tax planning arrangements with an EU cross-border element, as well as those who provide aid, assistance and advice. This will include tax advisers, banks, accountants, lawyers and insurance companies.

Where there is more than one intermediary involved in the same cross-border arrangement, all of the intermediaries are required to make a disclosure, unless an intermediary has proof that the same information has already been filed by another intermediary.

If legal professional privilege applies, the taxpayer itself must file with the tax authorities. In such a case the advisor needs to notify other intermediaries and/or the taxpayer that it will waive its reporting obligations. This will require that an advisor needs to collect potentially reportable arrangements, assess whether they qualify and make sure that either it or another intermediary files the arrangement or, if the advisor can waive its reporting obligations, that the taxpayer or other intermediaries are notified. If another intermediary has filed the transaction, the advisor needs to collect proof that reporting has been done. In this respect it should be noted that in some cases it would probably be feasible to set up a process where you as an intermediary liaise with other intermediaries in order to agree who should perform the filing and to ensure the arrangement is presented in a consistent way. This means that the advisor needs to be in control of all arrangements that it has been involved in that could fall within the boundaries of the mandatory disclosure regime.

The directive decrees that when implementing the directive locally, penalties should be introduced against violation of the filing obligations. The penalties have been proven to be very substantial in countries that have already introduced the directive in local legislation.

At the moment it is unclear in what format you should file each arrangement and you may have to file arrangements in many EU countries. However, it is expected that the format will be XML. As with the Country-by-Country reporting there may be some differences in the filing format between different countries, even if a standardized format guidance is released by the EU.

As part of the implementation of DAC 6 many countries will introduce a reporting liability for domestic arrangements. This means that you as an advisor also need to consider how domestic reporting should be managed.

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Establishing a process

In order to create a structure around capturing arrangements, asserting correct information being filed, keeping track of all the filings and managing the actual filing of the arrangements, a process needs to be put in place.

The process for managing the reporting of arrangements would normally include the following steps:

  1. Keep track of reportable arrangements.
  2. Identify arrangements – You need to have a firm process that captures potential reportable arrangements where advisors in your organization report arrangements for a central assessment (Assessment function) of whether filing/notification needs to be made.
  3. Central review – The Assessment function reviews the information reported which creates the basis for a decision on how to handle the arrangements.
  4. Decision – The Assessment function decides if an arrangement is reportable or should be notified.
  5. Filing – The Assessment function manages the filing with the competent tax authority if the arrangement should be filed or gathers proof that a proper notification has been made.


Identify arrangements

The need of keeping track of reportable arrangements on entity level

The above implies that a firm of advisors (the firm) needs to keep track of any reportable arrangement it has been involved in as an intermediary in order to ensure that it is not liable to file the arrangement or to notify a client of its waiver regarding the obligation to file.

Since a firm should have control of reportable arrangements that its advisors have been involved in, a process to gather potential arrangements should be put in place on a central level.

What type of advice/service is reportable?

In this respect you first need to consider what type of advice could fall within a reporting obligation, i.e. in which scenarios could the advisor be regarded as an intermediary.

In the Directive an “intermediary” is defined as any person that designs, markets, organizes or makes available for implementation or manages the implementation of a reportable cross-border arrangement.

It also means any person that, having regard to the relevant facts and circumstances and based on available information and the relevant expertise and understanding required to provide such services, knows or could be reasonably expected to know that they have undertaken to provide, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organizing, making available for implementation or managing the implementation of a reportable cross-border arrangement.

We assume that a tax advisor or an advisor linked to a firm that provides tax advice most probably will not be able to argue that they lack knowledge that a service could be part of aid, assistance or advice with respect to designing, marketing, organizing, making available for implementation or managing the implementation of a reportable cross-border arrangement.

A cautious interpretation of the Directive therefore leads us to the conclusion that any advice in any area could be regarded as services that trigger a reporting obligation if the arrangement falls within the hallmarks.

In practice this implies that every advice/service that relates to a cross border arrangement needs to be tested against the hallmarks in order to assess if the arrangement is reportable.

Reporting to the Assess function should be made irrespective of whether or not another intermediary will report the arrangement or if the advisor can waive its reporting obligation under professional privileges. This applies since the Assess function must ensure and be able to prove that the compliance requirements regarding an arrangement have been fulfilled.

In situations where the advisory firm is providing advice in several jurisdictions regarding an arrangement it could be advisable to have a joint solution for several jurisdictions.


Who should identify a potential arrangement?

We assume that in most cases the obligation to identify an arrangement needs to rest with the client responsible (with the support of advisers involved in providing the services).

A client responsible therefore needs to report any potential arrangements on an ongoing basis. It could also be envisaged that the client responsible perform a monthly sign off that all arrangements have been reported.

How the reporters should identify a potential arrangement

Cross-border arrangements

The hallmarks in the directive are worded in such a way that it is difficult to determine what arrangements fall within the reporting obligations. Furthermore, domestic hallmarks need to be taken into consideration in some jurisdictions.

A cross-border arrangement could potentially be reportable in several EU-countries if there are intermediaries/taxpayers involved in more than one country. If the hallmarks or the interpretation of the hallmarks differ from country to country, you may have to file in several jurisdictions. Therefore, we expect all countries to implement the hallmarks in the directive with no or minor domestic deviations. In practice there will of course exist certain differences regarding the interpretation of what arrangements falls within the directive’s hallmarks. However, since an intermediary and/or taxpayer must be able to trust that an arrangement that has been reported in one country is enough to have fulfilled the reporting obligations in all the countries, it must be assumed that an intermediary/taxpayer can rely on all the EU-countries having the same hallmarks and interpret them in a fairly similar way.

Irrespective of which legislation will govern the reporting liability, the main challenge that a firm is facing is to be informed and gather information about potential reportable arrangements. To assess if an arrangement could fall within the scope of the directive’s hallmarks, you need to be very knowledgeable in tax and the interpretation of the hallmarks, something which not every advisor is. Due to this, the firm could consider making a thorough review to identify common arrangements that occur and which fall under one or several of the hallmarks and thus will be reportable. This list of common arrangements will be provided to the client responsible to help them find arrangements which should be reported to the Assessment function for review, decision and potential filing.

In most firms the responsibility for client management is decentralized with no or limited involvement by the central function. Regarding MDR-reporting, a decentralized way of working will be difficult. The reason for this is that the client responsible in many cases lacks knowledge regarding whether or not an arrangement is reportable and cannot perform filing. If this process is not managed on a central level, the firm could end up in a situation where an arrangement is reported by different client responsible in several jurisdictions providing different information in each filing – or even worse, not reported at all with levying of penalties as a result of the negligence of filing. Furthermore, it would be very inefficient to put the burden of keeping track of and filing arrangements on a client responsible.

Domestic arrangements

Domestic arrangements will be reportable in a country if one or several intermediaries or taxpayers are present in that country. If an arrangement is a cross-border arrangement and falls within the directive’s hallmarks and at the same time is regarded as a domestic arrangement in one or several jurisdictions, the assumption is that reporting in one country is sufficient and that local reporting in a second country is not necessary.

Domestic reporting will therefore most likely only be required if the arrangement does not involve taxpayers in more than one country.

In practice this implies that the firm must ensure that domestic arrangements are filed by a local intermediary or a local tax payer.

It is advisable that the client responsible also inform the Assessment function regarding any domestic arrangements in order to ensure that a proper filing is made on time, enabling the Assess function to keep track of these arrangements as well.

Review of reported arrangements – building up the basis for decision.

It is advisable to include the following steps in the central review:

  1. Ensure that all necessary information is gathered in order to establish a basis for a decision. This step consists of at least the following:
    1. Taxpayers involved (incl. identification details)
    2. Intermediaries involved (incl. identification details)
    3. The arrangement has been made available for implementation, been ready for implementation, has started being implemented or when any advice regarding the arrangement has been made
    4. The value of the arrangement
    5. Currency
    6. Description of the arrangements
    7. Local regulations involved
  2. If several intermediaries are involved, there has to be a mutual decision on who should do the filing and what information the filing should contain so that all parties can document what has been filed.
  3. If another intermediary manages the filing, proof of filing needs to be gathered.
  4. If another intermediary has not filed, the firm needs to make a decision on whether filing should be made by the firm or, in the case of a waiver, that a notification has been sent to another intermediary or the taxpayer.

When the Assess function has completed these steps and documented them, a basis for a decision has been established.


Again, it should be underlined that several clients can be involved in an arrangement as intermediary or taxpayer. This implies that several entities could be reporting the same arrangement. A decision regarding the arrangement will therefore determine if:

  1. The arrangement is not reportable (should be reported by an external intermediary or regarded as a non-reportable arrangement).
  2. There is multiple reporting of the same arrangement, i.e. intermediaries in two or more jurisdictions have reported the same arrangement (which intermediary should file and if the same information has been reported by all intermediaries within the firm).
  3. The arrangement should be notified, in the case of waiver.
  4. The arrangement should be filed.

If the decision is that the arrangement should be filed, filing must be made on time.


Filing of the arrangement

If the Asses function decides that it should manage the filing, the firm needs to have a process in place to complete the filing in every country and in accordance with the formalities and applicable data formats implemented in that country.


Conclusion – you need a robust process for securing mandatory reporting compliance

The mandatory reporting process requires that a firm collects information from a client responsible and makes a centralized review, perhaps in several steps, and finally files in one or more jurisdictions. It is advisable to put in place a system solution to manage this process since you need to perform it every month in order to ensure that reportable arrangements are filed or to decide that no filing is required. Furthermore, it is advisable to have one solution implemented throughout the firm in order to keep track of filings where multiple jurisdictions are involved and to have a common approach and secure process regarding how mandatory disclosure reporting is managed throughout the firm.

Without a system solution it will be very difficult to achieve the above. In addition, storing all information centrally will make it easier to access and search data as well as facilitating an otherwise burdensome process. A centralized solution and process increases the efficiency and helps you to manage risk related to mandatory disclosure reporting.

Read more:
Mandatory Disclosure Reporting (DAC 6) – why it matters for multinationals
Guide: Implementing an MDR (DAC6) solution
Why it is important to keep control of Mandatory Disclosure (DAC 6) in-house