Legal entity management

Mandatory Disclosure Reporting (DAC 6) – a guide on practical challenges in your daily operations

7 March, 2019


The European Union require that you or your advisor file arrangements 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 DAC 6 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.


What is an 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 include tax advisers, banks, accountants, lawyers and insurance companies.

The mandatory disclosure regime does not include any exemption for in-house advisers from being considered as intermediaries and liable to report. 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 the taxpayer develops the reportable cross-border transaction in-house, is advised by a non-EU adviser, or if legal professional privilege applies, the taxpayer itself must file with the tax authorities. This will require that tax departments collect potentially reportable arrangements, assess whether they qualify and make sure an intermediary has filed the transaction. If an intermediary has filed the transaction, you need to collect the information they have filed to be in control of what data has been made available to the tax authorities, and if no intermediary has filed a reportable transaction, you need to file it yourself. This means that you need to be in control of all arrangements in the group that could fall within the boundaries of the mandatory disclosure regime.

Read more: How Blika’s Mandatory Disclosure Module can help you

Substantial penalties

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.

Formats that – most likely – will be used

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 part of the implementation of DAC 6 many countries will probably introduce a reporting liability for domestic arrangements. This means that head of tax also need to consider how domestic reporting should be managed.

Establishing a process for Mandatory Disclosure Reporting

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 comprise 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 local managers report arrangements to the head office tax function.
  3. Central review – The head office tax function reviews the information reported which creates the basis for a decision on how to handle the arrangements.
  4. Decision – The head office tax function decides if an arrangement is reportable and what entity should be responsible for the reporting.
  5. Filing – The head office function manages the filing with the competent tax authority if the arrangement should be filed.

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Identify arrangements for DAC 6

The need of keeping track of reportable arrangements on entity level

As a main rule the reporting liability rests with an intermediary, but if there is no intermediary involved, the intermediary is located outside of the EU or the intermediary could waive its liability with reference to professional privileges, the filing liability rests with the taxpayer.

It should be underlined that an in-house tax function could be regarded as an intermediary and thus be liable to report the arrangement.

If there is more than one intermediary involved in an arrangement, each one of the intermediaries are liable to report the arrangement. However, if an intermediary could show that another intermediary in an EU-country has filed the arrangement, it can avoid filing.

The above implies that an entity needs to keep track of any reportable arrangement it has been involved in as an intermediary or a taxpayer in order to ensure that it is not liable to file the arrangement.

Since the head of tax may want to have control of reportable arrangements that entities in the group have been involved in, a process to gather potential arrangements should be put in place on group level. In order to ensure that all arrangements are identified it should be envisaged to have local managers that have a responsibility to sign off whether their entity/entities of responsibility have had reportable arrangements or not. If an arrangement is regarded as reportable or if the local manager cannot assess if an arrangement is reportable, he/she should report it to the head office tax function and provide information needed to evaluate if the arrangement is reportable and who should manage the filing.

Reporting to the head office tax function should be made irrespective of whether or not an external intermediary will report the arrangement. This applies since the head of tax should be fully aware of any reporting where one or more group entities have been involved in an arrangement and have the possibility to ensure that the external intermediary makes a correct account of the arrangement in its reporting.

You may want to raise the question with your advisors if they should notify you of arrangements which they will file in advance of the filing, making it possible for you to ensure that the information provided to the tax authorities is correct.

How to identify a potential arrangement

Cross-border arrangements

The hallmarks in the directive are worded in such a way that is difficult to determine what arrangements are comprised by 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 without domestic changes. In practice there will of course exist certain differences regarding the interpretation of what arrangements are comprised by 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.

Furthermore, it could be assumed that in most groups the head tax function will manage these types of arrangements (i.e. act as an intermediary) and do the filing in the headquarter jurisdiction. If that is the case, it is the hallmarks and interpretation of the hallmarks in the headquarter jurisdiction that will govern the reporting liability.

Gathering the right information

Irrespective of which legislation will govern the reporting liability, the main challenge that the head of tax is facing is to be informed and gather information about potential reportable arrangements. To assess if an arrangement could be comprised by the directive’s hallmarks, you need to be very knowledgeable in tax, something which a local manager seldom is. Due to this, many groups consider making a thorough review to identify common arrangements that occur in the group 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 local reporters to help them find arrangements which should be reported to the head office for review, decision and potential filing.

In practice, this means that it is important to review each jurisdiction separately and adapt the help provided to the local reporters by providing examples which is relevant for both the cross-border arrangements and the domestic arrangements. The examples of arrangements which you provide is therefore tailored for the entities of your group. This we believe is important since a more standardized approach where you only provide an updated description of the legislation could be too broad and difficult to apply.

In many groups the responsibility for tax is decentralized and processes for different types of reporting are built up with limited involvement by the head tax function. Regarding MDR-reporting, a decentralized way of working will be difficult. The reason for this is that decisions have to be made on an aggregated group level, since an arrangement will involve several entities (as intermediary or taxpayer) and one or several external intermediaries in different jurisdictions. If this process is not managed on a group level, the group could end up in a situation where an arrangement is reported by different reporting entities 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. Something that every head of tax would like to avoid.

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 comprised by the directive’s hallmarks and at the same time 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 only be required if the arrangement does not involve taxpayers in more than one country.

Here it should be noted that the head tax function cannot take on an intermediary role for arrangements made by group companies domestically. The reporting liability will therefore always rest with a local adviser or the local taxpayer.

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

One question that we have discussed with our customers is the need for the head tax function to keep itself updated regarding what is regarded as a domestic arrangement in an EU-country.

The decision as to whether or not a domestic arrangement is potentially reportable must be made with the local hallmarks, which could be different from the hallmarks of the EU Directive, and the local tax legislation as basis. In practice this implies that any update regarding what could be regarded as a reportable domestic arrangement needs to comprise not only the wording and interpretation of domestic hallmarks, but also any future changes to the domestic tax legislation, which will have the effect that a transaction becomes reportable due to the change in legislation. Therefore, it will be difficult to keep domestic hallmarks up to date. Instead any process to identify a domestic arrangement must contain the use of a tax specialist in the jurisdiction where the arrangement is implemented to support the group in identifying reportable transactions. As mentioned above in “Gathering the right information”, it is also advisable that you provide examples of domestic arrangements which is common in each of your local jurisdictions to your local reporters.

In most cases a local tax adviser is involved in this type of arrangement and acts as the intermediary. Thus, the responsibility to decide whether reporting and filing should be made rests with the local intermediary. It seems reasonable to demand that a local intermediary always take into account if registration liability is at hand and if it will do the registration or not and discuss this with the tax payer.

If an in-house tax specialist in a local jurisdiction is involved in an arrangement it could be assumed that he or she has knowledge regarding the local filing requirements in that jurisdiction and can both report and handle the local registration in close conjunction with the head office tax function.

It is advisable that the local reporter also inform the head office tax function regarding any domestic arrangements in order to ensure that a proper filing is made on time, enabling the head office 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 an external intermediary manages the filing, proof of filing needs to be gathered.
  4. If an external intermediary does not file, a decision must be made as to whether the head office tax function can act as an intermediary and file in its jurisdiction.
  5. If the head office tax function cannot act as an intermediary, due to lack of involvement in the arrangement or because the arrangement is domestic, a decision must be made as to which group entity is the taxpayer that should complete the filing.

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


Again, it should be underlined that several entities in the group 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 should be reported by the entity.
  2. The arrangement should be reported by another entity in the group.
  3. The arrangement is not reportable (should be reported by an external intermediary or regarded as a non-reportable arrangement).

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

Filing of the arrangement

If the head tax function decides that the headquarter company or a taxpayer within the group should manage the filing, the group needs to have a process in place to complete the filing in the correct country and in accordance with the formalities and applicable data formats implemented in that country.

In this respect it is wise to consider having a streamlined and effective process in place to avoid filing in all the EU countries. In our discussions with customers we understand that most head of tax would prefer filing in the jurisdiction where the parent company is located if this is the same jurisdiction where the head tax function is located. In order to make sure that the in-house tax function is considered as an intermediary, it should be sufficiently involved in each transaction (if it is not involved as a taxpayer, which in itself could imply a reporting liability).

A group therefore should consider putting a policy in place where a group company cannot be part of an arrangement with certain characteristics without such arrangement being managed by responsible persons in the headquarter tax function.

Conclusion – you need a robust process for being compliant to Mandatory Disclosure Reporting

The mandatory reporting process requires that the head tax function collects local information from local managers 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.

The process involves not only people within the group, but also external intermediaries which might file information about your group to the tax authorities. A group tax department needs to keep track of all these information flows in order to ensure that the group is compliant and that no information is filed by an external party which is not correct. In addition, you need to keep track of this information over time to be able to find it should any questions arise at a later date.

Without a system solution it will be very difficult to achieve this and store all information centrally with easy access to facilitate 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:
Guide: Control of arrangements subject to mandatory disclosure reporting
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