Prolongation of deadlines for the notification requirement for cross-border arrangements

Prolongation of deadlines for the notification requirement for cross-border arrangements

On 10 September, in compliance with EU legislation (Directive 2011/16/EU, the so-called “COVID-DAC” directive), a government decree decided on prolongation of the notification requirement for cross-border arrangements.  The notification requirement has been brought by the so-called “DAC 6” (Directive on Administrative Cooperation – amendment to directive 2018/822/EU based on the BEPS action plan). The DAC 6 has become one of the basic tools of the EU in fighting tax evasions by means of automatic exchange of information on cross-border arrangements, which may be motivated by gaining a tax advantage. The decision has prolonged the deadlines for complying with the notification requirement within international cooperation on tax administration by 6 months.

The prolongation of deadlines has been approved despite the fact that the DAC 6 originally required implementation in the EU countries by the end of the year 2019. The extraordinary prolongation of the deadlines is mainly due to the occurrence of the SARS CoV-2 coronavirus, which has complicated timely implementation of this notification requirement in most EU countries. The Czech Republic is thus one of a majority of the EU countries that will use the option of postponement, which has taken on an official legislative form by means of a government decree.

The government decree postpones the deadlines in relation to the information reported by the so-called intermediaries of cross-border arrangements. These intermediaries include mainly tax consultants, lawyers and other persons, unless bound by professional secrecy. As we have already informed earlier, professional secrecy that binds the intermediaries often results in the transfer of obligations directly to the taxpayer.  

Cross-border arrangements, to which the notification requirement applies, can be divided into two groups depending on whether or not they must fulfil the so-called “main benefit test”. The test is fulfilled in case of obtaining a certain tax advantage deriving from such arrangement. The first group of cross-border arrangements (for which the main benefit test is required) are arrangements that fulfil at least one of the hallmarks (e.g. buying a loss-making company, the existence of circular transactions in the group, the use of the benefits of tax exemption, benefits deriving from preferential tax regime etc.). The second group are cross-border arrangements, which will always be subject to notification (i.e. without the necessity of the main benefit test). The hallmarks for them include for example the use so-called safe harbours in the area of transfer pricing, double tax relief claimed in more than one jurisdiction, depreciation of assets in more than one jurisdiction etc.

The notification requirement will also apply retroactively for the entire period, for which the directive is in operation, i.e. the period from 25 June 2018. The maximum deadlines for notification are, in most cases, as follows:

• 30 Jan 2021– cross-border arrangements opened or prepared for implementation, or the first step of which was made in the period from 1 Jul 2020 to 31 Dec 2020 (inclusive).
• 28 Feb 2021– cross-border arrangements, for which the first step of their implementation was made in the period from 25 Jun 2018 to 30 Jun 2020 (inclusive).
• 30 Apr 2021 – cross-border arrangements, for which date were updated by 31 Dec 2020 (inclusive).

With regard to the notification and the current technical solution at the Tax Portal of the Financial Administration, the option of electronic submission of “Disclosure on reportable cross-border arrangement” can be expected from the second half of October 2020.

The persons, who will not comply with this notification requirement, will face a fine of up to CZK 500,000.

If you need any advice, to see if you meet the conditions for complying with the notification requirement, or you need any consultation, we remain fully at your disposal.

Author: Grant Thornton Czech Republic, Lukáš Veitz