We have written earlier
that the EU directive known as DAC6 effective from 2018 requires intermediaries or taxpayers to notify tax authorities of any cross-border arrangement likely to be considered aggressive, i.e. one that passes the main benefit test and has one or more of hallmarks listed by DAC6.
DAC6 places the primary duty of notification on intermediaries that have made it possible in a particular way to implement an aggressive cross-border arrangement. As cross-border arrangements are mainly served by banks, it is important to determine whether particular banking services could be seen as services that make it possible to implement an aggressive arrangement.
The definition of intermediary extended to cover a bank
Under DAC6, an intermediary is every person involved in creating and implementing an aggressive arrangement at any stage (designing, marketing, organising, or making available for implementation).
An intermediary is also every person that, considering the relevant facts and circumstances and based on the available information and specialist insights needed for supplying such services, knows, or is reasonably considered to know that it has assisted, supported or advised, whether directly or through other persons, in designing, marketing, organising, making available for implementation, or managing the implementation of an aggressive arrangement. For example, consultants and lawyers doing any of these activities are considered intermediaries responsible for notification under general procedure if the aggressive arrangement has one of the hallmarks listed by DAC6.
We imagine that a bank, too, could be providing services considered intermediary services under DAC6, such as private banking services frequently offered to customers in support of their pension, succession or relocation planning. Also, lending services rendered to a multinational group having its headquarters abroad could be seen as services that make it possible to implement an aggressive arrangement.
Even if a bank, unlike consultants, has not been directly involved in setting up an arrangement but the bank’s Know Your Customer procedures have discovered information about a potentially aggressive arrangement, the bank could be required to notify it if it is found to have DAC6 hallmarks. For example, a bank opening a cash pool account for a company within a cross-border group has sufficient information and knowledge to identify the notification duty under DAC6.
Under DAC6, every intermediary is permitted to give evidence proving that they did not know or could not reasonably believe that the taxpayer is involved in an aggressive arrangement. Thus, any intermediary (including banks) should evaluate whether they have or should have had sufficient information about an aggressive arrangement and determine whether the notification duty has arisen.
It is also possible for a single transaction (e.g. a merger) to involve multiple intermediaries, such as lawyers, accountants, tax consultants, and banks. Under DAC6, all those intermediaries are required to notify a cross-border arrangement unless they know it has already been notified. This raises the question of whether an intermediary can know that another has found a notifiable cross-border arrangement and carried out the notification duty. Perhaps banks could state in their customer agreements that the bank is not the main party implementing the arrangement and will not, therefore, undertake to carry out the notification duty under DAC6.
DAC6 rules in Latvia
Latvian national legislation has yet to explain the application of DAC6 in detail and answer many questions about how it will apply to banks and whether there will be any banking services that are not considered intermediary services under DAC6. And there is no information about penalties for failure to carry out the notification duty.
Since DAC6 provides that the member states must pass it into their national law by the end of this year, we expect the Cabinet of Ministers to issue rules that lay down procedures for applying DAC6.