Reporting of cross-border arrangements within the meaning of the DAC 6 Directive

The results of the European Union's regulatory efforts in the field of tax cooperation among Member States will soon start to affect the activities of a number of businesses and their advisors in the form of new obligations concerning so-called cross-border arrangements. As this is a relatively complex matter, which is defined by legal regulations in only very broad terms and which is currently being introduced into practice, we provide you with the below brief summary based on the information available.

The national legal framework is based on Council Directive (EU) 2018/822 of 25 May 2018 amending Directive 2011/16 /EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (hereinafter the Directive). The Directive was transposed into Czech law by an amendment to Act No. 164/2013 Coll., on international cooperation in tax administration and on the amendment of certain other acts, with effect as of 1 July 2020. The fulfilment of certain obligations arising from these regulations was postponed due to the COVID-19 pandemic, they will, however, become fully applicable in 2021.

According to this regulation, all intermediaries or taxpayers in cross-border arrangements in the Czech Republic, which are or could potentially be associated with the obtaining of a tax advantage, are obliged to notify the Specialized Tax Office of the proposal or implementation of such cross-border arrangement. This authority subsequently shares the information thereby obtained with the competent tax authorities in the other jurisdictions concerned.

Arrangements that affect at least two tax jurisdictions, at least one of which is a Member State of the European Union, are considered to be cross-border. A cross-border arrangement is then subject to the reporting obligation if it contains the so-called hallmark that denotes a potential risk of tax avoidance.

In the first place, the reporting obligation lies with intermediaries, i.e. generally the consultants who participate in the design or implementation of these arrangements. Only if the cross-border arrangement has no intermediary (or all the intermediaries are bound by professional secrecy and informed the taxpayer of this fact), the reporting obligation falls to the relevant taxpayers. The deadline to file the report is 30 days beginning on the day after the reportable cross-border arrangement is made available for implementation to the relevant taxpayer, or is ready for implementation by the relevant taxpayer, or after the first step in its implementation has been made.

All advisors, including tax advisors, lawyers, notaries and accounting specialists, therefore find themselves in the role of intermediaries. However, if they are bound by the obligation of professional secrecy (legal professional privilege), of which they informed their client and the client's other advisors, they are not under the obligation to file the required information on reportable cross-border arrangements. Otherwise, the notification obligation falls primarily on other intermediaries and, if there are none, on the users.

Moreover, the obligation to report cross-border arrangements applies retrospectively to cross-border arrangements implemented after the date of entry into force of the Directive, i.e. from 25 June 2018. Consequently, the arrangements, where the first step in their implementation was made between 25 June 2018 and 30 June 2020, must be reported by
28 February 2021 at the latest, whereas the arrangements, where the first step in their implementation has been made since 1 July 2020, must be reported no later than
30 January 2021.

We do not believe that in providing legal services and tax advisory services in the period from 25 June 2018, we worked for you or together with you on the implementation of a cross-border arrangement that would contain any of the hallmarks indicating the obtaining of a tax advantage. If this was the case, and our cooperation was, for example, part of a sequence of steps, which would meet the definition of a reportable cross-border arrangement, please let us know. In such case it would be necessary to file the relevant notification to the Specialized Tax Office before the above deadlines.

Please note that the law firm PRK Partners, as well as all its lawyers and tax advisors, are bound by the obligation of confidentiality with regard to all facts and information, which they have come across in the course of the provision of services. We are, therefore, not required to file any information on any reportable cross-border arrangement on your behalf; however, this does not affect our readiness to provide you with the relevant notification upon demand.