Directive on Administrative Cooperation Amendment 6 (DAC6)


DAC6 (Directive 2018/822 EU) is an amendment of Directive 2011/16/EU, which refers to the mandatory automatic exchange of information in the field of taxation, in relation to reportable cross-border arrangements. DAC6 forms part of the EU’s Mandatory Disclosure Rules (MDR’s) adopted by the European Council in 2018. The amendment to the DAC Directive introduced the obligation of both intermediaries and the taxpayers in some cases, to disclose their tax planning to reduce harmful tax practices. This is one of the most significant changes for tax advisors, service providers and taxpayers in recent times, and DAC6 has been created as a direct response to Action 12 of the Organisation for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) reports.


Businesses that may be entering into or advising on cross-border arrangements within EU jurisdictions, will need to review where mandatory reporting will be required. DAC6 applies to arrangements that fall within certain hallmark requirements, where the expected benefit can result in a tax advantage via a CRS Common Reporting Standard (CRS), which is global standard for the exchange of automatic tax and financial information. This data will then be shared to a central directory that is accessible by the National Competent Authority in each Member State. Failure to comply with the new directive amendment can result in penalties and sanctions imposed by local tax authorities as well as reputational risk.

What is a Hallmark?
A set of specific characteristics or features of cross border arrangements that could potentially present an indication of risk of tax evasion as listed in Annex IV of the Directive. As part of the Directive, hallmarks are split into 5 categories. Hallmarks only apply if a threshold ‘main benefit’ test is reached. Hallmark categories are as follows:

Category A – Generic hallmarks linked to main benefits test
Category B – Specific hallmarks linked to main benefits test.
Category C – Specific hallmarks that relate to cross border payments
Category D – Hallmarks undermining reporting obligations
Category E – Hallmarks undermining reporting obligations

What is a ‘Main Benefit’ test?
The test indicates that the main objective of the arrangement, is to obtain a tax advantage. This can be extremely difficult to interpret.

What is an intermediary?
This can be any firm or person that ‘designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border-arrangement (RCBA)’. These include, but are not limited to, accountants, lawyers, banks and insurers.

What must be reported?
• Identity of taxpayers and any intermediaries involved in a transaction which includes, but are not limited to, tax ID number, tax residence, and name and place of birth if the taxpayer is an individual.
• Applicable hallmarks
• Relevant local legislation
• Summary of arrangement
• Value of arrangement

What are the penalties for non-disclosure?
The Directive states that any penalties implemented into local legislation within an EU Member State must be ‘effective, proportionate and dissuasive’. Failure to comply could also lead to reputational damage as well as sanctions.

Key Objectives

• Increase level of transparency of certain EU cross-border arrangements by providing Member States’ tax authorities with additional data.
• Reduce EU tax evasion and harmful tax practices.


Types of common transactions that are potentially reportable:

• Cross-border lending – May require disclosure under hallmark category C & D
• Acquisition financing – May require disclosure under hallmark category C
• Reinsurance transactions – May require disclosure under hallmark category C

What transactions does it affect?
Any transaction that involves a cross-border arrangement that is deemed to have a potential tax effect. EU intermediaries are required to file information to their local tax authority, although where no EU intermediary is involved, the reporting obligation falls to the EU taxpayer.

How Will DAC6 Affect Securities Lending?

Taxation and its interaction with our markets is an important area of focus for ISLA. As mentioned above, the DAC6 hallmarks will only apply if the threshold ‘main benefit’ test is met whereby, you can identify that the main outcome of an arrangement is for a tax advantage. This can be particularly tough to apply; where firms would understand the broad commercial rationale behind their client’s transactions, it is unlikely that they would know when entering into a stock loan agreement why a client is entering into it specifically, and especially whether it is tax motivated, unless this is agreed prior to terms of contract. Whilst the MDR’s can be widely interpreted however, it is clear that the spirit of the Directive is to disclose anything that has a significant tax outcome due to the structure of the transaction. DAC6 is mainly focused at large corporate transactions, and the impact of potential financial and reputational damage is too large for firms engaging in securities lending to ignore. Firms must understand which transaction types are affected under the disclosure regime, and identify any transactions undertaken throughout the transition period. Where a financial institution is acting solely as a counterparty to a securities lending transaction or as an agent organising the transaction, then firms will need to clarify whether they were acting as an ‘intermediary’. Reporting to one EU regulator under the Securities Financing Transaction Regulation (SFTR) will be an additional help for local authorities to more easily identify a tax motivated transaction. For example, firms must declare under SFTR the issuing country of the underlying stock, the value and relevant dates.

Implementation Timeline & Key Dates

  • June 2018

    DAC6 comes into force and transitional period for Member States commences

  • December 2019

    Transposition of DAC6 into local legislation

  • July 2020

    Legislation implementing DAC6 into Member States law is effective

  • August 2020

    First tax reports due to local authorities for transactions between 25th June 2018 & 30th June 2020

  • October 2020

    First quarterly Governmental exchange

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