On October 29th, 2014, a significant agreement was reached at the Global Forum on Transparency and Exchange of Information. At this annual meeting, representatives from all OECD and G20 countries and most financial centres agreed to implement a new standard developed by the OECD and G20.
This new standard aims to increase transparency and the exchange of information between countries to combat tax evasion, money laundering, and other financial crimes. By implementing this standard, governments will be able to automatically exchange financial information with each other, which will make it much more difficult for individuals and companies to hide their assets and income from tax authorities.
In today’s interconnected world, the exchange of information is crucial for various reasons. There are several terms associated with this exchange of information that you may have heard about, including Automatic Exchange of Information between EU member states (AEOI), Directive on Administrative Cooperation (DAC) that aims to improve cooperation between tax authorities in different countries, and global standard for the automatic exchange of financial information – Common Reporting Standard (CRS).
This page explores the DAC concept in more detail and explains how they impact businesses.
The seven stages of the DAC
The Directive on Administrative Cooperation (DAC) is a European Union directive that requires all EU member states to share certain information related to tax matters with each other. The information exchanged includes details about employment income, director’s fees, life insurance products, pensions, ownership, and income from immovable property. This sharing of information helps to prevent tax evasion and other financial crimes by making it more difficult for individuals and companies to hide assets or income from tax authorities. The DAC has been in effect since 2014 and is an important tool for promoting tax transparency and cooperation among EU member states.
DAC-1 – Control information
The Directive “DAC-1 – 2011/16/EU” lays down the rules and procedures under which Member States must cooperate in exchanging information concerning taxes.
The Directive also lays down provisions for the exchange of information by electronic means and the rules and procedures under which Member States and the Commission are to cooperate in matters of coordination and evaluation.
DAC-1 shall not affect the application in the Member States of the rules on mutual assistance in criminal matters. Nor shall it impact the fulfilment by the Member States of obligations relating to broader administrative cooperation under other legal instruments, including bilateral or multilateral agreements.
With effect from 1 January 2015, the Directive provides for the automatic exchange of information on non-financial categories of income and capital based on available data:
- Dependent earned income
- Pensions
- Remuneration of the Board of Directors
- Possession of and income from immovable property
- Life insurance products
- Licence fees from 1/1/2024
DAC-2 – Banking information
With the amendment Directive “DAC-2 – 2014/107 EU” of 9 December 2014, a list of financial information also fell within the scope of the automatic exchange of information with effect from 1 January 2017.
Within the EU (as well as participating third countries), information on financial accounts held by a resident of another participating state is transferred. The financial institutions (banks, trustees, brokers, certain investment vehicles, and certain insurance companies) must report such data to the local tax authorities. These authorities then forward the data to the competent tax authorities in the other state.
This regulation aims to avoid capital gains earned abroad which are subject to declaration or taxation in the country of residence that the taxpayer does not declare. The Savings Tax Directive and the Savings Tax Agreements with Switzerland or Liechtenstein will become obsolete. The agreements allowed individuals resident in a Member State to choose between an anonymous 35% safeguard tax on the capital stock or a declaration of the interest income to their tax authority.
The following information has been reported since the cut-off date of 31.12.2016
- Data of a person or legal entity subject to reporting requirements (name, address, country of residence, tax identification number (TIN), date and place of birth for natural persons, account number)
- Account balance or value (including cash value or surrender value for surrenderable insurance or annuity contracts) at the end of the relevant calendar year
- Custody accounts: Total gross amount of interest/dividends/other income and total gross proceeds from the sale or repurchase of financial assets
- Deposit accounts: Total gross interest income
DAC 3 – Rulings
Directive “DAC-3 – 2015/2376/EU” extended Directive 2011/16 to ensure full and adequate administrative cooperation between tax authorities by introducing mandatory automatic exchange of information on advance tax rulings with a cross-border dimension. On advance tax rulings – a special form of advance tax rulings used in the context of transfer pricing agreements.
The Directive obliges Member States to automatically exchange basic information on advance tax rulings and advance ruling agreements with all other Member States. The Member States have to apply since 1 January 2017.
There is an obligation to provide information to EU Member States or third countries in the case of information pursuant to § 118 BAO or in the case of genuine information if cross-border transactions are the content of the information
- in particular, transfer prices
- occasionally also reorganisations or group taxation enquiries.
DAC-4 – Country by Country Reporting
Directive “DAC 4 – 2016/881/EU” included country-by-country reporting (CBCR) in the automatic exchange of information. Groups with a consolidated total turnover of at least 750 million euros must prepare and submit a country-by-country report according to the law of many states. This “country-by-country report” is a report that contains information on the worldwide distribution of a multinational group’s profits, taxes, and business activities among individual states or territories.
The CBCR is to be prepared for financial years beginning on or after 1 January 2016. January 2016. It shall be submitted to the competent tax office of the ultimate parent company (if resident in Austria) or to the tax office of a business entity resident in Austria that has assumed this obligation on behalf of the ultimate parent company no later than twelve months after the last day of the financial year in question.
DAC-5 – Tax access to beneficial ownership information
Directive “DAC-5 – 2016/2258/EU” is an important European Union directive to combat money laundering and promote tax transparency. It ensures that tax authorities have access to beneficial ownership information collected under anti-money laundering legislation.
Beneficial ownership information refers to information about the persons who ultimately own or control a company, trust, or other legal entity. This information is critical to the detection and prevention of money laundering and other financial crimes, as it helps identify individuals who may be attempting to conceal their assets or income.
By ensuring that tax authorities have access to this information, DAC-5 contributes to greater transparency and cooperation between EU Member States, making it more difficult for individuals and companies to evade taxes or engage in other financial crimes.
Overall, DAC-5 is an essential tool in the ongoing fight against money laundering and financial crime and underlines the EU’s commitment to promoting tax transparency and cooperation between member states.
DAC-6 – Tax planning models
Directive “DAC 6 – 2016/881/EU” aims to prevent aggressive tax planning by tightening controls on the activities of tax intermediaries. Accordingly, these intermediaries, such as tax advisors, notaries and lawyers, who design and/or offer tax planning models will be required to report models that are considered potentially aggressive. Models that must be reported to the tax authorities are identified based on defined “hallmarks”. The fact that a model must be reported does not mean that it is harmful, but only that it may be of interest for the tax authorities to examine it more closely. While some models have legitimate purposes, the point is to identify those where this is not the case.
For their part, the member states are thus obliged to automatically exchange the information obtained in this way with each other via a central database. This will make it possible to identify new dangers of tax avoidance by using fraudulent tax planning models more quickly and to counter them with targeted national measures. The Directive obliges Member States to impose penalties on intermediaries and taxpayers who do not comply with the transparency rules.
DAC-7 – Information about providers on digital platforms
Directive “DAC 7 – 2021/514/EU” requires member states to implement rules for the mandatory automatic exchange of information reported by platform operators about their providers. Providers refer to individuals or companies that offer services or sell goods via digital platforms.
This directive aims to increase transparency and promote tax honesty in relation to activities offered through digital platforms. The exchange of information between Member States will make it easier for tax authorities to identify the income earned by suppliers through digital platforms and to ensure that tax is paid on that income.
DAC-8 – Markets in Crypto-assets
Fair and effective taxation is crucial for public investment and services. Nevertheless, tax authorities need more details on the revenues generated by cryptocurrencies. The update extends the reporting requirements and exchange of information between EU tax authorities to income or transactions generated by EU residents with cryptocurrencies.
DAC-8 is based on the definitions and authorisation requirements introduced by the Markets in Crypto-Assets (MiCA) Regulation and is in line with the OECD Crypto-Asset Reporting Framework (CARF) initiative and amendments to the Common Reporting Standard (CRS). Due to the characteristics of crypto-assets, it is difficult for tax administrations to track taxable events, especially when trading takes place through crypto service providers or operators in another country. This initiative aims to create more tax transparency for crypto-assets.
