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The Republic of Cyprus has published draft legislation to transpose Directive 2018/822/EU on mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (DAC6).


The Organization for Economic Co-operation and Development (OECD), as part of its Base Erosion and Profit Shifting (BEPS) initiative, has been introducing measures, such as its Mandatory Disclosure Rules, to ensure that countries automatically exchange information relating to certain cross-border tax arrangements. In response to this, the European Union introduced a series of Directives for Administrative Cooperation (DAC). For example, through Directive 2014/107/EU, known as DAC2, the EU introduced the now well-known Common Reporting Standards (CRS). While CRS imposed a reporting obligation on certain cross-border transactions, it limited this obligation to financial institutions. DAC6 expands this obligation to a number of other professionals.

What is DAC6?

DAC6, the fifth amendment to DAC, constitutes the latest development in the international attempt to prevent aggressive tax planning. DAC6 has broadened the reporting requirement by imposing reporting obligations on the intermediaries who are involved in certain reportable cross-border arrangements (RCBA).

Why is national law required to transpose DAC6 into Cyprus law?

Pursuant to Article 288 of the Treaty on the Functioning of the European Union, directives shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. As such, Member States must introduce legislation to transpose Directives, and they have a certain amount of discretion when doing so. For instance, in relation to DAC1, Cyprus introduced the Administrative Cooperation in the Field of Taxation Law 2012 and this law was subsequently amended in order to encompass new rules each time a new DAC was introduced.

Although Cyprus published the draft legislation to implement DAC6 in October 2019 (the DAC6 Bill), it still had not enacted it into law by December 31st 2019, thereby missing the deadline set by the European Union.

A copy of the DAC6 Bill can be accessed here.

What are the key provisions of the DAC6 Bill?

In order for a cross-border arrangement to be reportable, it must contain one of the hallmarks outlined by the DAC6 Bill. The hallmarks are essentially five categories of potential characteristics of an arrangement, which could indicate aggressive tax planning. However, some of the hallmarks will only be reportable if they satisfy the main benefit test i.e. if it can be established that the main benefit or one of the main benefits which, having regard to all relevant facts and circumstances, a person may reasonably expect to derive from an arrangement is the obtaining of a tax advantage. Although the scope of each of the hallmarks seems to be quite broad, DAC6 lacks guidance or examples, which will likely mean that each Member State will end up implementing slightly different versions of DAC6. As such, it is expected that, at least in the beginning, the information being reported will necessarily differ from nation to nation.   

Given that the obligation to report seems to mainly fall on intermediaries, it is important to know which intermediaries are included in the scope of the DAC6 Bill. An intermediary is anyone:

  • that designs, markets, organizes or makes available for implementation or manages the implementation of an RCBA; or
  • that provides, directly or by means of other persons, aid, assistance or advice with respect to designing, marketing, organizing, making available for implementation or managing the implementation of an RCBA.

Given the above, the reporting obligation could fall on bankers, accountants, auditors, legal advisors, tax advisors, and other service providers and professionals that fulfil the above criteria.

Notwithstanding the fact that the purpose DAC6 seems to be to establish a reporting obligation for intermediaries, there are certain situations where the reporting obligation will fall on the taxpayers themselves. For example, if an RCBA is planned and executed in-house, no intermediary will be involved, therefore the obligation will fall upon the taxpayer. Similarly, if the relevant intermediary can invoke legal professional privilege, then the obligation to report falls on the taxpayer. 

As previously mentioned, Member States are afforded a certain amount of discretion in implementing directives into national law. While the DAC6 Bill largely mirrors DAC6 itself, it contains two interesting deviations from DAC6. Firstly, it clarifies that legal advisors may invoke legal professional privilege and avoid any reporting obligations, thereby shifting the obligation onto the taxpayers themselves. Secondly, given that penalties in other Member States are in the seven figures, it seems to have set a cap on the penalty for non-compliance at €20.000 per arrangement.

Despite the fact that DAC6 has not yet been implemented in local law, it officially becomes effective across the EU as of July 1st 2020. Unofficially, it is already in force, since it covers cross-border arrangements that took place after June 25th 2018. As such, intermediaries will need to evaluate whether cross-border arrangements that took place after June 25th 2018 are reportable.

Why is this legislation important to Cyprus professionals?

DAC6 now requires Cyprus professionals to exercise caution and monitor cross-border arrangements in order to decide whether they meet the hallmark criteria of DAC6.  In the event that this is the case, an arrangement may become reportable to the tax authorities.

For more information please visit our website microsite on Tax or contact Ms Tatyana Passiadou at This email address is being protected from spambots. You need JavaScript enabled to view it..


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