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Implementation of the DAC6 Directive in Italy

published on 15 December 2020 | reading time approx. 6 minutes

Legislative Decree No. 100/2020 implemented Directive 2018/822/EU of 25 May 2018, the so-called "DAC6", which, with effect from 1 July 2020, introduced the obligation for intermediaries and taxpayers to report potentially aggressive cross-border arrangements to the Financial Administrations of EU Member States.

1. Genesis

EU Council Directive 2018/822/EU of 25 May 2018 ("DAC6") is the latest measure to increase the level of tax transparency in the EU. Indeed, it is part of the proposals put forward in the Final Report of Action 12 of the OECD's Base Erosion and Profit Shifting ("BEPS") project, whereby the OECD, pursuing the objective of enhancing tax transparency at European level, urged its member States to adopt an international standard of mandatory disclosure, the so-called "Mandatory Disclosure Rules" ("MDR"). The ultimate aim is the identification and interception of high-risk tax situations by obliging intermediaries and taxpayers to provide the tax authorities with updated information on transnational tax planning where potential abusive or avoidance profiles can be identified.

Despite the fact that the deadline for transposition of the DAC6 was 31 December 2019, the implementation process in Italy lasted until 31 January 2020, when the Government sent the draft implementing decree to Parliament. Due to the critical issues caused by the epidemiological emergency caused by Covid 19, the decree benefited from the deferment of the deadline for the adoption and application of the Directive; therefore, on 11 August, Legislative Decree no. 100 of 30 July 2020 (hereinafter the "Decree") was published in the Official Journal. The Decree will be followed by a Ministerial Decree clarifying certain aspects, such as the so-called “hallmarks” and the “main benefit test”, as well as a Resolution of the Italian Revenue Agency on the requirements and characteristics of the mandatory disclosure.

2. Obligation to notify

2.1 Objective requirement

On the basis of the provisions of Legislative Decree no. 100/2020, in line with the requirements of the DAC6 Directive, the reporting obligation only concerns the so-called "cross-border arrangements", defined by Article 2, paragraph 1, letter a) as the schemes, agreements or projects, involving Italy and one or more foreign countries, where at least one of the following conditions is met:

not all the parties (intermediaries and/or taxpayers) involved in the agreement are tax resident in Italy;
one or more of the participants in the agreement are simultaneously resident for tax purposes in Italy and in one or more foreign jurisdictions
one or more of the participants in the arrangement carry on a business in a foreign jurisdiction without being resident there for tax purposes or setting up a permanent establishment located in that jurisdiction;
the agreement has a possible impact on the correct application of the procedures governing the automatic exchange of information or the identification of the beneficial owner.

It should be noted, therefore, that agreements involving only the Italian jurisdiction are excluded from the application of the DAC6.

However, in order for the cross-border arrangement to be reported, it must be characterized by the presence of one or more distinctive elements, so-called "hallmarks", defined by the Decree as "indications of risk of tax avoidance or evasion". The hallmarks listed in Annex I of the Decree coincide with those listed in Annex IV of the Directive and are divided into five categories: the first contains the so-called "generic" hallmarks, while the remaining four contain the so-called "specific" hallmarks.

Not all hallmarks lead to mandatory disclosure of cross-border arrangements. Indeed, the Directive specifies that some of the hallmarks lead to mandatory disclosure only if they satisfy the main benefit test. In accordance with the DAC6 the main advantage exists whenever the tax advantage appears to be the main purpose that a person can reasonably expect from the cross-border mechanism, taking into account all relevant facts and circumstances. In these cases, in order to determine whether the cross-border mechanism is subject to reporting requirements it will be necessary (i) to identify the possible tax advantage; (ii) to evaluate the existence of other possible benefits; (iii) to identify which of all pursuable benefits can be identified as 'main'. If the tax advantage is also included, the criterion of the main advantage must be considered satisfied.

2.2 Subjective requirement

The Decree, in line with the DAC6, establishes that both intermediaries and taxpayers are obliged to notify information to the tax authorities. In particular, as regards intermediaries, the Decree clarifies that they are:

promoter, i.e. the person who designs, markets, organises or manages a cross-border arrangement or who makes it available for implementation by a third party
service provider, i.e. the person who provides any material aid, assistance or advice on the development, organisation, management and implementation of the mechanism itself.

The latter, unlike the promoter, is only exempted from the disclosure requirements if, having regard to the information available and the expertise necessary to carry out such activity, it knows or has reasonable grounds to conclude that the same mechanism is not relevant to the disclosure obligation.

The Decree also provides further cases of exemption from reporting obligations:

in favour of intermediaries and taxpayers in the event that the fulfilment of the reporting obligation may lead to their criminal liability, in accordance with the principle of the prohibition of self-incrimination;
for intermediaries only, as regards information received from the customer in connection with the examination of his legal status or in the performance of duties of defence and/or representation in a legal process;
if the intermediary has evidence that the same information concerning the cross-border arrangement has been reported by another intermediary.

The notion of intermediary, as clarified by the Explanatory Report to the Decree, includes financial institutions and professionals subject to anti-money laundering obligations, such as lawyers, accountants and notaries.

The obligation to communicate the cross-border mechanism is, in any event, incumbent on the taxpayer in case of absence of an intermediary, or where the intermediary has not provided the taxpayer with documentation certifying that the same information has already been the subject of communication to the tax authorities or competent authorities of a Member State or of other foreign jurisdictions with which a specific agreement on the exchange of information is in force.

3. Communication deadlines

The intermediary has the burden of discharging this obligation within thirty days from the day following the day on which:

the cross-border arrangement is implemented or made available for implementation, if the intermediary is qualified as a promoter;
the intermediary has provided, directly through other persons, assistance or advice in relation to the implementation of the arrangement to be reported, if the intermediary qualifies as a service promoter.

If the intermediary is exempted from the reporting obligation, the taxpayer must transmit the information relating to the arrangement within thirty days from the day after the receipt of the notification by an intermediary.

Intermediaries and taxpayers are required to report:

cross-border arrangements whose "first phase" was implemented between 25 June 2018 and 30 June 2020, by 28 February 2021;
cross-border arrangements for which the reporting was made between 1 July 2020 and 31 December 2020, within 30 days from 1 January 2021.

4. Sanctioning regime

According to Article 12 of the Decree, administrative sanctions for the failure to fulfil the disclosure obligations vary depending on the type of failure and range from a minimum of 2,000 Euro to a maximum of 21,000 Euro, pursuant to Legislative Decree no. 471/1997. In particular:

in case of failure to notify, penalties set out in Legislative Decree no. 471/1997 shall apply, increased by half, i.e. from 3,000 Euro to 31,500 Euro;
in case of incorrect or incomplete information, the penalties provided for by Legislative Decree no. 471/1997 shall apply, reduced by half, i.e. from 1,000 Euro to 10,500 Euro.

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