In Parts I, II, III and IV of this series on the EU Tax Simplification Package, I examined the proposed amendments to the main substantive tax directives. Part V turns to the Directive on Administrative Cooperation also known as DAC.
This is probably the most difficult part of the Package to explain without losing the reader immediately. The reason is simple: the DAC is no longer one reporting regime. It has become the infrastructure machine through which an extraordinary volume of tax information is today collected, reported and exchanged across the whole European Union.
The Commission is now proposing to bring DAC1 to DAC9 into a single recast instrument, while making targeted changes. The most interesting points concern perhaps DAC6. That is therefore where this article will focus, addressing at the end other changes that deserve note.
What is at stake?
The current DAC family can be summarised as follows:
| Regime | Main subject |
| DAC1 | Automatic exchange of information on specified categories of income and capital |
| DAC2 | Financial account information under the Common Reporting Standard |
| DAC3 | Advance cross-border rulings and advance pricing arrangements |
| DAC4 | Country-by-country reporting by multinational groups |
| DAC5 | Access by tax authorities to anti-money-laundering and beneficial ownership information |
| DAC6 | Mandatory disclosure of potentially aggressive cross-border arrangements |
| DAC7 | Income earned by sellers through digital platforms |
| DAC8 | Crypto-asset transactions and certain related information |
| DAC9 | Exchange of the Pillar Two top-up tax information return |
But codification is not simplification. Once codified it is also hard to remove any reporting that generates cost even when such information is not producing information of sufficient value.
Key proposed changes to DAC6
- Pillar Two carve-out. A targeted exemption is proposed to apply to certain arrangements involving groups within the scope of the Pillar Two Directive. The reasoning is rather pragmatic. Pillar Two requires in-scope groups to reach a minimum effective tax rate of 15%, while country-by-country reporting and the GloBE Information Return already provide tax authorities with extensive information so DAC6 duplicates other tax-risk assessment mechanisms. Despite a welcomed improvement, the exemption is, however, drafted in a rather narrow manner.
Observation: DAC6 will not simply disappear for every Pillar Two group. The analysis has merely become more nuanced.
- Reporting only when implementation begins. A reportable cross-border arrangement would have to be capable of implementation. The definition of “relevant taxpayer” would also be limited to the taxpayer beginning to implement the arrangement. More importantly, the reporting period would start only when the first step in implementation has been taken. This requires a concrete and verifiable act that materialises the intention to proceed and makes implementation legally binding. This responds to the Court of Justice’s judgment in Belgian Association of Tax Lawyers case and should reduce uncertainty surrounding preliminary advice, alternative structures and arrangements that are discussed but never pursued. The deadline for intermediaries to disclose is proposed to increase from 30 to 90 days, calculated from the first step in implementation.
Observation: This is welcome because DAC6 was intended to disclose arrangements, not thoughts. The longer period to disclose should provide more time to determine who is responsible for reporting, gather required information and avoid multiple filings.
- Legal professional privilege. Lawyers practising under the professional titles covered by Directive 98/5/EC would not be required, where protected by legal professional privilege, to notify another intermediary who is not their client. This reflects the Court of Justice’s judgments position. Lawyers would, however, still have to inform their own clients of the clients’ reporting obligations.
Observation: Another positive adjustment that clarifies the position of lawyers but does not fully harmonise professional privilege across the European Union.
- Removal of the Category A hallmarks. The generic Category A hallmarks would be deleted. These currently cover confidentiality conditions, fees linked to the tax advantage obtained and standardised structures.
Observation: Removing these standardized hallmarks is welcome and should help eliminate the so-called defensive reporting and focus instead on arrangements presenting identifiable tax risk.
- Hallmarks C1 and D2. Hallmark C1 is set to refer to the EU’s own Code of Conduct process for identifying non-cooperative jurisdictions, rather than to the OECD framework. For Hallmark D2, which concerns arrangements involving entities or structures lacking sufficient substance, the Commission proposes that the relevant substance criteria be developed through a Council implementing act. The initial idea that the core substance concepts of Unshell would be incorporated into DAC6 did not materialise yet.
Observation: The withdrawal of Unshell should not be interpreted as a shift in policy and the EU Commission is signalling that substance concepts will reappear soon. This is a critical issue to monitor, but the timetable is less than ambitious: the implementing act may be adopted only within five years after the Directive enters into force. Until then, one of DAC6’s most difficult hallmarks may remain insufficiently harmonised.
Other measures in the DAC recast
Beyond changes to the mandatory disclosure rules, the DAC Recast includes several proposals:
- TIN verification: the Commission proposes to develop a central digital tool allowing tax identification numbers to be verified before reporting. Verified taxpayers could be reported using a reduced identification dataset.
- DAC1: “available information” would include information held by other national government authorities, not only the tax administration. Beneficial ownership of immovable property would be added, whilst life-insurance products would be removed due to limited use and overlap with financial account reporting.
- DAC4 and DAC9: multinational groups could make one central notification for country-by-country reporting and the Pillar Two information return, using a common template and harmonised deadline.
- DAC5: tax authorities to obtain access to updated AML registers, interconnected real-estate information and national pension registers.
- DAC7: for sales of goods through digital platforms, the 30-transaction threshold would disappear and the monetary threshold would increase from EUR 2,000 to EUR 3,000.
- DAC8: Since the automatic exchange of information on cryptoassets (DAC8) is very recent, no changes were included to this instrument.
Final assessment on DAC Recast
The DAC recast is a necessary exercise. A framework assembled through nine successive directives should not remain fragmented. The DAC6 amendments, for example, go well beyond cosmetic changes. Removing the generic hallmarks, postponing reporting until implementation begins, extending the reporting deadline and recognising the overlap with Pillar Two are all welcome developments. Experience with DAC6 and other reporting mechanisms has also shown that requiring the disclosure of everything does not necessarily produce greater transparency.
There is still work to be done to strike the right balance between effective tax transparency and proportionate compliance obligations. Looking ahead, the debate should focus on how information exchanges are subsequently used by tax administrations. In some Member States, information obtained through automatic exchange is increasingly relied upon not merely as a risk assessment tool but as the basis for presumed taxable income, effectively shifting the burden of proof onto taxpayers. The next phase of the EU's transparency agenda should consider safeguards surrounding the data and use of exchanged information.
Conclusion of the Five-Part Series
If there is one lesson from this five-part series, it is that simplifying European tax law is far from a “simple” exercise. Recasting nine directives into a single instrument is valuable, but it is not enough. Revising the Direct Tax Directives is useful, yet it will not, by itself, transform Europe's tax landscape. Likewise, restraining the expansion of certain anti-abuse rules is a welcome development, but it leaves the underlying architecture largely intact.
The Omnibus Package demonstrates that the European Union has reached an important crossroads. Nearly two years after Mario Draghi called for a renewed focus on Europe's competitiveness, there is a growing recognition that tax policy must be a fundamental component of the Union's economic strategy. If Europe genuinely wants to compete for investment, businesses and talent in an increasingly mobile world, incremental adjustments will not be enough. Competitiveness requires bold simplification, greater harmonisation and enhanced legal certainty. Achieving that objective will require the courage to rethink the way European tax legislation is conceived, designed and implemented.
