DAC 6, the 2018 amendment to the Directive on Administrative Cooperation, is top of many tax adviser's worry list.  Tax advisers involved in international transactions have become intermediaries. And those of us who are in the EU will have to report to our Tax Authorities loopholes in the tax rules; we are no longer interpreters of the law, advising what is acceptable and what falls outside the rules. No matter how good or bad our intentions are in connection with our practice, one issue is certain: we are also the guardians of our tax systems.

Alas! We are not alone in this concern. Most adviser-financiers, accountants, lawyers, consultants, internal legal, tax or accounting departments may be intermediaries. The question of who must report is a different matter though. The definition of intermediary in the directive expands beyond the scope of BEPS Action 12. Action 12 recommends focusing on “any person who provides any material aid, assistance or advice” on a transaction that may lead to potential aggressive tax planning. However, the directive does not include this materiality element in the definition of an intermediary.

As such, any person who participates in the reportable transaction, who has the available information and the relevant expertise and understanding, and who “knows or could reasonably be expected to know” that he or she is participating in a reportable transaction is an intermediary. The only way to avoid such characterisation is by evidencing that such person “did not know and could not reasonably be expected to have known”. Negative evidence is not the easiest evidence to provide, especially if “could reasonably be expected to know” is read in practice as “should presume”.

Multidisciplinary firms with sizeable international work and tax knowledge will face DAC 6 reporting obligations even if the tax department is not involved. A corporate law colleague may have a limited view of the tax implications of a transaction unless the tax department is involved, and we do not become involved automatically. Clients may elect different advisers. But such split does not imply that the firm does not have the relevant expertise and understanding and that it, therefore, could not reasonably be expected to know about the tax impact of a transaction.

An internal legal department of a group also seems to fit this profile when providing intra-group services meeting one of the hallmarks.

Does DAC 6 really expect to go so far? Do the relevant facts and circumstances qualify the scope of the service so as not to become an intermediary? It does not feel right. And at the same time, prudence suggests that our corporate law colleagues should be aware of it in order to minimize the risk.

DAC 6 also tests the limits of legal professional privilege - the scope of which is not homogeneous throughout the different member states. Those who, like lawyers, have robust legal privilege may have to report to their clients their duty to disclose a reportable arrangement. 

Our non-tax colleagues may be nervous about informing their client that a transaction in which you have just been involved should be disclosed to the tax authorities. Is it the deterrent effect that the directive is seeking despite the legality of the taxpayer’s position?

It is also important to note that one intermediary making a disclosure does not necessarily satisfy everyone else's reporting obligations. Advisers - not just tax advisers - involved in a transaction will need to work together to minimise any risk of penalties.

So no, DAC 6 is not just an issue for tax advisers.