On 26 August 2020, Legislative Decree no.100/2020 ('the Decree'), which implements in Italy the sixth EU directive on administrative co-operation (so-called 'DAC6'), comes into effect.
Related reporting obligations arising for intermediaries and tax payers are, however, postponed in response to the COVID-19 pandemic. In particular, data concerning:
- reportable transactions implemented in 2020 are due within 30 days of 1 February 2021 (originally 1 July 2020); and
- reportable transactions implemented in the period 25 June 2018 to 30 June 2020 are due by 28 February 2021 (originally by 31 August 2020).
Additional implementing legislation will be issued in respect of:
- the application and definition of the relevant hallmarks and the criteria to be used for the main benefit test; and
- the submission of relevant information.
The Council Directive 2018/822 of 25 May 2018 amending Directive 2011/16/EU regarding the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements ('DAC6') derives from the OECD's base erosion and profit shifting (BEPS) initiative (in particular, BEPS Action 12 report on the mandatory disclosure rules) and entered into force on 25 June 2018.
DAC6 improves the way the EU currently exchanges information to tackle cross-border arrangements that could be used for aggressive tax planning structures. This is done through a two-step mechanism whereby:
- intermediaries or taxpayers report to the tax authorities reportable cross-border arrangements; and
- tax authorities of various member states share information, unless such data concern commercial, industrial or professional secrets, or a commercial process or any information that could threaten public order if released).
An arrangement is reportable if it is cross border (ie it involves Italy and one or more EU or non-EU countries) and contains at least one of the hallmarks (ie indicators of a potential risk of tax avoidance) set out by DAC6 and transposed in Italy by the Decree.
Certain cross-border arrangements are however reportable if they also meet the so-called 'main-benefit test'. This is the case 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'.
The Decree clarifies that the absence of any replies from the tax authorities in relation to a reported cross-border arrangement does not imply the authorities accept the validity of the tax regime applied to such mechanism.
Intermediaries and taxpayers
The Decree identifies intermediaries and tax payers subject to reporting obligations and also provides for guidance on exemptions.
The definition of 'intermediary' includes any person who:
- is a tax resident in Italy or has an Italian permanent establishment through which services are provided;
- is incorporated, governed or registered with a professional association (for legal, taxation or consultancy services) in Italy.
Subject to the so-called 'reasonably be expected to know' test, such intermediaries are required to report if they are either promoting or advising on a cross-border arrangement.
The definition therefore encompasses financial entities already subject to reporting obligations for common reporting standard purposes (eg banks, insurance companies, fund managers, etc), as well as intermediaries and advisors already subject to anti-money laundering obligations (eg lawyers, notaries, accountants, etc).
The definition of 'taxpayer' includes any person resident or established in Italy who implements (or in whose favour is made available for implementation) a cross-border arrangement, as well as any person collecting income from, or carrying out an activity in, Italy.
Intermediaries are exempt from the reporting obligation:
- where they receive from their clients (or otherwise obtain) relevant information while examining their legal position or while providing them with legal assistance in connection to a proceeding before a judicial authority; or
- when they have evidence that the cross-border arrangement has been reported by another intermediary.
Furthermore, intermediaries and taxpayers are exempt from the reporting obligation where it could trigger their own criminal liability (self-incrimination).
Deadlines, penalties and record keeping
Reporting obligations are generally subject to a 30-day deadline while reporting obligations of marketable arrangements (ie those made available to several taxpayers without customisation) are due on a quarterly basis, with the following exceptions:
- reporting related to cross-border arrangements implemented between 1 July 2020 and 31 December 2020 must be made within 30 days starting from 1 January 2021. The first periodic report concerning marketable cross-border arrangements by intermediaries has to be filed by 30 April 2021; and
- reporting related to cross-border arrangements implemented during the period 25 June 2018 to 30 June 2020 must be made by 28 February 2021.
Applicable penalties vary between €1,000 and €10,500 for incomplete or incorrect reports, and between €3,000 and €31,500 for omitted reports.
Intermediaries and relevant taxpayers must also keep documentation and data used for the implementation of reportable cross-border arrangements until 31 December of the fifth year following the year in which relevant information is reported or, in the case of omitted reports, until 31 December of the seventh year following the year in which relevant information should have been reported.
The domestic legislative framework concerning DAC6 is not yet complete. The Decree envisages the issuance of:
- a decree by the Ministry of Economy and Finance containing specific rules on the application and definition of the relevant hallmarks. This ministerial decree is also expected to set out the criteria to be used when applying the main benefit test; and
- implementing rules by the Italian tax authorities addressing the modalities to submit relevant information.
Hopefully additional guidance and practical examples will also be issued by the Italian tax authorities with a circular letter particularly around the application of the main benefit test.