In anticipation of the impending expiry of the deadlines for reporting according to DAC6 guidelines, many European countries have already inaugurated the technical guidelines and platform for the automatic filing and exchange of information. Among them, the Cypriot tax authority, after the adoption of a six-month deferral because of the COVID-19 pandemic, published on January 5 2021, two official announcements introducing the implementation of DAC6.
The implementation, which originally was scheduled to start in July 1 2020, according to the timeframes and deadlines, and was set by the Council Directive (EU) 2020/876 of June 24 2020, was eventually initiated on January 5 2021 by the registration of the intermediaries/taxpayers in the electronic governmental platform known as ‘Ariadne’, following the six-month deferral.
Upon identification of the intermediary, uploading the XML files will be available. The mandatory disclosure regime (i.e. DAC 6) is expected to be transposed into the Cypriot national law by the end of January 2021, and to that extent, reporting is not mandatory until then.
More specifically, the deadlines for the reporting submission obligation are listed below. The reported cross-border arrangement is considered to be effected from the date that becomes available or is ready to be implemented.
|Cross-border arrangements reporting periods||Deadline|
|June 25 2018 – June 30 2021||February 28 2021|
|July 1 2020 – December 31 2020||Within 30 days starting from January 1 2021|
|January 1 2021 and onwards||Within 30 days|
|From the 1st periodic report||Until April 30 2021|
Reportable transactions falling within the TP scheme
While the reporting obligation includes hallmarks, which are described as ‘cross-border arrangements’, not all of them should be assessed from a transfer pricing (TP) perspective.
More specifically, the arrangements bearing TP hallmark could be the following:
- Arrangements which involve the use of unilateral safe harbour rules
- Bilateral or multilateral advance pricing agreements (APAs) which have been approved by the tax authorities, thus not considered to be ‘unilateral safe harbours’, do not fall within the scope of this hallmark.
In addition, the following types of arrangements will not be considered to involve the use of unilateral safe harbour rules, and are thus not reportable:
- Any arrangement including administrative simplification measures which do not directly involve the determination of arm’s-length prices, such as the agreement on the absence or simplification of a pricing documentation.
- Arrangements that adopt the simplified approach of low value intra-group services without the elaboration of a benchmarking exercise.
- Arrangements involving provisions that exclude the application of safe harbours in ‘simple’ or ‘small’ transactions, according to which taxpayers may be tempted to break transactions up into parts to make them seem simple or small.
Arrangements involving transfer of hard-to-value intangibles
This hallmark applies to arrangements that involve the transfer of hard-to-value intangibles and/or hard-to-value rights of intangibles between associated enterprises. More specifically, to define if an arrangement bears this hallmark it is critical to investigate if at the time of the transfer of the intangibles between associated enterprises, the comparability analysis reveals that there are no reliable comparable uncontrolled transactions that can be used to determine the arm’s-length principle and other conditions.
The 50% intra-group EBIT test
This hallmark applies to an arrangement involving an intra-group cross-border transfer of functions; and/or risks; and/or assets, under which the projected annual earnings before interest and taxes (EBIT) of the transferor(s), for the three-year period after the transfer, are less than 50% of the projected annual EBIT of the transferor(s) had the transfer not been made.
It is questionable how an intermediary is expected to perform and verify the accuracy of the EBIT test. The most probable answer is that the EBIT test should be conducted by an independent party, such as an auditor, and the intermediary to rely on the outcome.
If the intermediary could substantiate that the transferors’ EBIT is less than 50% of what it would have been, the reporting obligations under this hallmark can be reasonably waived.
Further interpretations from the Cypriot tax authorities are awaited on the TP considerations with respect to foregoing hallmarks, while general technical guidelines for the platform and the voluntarily reporting have been provided.
Greece for instance is rather slow in adoption, while Malta, Germany and Austria have notified interested parties on the reporting process and the XML files.
Irrespective of the learning curve, the rulings and the language used in every jurisdiction, the intermediaries should follow the general guidelines provided by the OECD and the main interpretations of the EU.
Finally, it wouldn’t be a surprise if the EU granted a subsequent six-month extension due to the obstacles caused by COVID-19.