Turkey: DAC6 Directive Liabilities And The Effects Of The Directive On Turkish Companies

SUMMARY

The Directive on Administrative Cooperation ("DAC6"), which was decided upon at the ECOFIN Council meeting on 13 March 2018, entered into force after being published in the Official Gazette of the European Union on 5 June 2018. Prevention of tax evasion and abuse and deterrence in cross-border tax planning is aimed in line with the notification obligation of aggressive tax plans brought to the agenda in line with the BEPS 12th Action Plan. This article aims to reveal the purpose, scope and implementation of the DAC6 obligation, which has started to be included in the European Union member state legislations, and its effect on Turkish companies.

Keywords: DAC6 Liabilities, OECD, BEPS, European Union.

INTRODUCTION

As per the DAC6 Directive, which entered into force after being published in the Official Gazette of the European Union on 25 June 2018, it is aimed to prevent aggressive tax planning and tax abuse in the European Union member states. It is envisaged that the Directive will be adapted to the legislation of the member states until 31 December 2019, and it is planned to start notification and information exchange within the scope of the Directive as of 2020. Understanding and interpretation of this Directive, which is frequently discussed throughout Europe, is important for Turkish companies that will invest in Europe in the future or take the necessary actions.

1. HISTORICAL BACKGROUND

Base Erosion and Profit Shifting Action Plan ("BEPS") was created by OECD member countries, which was approved by G20 Leaders in September 2013. The Action Plan, which was formed in a very comprehensive form in 2 years, consists of 15 items. Although the basic lines of BEPS were approved by OECD member countries and G20 leaders in Antalya on 15-16 November 2015, it continues to be shaped by new regulations.

Action 12 of the Base Erosion and Profit Shifting Action Plan plans to prevent tax avoidance by obliging taxpayers to explain their aggressive tax planning and emphasizes the need to impose sanctions on taxpayers who do not fulfill these obligations. ¹

On June 21, 2017, the European Union Commission submitted a draft law to include a tax cooperation clause in the existing 2011/16 / EU decision in order to strengthen transparency in tax and combat aggressive tax planning. With the proposed draft law, an article was requested to be added to intermediaries, such as tax consultants, accountants and lawyers, who design and / or organize tax planning, to report tax regulations they consider to be aggressive tax planning. ²

On 13 March 2018, at the ECOFIN Council meeting held by the finance ministers of the EU member states, an agreement was reached on notifying the potential cross-border aggressive tax plans of intermediaries and on 5 June 2018 the amended directive on the Directive on Administrative Cooperation ("DAC6") was published in the Official Journal of the European Union. This directive entered into force on 25 June 2018.

2. PURPOSE AND THE SCOPE OF THE DIRECTIVE

The main purpose of the directive is to prevent aggressive tax practices and create a deterrent effect, as in the BEPS 12th Action Plan. In addition, prevention of tax evasion and abuse is among the results that the directive aims to achieve.

The regulation aims at tracking taxes on income and wealth (income, corporate and inheritance and gift taxes), not excise taxes. Therefore, another goal is to maintain income tax bases and enable countries to generate more tax revenues. In addition, increase in tax fairness is aimed by preventing aggressive tax planning. ³

Reporting of aggressive cross-border tax transactions will be covered by the exchange of information between EU member states. It is anticipated that tax planning within the scope of the Directive will be subject to automatic change through the Common Communication Network established by the EU. With this regulation, tax administrations will be able to quickly develop measures and make regulatory changes. In addition, the data obtained can be used in the risk assessment and audits of taxpayers.

As we have mentioned before, the Directive covers aggressive cross-border tax planning. A good understanding of the basic concepts in the directive for companies that make tax planning within the European Union and the institutions and individuals that will mediate these transactions is important in terms of whether the transaction will be covered or not.

3. IMPACT OF DIRECTIVE ON TURKISH COMPANIES AND INVESTORS

The Directive is of particular interest to Turkish holdings and investors, which are active in the European Union member states. It is anticipated that countries such as the Netherlands and Luxembourg, which have become the center of structuring due to their various tax and legal advantages, can be preferred for tax planning purposes and it will be difficult to establish structures for this purpose. In addition, it should be kept in mind that cross-border transactions with determined hallmarks and aimed at particularly aggressive tax planning are required to be notified.

In this context, in cases where cross-border configurations are based on a solid foundation and the purpose of the planning can be fully explained, there will be no obligation to notify, and there will be no penalty or a situation that will cause any loss of reputation. Therefore, the proper establishment of cross-border structures in a way that avoids any criticism becomes more important than in previous years.

CONCLUSION

The DAC6 Directive, which was brought to the agenda in line with the "obligation to notify aggressive tax planning practices", which is the 12th Action Plan of the Base Erosion and Profit Shifting Action Plan ("BEPS"), aims to prevent deterrence and tax abuse in aggressive cross-border tax planning. In this context, the directive focusing on taxes on income and wealth has brought the obligation to report aggressive tax planning within EU member states primarily by intermediaries, and in some cases by the taxpayer itself.

It has been envisaged that the notification stages and penalties will be determined in line with the general framework of the Directive by adapting the internal legislation of the EU member states. All member states of the EU have started to adapt the Directive into their legislation. Since the issues of penalties and notification are left to the domestic legislation of the countries, penalties that may be faced as a result of not complying with the notification rules vary considerably between countries.

Due to the Covid-19 epidemic, which has affected the whole world, countries that will implement the Directive have been granted an optional 6-month postponement right. In this context, many European countries have decided to postpone the implementation of the Directive.

Finally, the Directive concerns Turkish companies and investors operating within the EU. In the cross-border investment and tax planning, which are planned to be carried out in the future, the selection of the country and the fact that the transactions have a basis in a way that will avoid criticism will become the key points for the tax authorities to criticize and to prevent possible loss of prestige.

Footnotes

1. Brief History of the Base Erosion and Profit Shifting Action Plan, OECD, January 2017

2. European Union, Council Internal File Code 2017/0138

3. Normal in Tax New Transparency: Mandatory Information for Intermediaries, Abdülkadir Kahraman

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.