DAC6 Mandatory Disclosure: Which Cross-Border Arrangements Must Be Reported

What Is DAC6?

Council Directive 2018/822/EU (commonly referred to as DAC6, as it amended the sixth version of the Directive on Administrative Cooperation) introduced mandatory disclosure rules (MDR) requiring intermediaries and, in some cases, taxpayers to report cross-border tax arrangements to their domestic tax authority. The reported information is then automatically exchanged with the tax authorities of all EU member states.

DAC6 was transposed into UK law (before Brexit) through the International Tax Enforcement (Disclosable Arrangements) Regulations 2020 (SI 2020/25), but the UK subsequently diverged from the EU approach post-Brexit, implementing a narrower version of the rules that focuses primarily on hallmarks with a direct nexus to UK tax. The EU rules continue to apply in all 27 EU member states.

This article focuses primarily on the EU DAC6 rules as they apply to intermediaries advising EU-connected clients or reporting to EU member state tax authorities.

The Reporting Obligation: Who Must Report

The reporting obligation falls primarily on intermediaries — broadly defined as any person that designs, markets, organises, or manages the implementation of a reportable cross-border arrangement. In practice, this includes:

• Tax advisers and lawyers who design cross-border structures
• Banks and financial institutions that implement cross-border arrangements
• Corporate service providers who establish companies or trusts as part of a cross-border arrangement
• Accountants who advise on international tax planning

Where an intermediary benefits from legal professional privilege (LPP), the obligation to report shifts to the taxpayer or to other non-privileged intermediaries involved in the same arrangement. LPP is a significant carve-out in many EU jurisdictions — legal privilege protects lawyer-client communications in most EU member states, though the scope varies.

A taxpayer is directly obligated to report where there is no intermediary, or where all intermediaries have claimed LPP.

The 30-Day Reporting Window

The deadline for reporting a disclosable arrangement is 30 days from the earliest of:

1. The day after the arrangement is made available for implementation
2. The day after the arrangement is ready for implementation
3. The date on which the first step in implementation of the arrangement has been taken

"Made available" is the key trigger. An arrangement designed and presented to a client but not yet implemented is reportable 30 days after it is presented. A client who receives a tax planning memo describing a cross-border structure and then decides not to implement it has still triggered the reporting window for the intermediary who designed it.

The Five Hallmark Categories

DAC6 applies to cross-border arrangements (involving at least one EU member state) that meet one or more of the five categories of "hallmarks." The hallmarks range from generic indicators of potential tax avoidance (Hallmarks A and B) to specific indicators of concern (Hallmarks C, D, and E). Hallmarks A and B require additionally meeting a "main benefit test" before reporting is triggered.

Hallmark A: Generic Markers of Tax Avoidance

Hallmark A covers arrangements with the following generic characteristics:

• A1: Confidentiality condition imposed on the taxpayer
• A2: The intermediary is entitled to a fee contingent on the amount of tax advantage achieved
• A3: The arrangement involves standardised, "off-the-shelf" documentation and structure

All Hallmark A markers require the main benefit test to be met.

Hallmark B: Specific Generic Hallmarks

Hallmark B covers:

• B1: The arrangement involves the acquisition of a loss-making company to use its losses
• B2: Income conversion from a higher-taxed category to a lower-taxed category
• B3: Circular transactions involving round-tripping of funds

All Hallmark B markers require the main benefit test.

Hallmark C: Cross-Border Transfer Pricing and Deductible Payments

Hallmark C is one of the most frequently triggered hallmarks in commercial cross-border structuring. It covers:

• C1: Deductible cross-border payments between associated enterprises where the recipient pays zero or near-zero tax
• C1(b): Payments qualifying for a full exemption from taxation in the recipient jurisdiction
• C1(c): Payments that benefit from a preferential tax regime (including IP box regimes)
• C4: Transfer of functions, risks, or assets resulting in a reduction of annual earnings by more than 50%

Hallmarks C1(a)(i), C1(a)(ii), and C1(b) require the main benefit test. C1(c) and C4 do not.

Hallmark D: Anti-Money Laundering and Beneficial Ownership Evasion

Hallmark D is the transparency hallmark:

• D1: Arrangements that undermine reporting obligations under CRS or equivalent US FATCA arrangements
• D2: Arrangements involving non-transparent legal or beneficial ownership chains using persons, legal arrangements, or structures without substantive economic activity

Hallmark D does not require the main benefit test. Any arrangement designed to prevent CRS or FATCA identification of the beneficial owner is automatically reportable.

Hallmark E: Transfer Pricing

Hallmark E covers transfer pricing arrangements:

• E1: Arrangements involving unilateral safe harbour rules
• E2: Arrangements involving the transfer of hard-to-value intangibles (assets for which no reliable comparable exists at the time of transfer)
• E3: Arrangements involving the transfer of functions, risks, or assets resulting in a projected reduction of EBITDA of the transferor

No main benefit test applies to Hallmark E.

Hallmark	Category	Main Benefit Test Required?	Most Common Trigger
A	Generic confidentiality/success fees	Yes	Advisory arrangements with success fees
B	Loss transfers, income conversion	Yes	M&A using target losses
C	Deductible payments to low-tax recipients	Partly	Royalty payments to IP box jurisdictions
D	CRS/FATCA avoidance, non-transparent ownership	No	Nominee arrangements, bearer structures
E	Hard-to-value intangible transfers	No	IP migrations, group reorganisations

The Main Benefit Test

The main benefit test (MBT) requires that 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."

This is an objective test, not a subjective one. It asks whether an objective observer, considering all the facts, would conclude that tax advantage is the main or one of the main benefits. Commercial justifications for the arrangement are relevant but do not automatically defeat the MBT — a transaction may have genuine commercial purpose and still meet the test if the tax benefit is equally significant.

HMRC's guidance on the UK equivalent test has noted that a tax advantage that is merely incidental to a commercially driven transaction will not meet the test. However, an arrangement specifically structured to route a payment through a zero-tax intermediary, where the routing serves no commercial purpose independent of the tax saving, almost certainly meets it.

Penalties for Non-Disclosure

Penalties for failure to report in time vary by EU member state. The DAC6 Directive requires "effective, proportionate and dissuasive" penalties but leaves the quantum to member states. In practice:

• Germany: Up to €25,000 per failure
• France: Up to €10,000 per failure (€100,000 for repeat failures)
• Netherlands: Up to €900,000 for the most serious failures
• Ireland: Up to €500 per day for continued failure

HPT Group works with intermediaries and corporate groups to conduct hallmark analysis on cross-border arrangements before implementation, ensuring DAC6 compliance obligations are identified and met within the 30-day window. For international structures involving EU entities or EU-resident parties, a DAC6 hallmark screen is now a standard component of our pre-implementation review. Contact our compliance team or apply for a consultation to discuss your reporting obligations.