Czech Republic: Guidance provided in Q&As on cross-border arrangement reporting under DAC6

The General Financial Directorate (GFD) published a new list of “questions and answers” (Q&As) with regard to the obligation to report cross-border arrangements of DAC6—that is, the reporting required under the mandatory disclosure rules in relation to cross-border arrangements.

The Q&As complement December 2020 document guidance and shed new light on the reporting obligation. 

According to the GFD, members or partners of transparent taxable entities (such as unlimited (liability) companies or mutual funds) that are not participating in the arrangement as investors are not to be considered arrangement users. Therefore, only the relevant tax-transparent entity has a reporting obligation under DAC6.

In the case of a cross-border arrangement created within a corporate group by another member entity (in the Q&As, the GFD provides as an example a tax or legal department), the following situations may arise:

• If the member entity has only proposed the arrangement but is not participating itself, it has a reporting obligation as an intermediary.
• When the member entity creates an arrangement in which it is itself involved as a user, it does not report the arrangement from the position of an intermediary but from the position of a user.

The Q&As also clarify a tax advisor’s relationship to the reporting obligation under DAC6 when preparing a tax return.

• According to the guidance, the involvement of a tax advisor, attorney or auditor providing services after the arrangement has been implemented does not qualify for reporting as an intermediary.
• Similarly, the provision of advice relating to an arrangement already implemented, in which the tax advisor was not involved, does not qualify as reportable by the tax advisor as an intermediary or a secondary intermediary.
• According to the guidance, even a tax advisor's assessment of the reporting obligation for an already implemented arrangement does not trigger an intermediary reporting obligation.
• Changes to standardized arrangements consisting of a change of name, registered office or the dissolution or merger of a person or company also are not subject to the reporting obligation.

If the intermediary has its domicile, permanent residence, registered office or place of management in the Czech Republic, the reporting obligation always arises in the Czech Republic even if the tax savings occur outside the Czech Republic.

On the assessment of the “main benefit” test, the Q&As provide that for arrangements reportable under DAC6, the causal link between the “hallmark” and the anticipated tax advantage must be fulfilled.

• If the arrangement results in a tax advantage that is not the result of the fulfilment of a hallmark, the main benefit test does not need to be performed and no reporting obligation arises.
• If the arrangement results in a tax advantage due to the fulfilment of a hallmark, the main benefit test is not automatically met because it is necessary to assess whether gaining the tax advantage is the main benefit or one of the main benefits of the arrangement put in place.

The main benefit test is not met if the tax advantage does not represent a tax saving but only a simplification of tax administration, etc.

Statistics from the financial administration show a total of 154 reports filed under DAC6 as of 30 June 2022, including reports of historical arrangements.

Read an August 2022 report prepared by the KPMG member firm in the Czech Republic