DAC6 has potential direct and indirect impacts on the business of Hong Kong based financial intermediaries. The presentation highlights the requirements and way forward

1. MHZ
International Business and Tax Law
Marco Zawar LLM/MBA
EU Mandatory
Disclosure Rules
under DAC 6
Potential impacts on
Hong Kong
based Intermediaries
08 March 2020

2. MHZ
OECD Common
Reporting
Standard (CRS)
FATCA
Local tax
Measures
Tax Information
Exchange
Agreements
EU Tax
Transparency
Directives
OECD BEPS
Tax Transparency
OECD Mandatory
disclosure rules
on CRS
The tax transparency agenda
 Tax transparency is high on the global agenda
 In the last decade, we have seen the
introduction of several tax transparency and
avoidance measures across the world
 The OECD Common Reporting Standard (CRS)
lifted the automatic exchange on financial
account information to a global level
 Nevertheless, both the Panama and Paradise
Papers proofed, that investors try to conceal
their assets through cross-border
arrangements or off-shore accounts
 As a result, the EU has introduced with EU
Directive 2018/822 additional disclosure rules
 Theses disclosure rules are focused on cross-
border arrangements and certain transactions
designed
 to move taxable income/profits towards
more beneficial tax regimes,
 have the effect to reduce/defer the
taxpayers tax obligation,
 to circumvent the CRS reporting obligations
on financial accounts and beneficial
ownership.

3. MHZIntroduction
 Inspired by the OECD BEPS Action Plan and the OECD Mandatory disclosure rules on CRS, the EU
released the Council Directive 2018/822/EU (DAC6), which becomes applicable on 1 July 2020
 DAC6 requires Intermediaries (such as financial institutions, insurance companies, etc) with an
EU nexus or in certain circumstances EU tax residents to disclose cross-border arrangements to
their local tax authorities with a retroactive effect to 25 June 2018
 Cross-border arrangements concerns either
 more than one EU Member State; or
 one EU Member State and a non-EU Member State; and
 meet one or more specific characteristics (Hallmarks)
 Intermediaries with EU nexus are either
 resident in an EU member state;
 incorporated or governed by the laws of an EU member state;
 registered with a professional association related to legal, taxation or consultancy services in an EU
member state;
 providing services through a permanent establishment (PE – branch, office or agency) located in an EU
member state.
 Hong Kong based intermediaries need to understand the importance and implications of the
directive on their business provided through EU Resident either directly or through a PE

4. MHZWhen is a disclosure responsibility on Hong Kong based intermediary?
Exists a
cross-boarder
arrangement with
EU Tax residents?
Intermediary
provides service
through a PE
located in the EU?
The arrangement
falls within
category A, B or
C.1(b)(i), (c) or (d)?
Reporting
responsibility
is with the
intermediary
Reporting
responsibility is
with the
EU tax resident?
Not a
Cross-border
arrangement
under DAC6
YesYes
NoNo
No
Yes
Tax Authorities
The arrangement
falls in any other
Hallmark category?
Yes
No

5. MHZHallmarks
Hallmarks subject to the main benefit test
Category D
Specific Hallmarks concerning AEoI and BO
Including structures where the identity of the BO is made “unidentifiable”
Category A – Generic Hallmarks Category B – Specific Hallmarks
D.1 Arrangements undermine the automatic exchange of
information under CRS
A.1 Arrangements containing confidentially clauses not to
disclose tax advantages vis-à-vis other intermediaries or tax
authorities
B.1 Arrangements designed acquiring loss-making companies
in order to reduce tax liabilities
D.2 Arrangements involving non-transparent legal or
beneficial ownership chain
A.2 Arrangements that entitles intermediaries to receive fees
referenced to the tax advantages derived from such
arrangements
B.2 Arrangements convert income into capital, gifts or other
categories of revenue which benefits from lower taxation or
exemption
Category E
Hallmarks concerning transfer pricing
A.3 Arrangements with standardized
documentation/structure available to more than one
taxpayer
B.3 Arrangements circular transactions resulting in the
round-tripping of funds involving interposed entities without
primary commercial function
E.1 Use of arrangements which involves unilateral safe harbor
rules
Category C
Specific Hallmarks concerning cross boarder transactions
E.2 Arrangements involving the transfer of hard-to-value
intangibles
C.1.(a) Arrangements involving tax-deductible payments
between associated enterprise (AE) to a recipient not tax
resident in any tax jurisdiction
C.1.(d) Arrangements involving tax-deductible payments to a
AE resident in a jurisdiction where the payment benefits
from a preferential tax regime
E.3 Arrangements involving intragroup transfer or function,
risk, assets, whereby the projected annual EBiT of the
transferor drops more than 50% during a 3 years period
C.1.(b)(i) Arrangements involving tax-deductible payments to
an AE resident in a jurisdiction with no/almost zero Corporate
Tax
C.2 Depreciation on same asset in multiple jurisdictions
C.1.(b)(ii) Arrangements involving tax deductible payments to
an AE resident in an EU/OECD-blacklisted jurisdiction
C.3 Multiple relief from double taxation
C.1.(c) Arrangements involving tax-deductible payments to
an AE resident in a jurisdiction where the payment is tax
exempted
C.4 Arrangements that includes asset transfer and where is a
material difference in the amount treated as payable
Main Benefit Test
The test will be satisfied, it if can be established
that one or more main benefits is to obtain tax
advantages
Require the main benefit
test to be fulfilled
Does not require the main
benefit test to be fulfilled

6. MHZInformation that needs to be disclosed
 Under the EU framework, intermediaries or EU taxpayers will have to report the following
information on reportable cross-border arrangement:
 Identification of the intermediaries and relevant taxpayers, including tax residence, Tax Identification
Number, etc.;
 Details of the triggered Hallmark;
 Summary of the arrangement and its effect;
 Date of the first step towards the arrangement;
 Details of the national provisions imposing the reporting obligation;
 Value of the arrangement;
 Identification of the Member States involved in the arrangement;
 Identification of any other person likely to be affected and to which Member State such person in
linked.

7. MHZUse Cases – Investment into standardized product
Scenario
A German tax resident invests into a HK registered fund that creates tax
deferral effects for any German tax resident
Relevant Hallmark
A.3 Arrangements with standardized documentation/structure available
to more than one taxpayer
Remark
The arrangement is a cross-border arrangement with an EU-resident
client and provides tax advantage

8. MHZUse Cases – Investment into a preferentially taxed product through a PE
Scenario
A German tax resident invests parts of assets in an insurance product
offered by a Hong Kong based service provider through his PE in
Luxembourg. That product is preferentially taxed in Germany
Relevant Hallmark
B.2 Arrangements convert income into capital, gifts or other categories
of revenue which benefits from lower taxation or exemption
Remark
The arrangement is a cross-border arrangement with an EU-resident
client and provides tax advantage

9. MHZUse Cases – Transfer assets to a non-CRS participating jurisdiction
Scenario
An account holder (German tax resident) advises his Hong Kong based
financial institution to transfer all financial assets to a subsidiary
located in a jurisdiction not bound by the automatic exchange of
financial account information with Germany
Relevant Hallmark
D.1 Arrangements undermine the automatic exchange of information
under CRS
Remark
The arrangement may be designed to circumvent the account from CRS
Reporting to the German tax authorities

10. MHZRemaining Timeline
25 June 2018
EU Directive 2018/822 (DAC 6)
comes into force
31 December 2019
Final date to transpose
DAC6 locally
01 July 2020
DAC6 becomes
applicable
31 July 2020
First reporting of
arrangements introduced
after 30 June 2020
31 August 2020
Due date to file
Information on retroactive
Cross-border arrangement
Implemented on or after 25 June 2018
We are here!

11. MHZKey-findings and way forward
 Required actions to ensure compliance under DAC6
 analyse their organisational structure to identify permanent establishments located in
the EU that offers services in scope of DAC6
 establish processes to meet DAC6 reporting obligations when the cross-border
arrangement are provided through an EU based permanent establishment
 where they do not have not have a reporting obligation under DAC, provide affected
clients/account holder with sufficient information about the cross-border arrangement
allowing them to disclose the arrangement in front of their tax authorities
 implement compliance frameworks, policies and procedures to identify cross-border
arrangements and transactions in scope of DAC 6
 design technology solutions supporting
 the on-time identification of cross-border transaction
 generation of cases and notifications to all relevant stakeholder
 transmission of fiscal reports to the relevant authorities

12. MHZHow to assist intermediaries to navigate through DAC6?
Assessment Operations Technology
• Support the
• identification of arrangements
classified as reportable cross-
border arrangement under
DAC6
• identification of historical
cross-border arrangements
• requirements specification on
technology solutions
• Support the
• design and implementation
of Compliance Framework
and Policies identifying
transaction and products
with cross boarder elements
covered under DAC6
• dstablish trainings on DAC6
related policies and
processes
• Support
• the test and implement of IT
features assist the
identification and reporting of
reportable cross-border
arrangements