EU Proposes Recast Directive on Administrative Cooperation (DAC): What Businesses Need to Know

A central element of the proposal concerns DAC6 reporting. DAC6 requires tax advisors, banks and lawyers—and in some cases taxpayers—to report potentially aggressive cross-border tax planning arrangements to local tax authorities in order to crack down on tax avoidance and evasion across Europe. The recast refines DAC6 reporting to reduce unnecessary filings and improve clarity: 

• Only implementable arrangements are reportable, and the reporting period begins once the first concrete implementation step is taken.  
• Certain entities within the scope of Pillar Two are carved out provided no group member receives benefits resulting in taxation below 15%.  
• The reporting deadline for intermediaries is extended from 30 to 90 days.  

If adopted, this proposal will significantly reduce reporting obligations for DAC6 and the longer deadline will ease time pressure and improve data quality. 

The proposal also updates the rules on legal professional privilege in line with recent case law of the Court of Justice of the European Union (CJEU). The exemption from reporting is limited to lawyers and comparable professionals authorized under national law to provide legal representation although these professionals must still notify clients of any reporting obligations.  

Additional technical updates include: 

• Deletion of the low-value hallmarks in Category A (generic hallmarks relating to confidentiality on tax advantage, contingent fees and standardized documentation).  
• Replacing the reference in Hallmark C1 (hallmarks concerning arrangements with deductible payments made between associated enterprises) to OECD work on noncooperative jurisdictions with the Code of Conduct Group’s joint assessment process.  
• Further development of Hallmark D2 (a hallmark involving non-transparent ownership chains) substance criteria through a Council implementing act.  
• A future intention—though no concrete text is announced—to provide guidance on the main benefit test. 

Many (intermediaries of) MNE groups will see a meaningful reduction in DAC6 reporting volume and clearer thresholds for when reporting is required.

Under DAC7, digital platforms must collect and report seller income to local tax authorities to prevent tax evasion and ensure income earned online is properly declared. The recast reduces reporting burdens by eliminating the activity threshold and increasing the monetary threshold from EUR 2,000 to EUR 3,000. It also strengthens enforcement tools for third-country platform operators through clearer sanctions, enhanced cooperation and the possibility of simultaneous controls. 

This change will lower compliance burdens for platforms, with stronger tools for tax authorities to address noncompliance. 

Currently, each entity within an MNE group that is subject to country-by-country (CbC) reporting (DAC4) and the Pillar Two top-up tax information return reporting (DAC9) must separately notify its tax authority of the reporting entity and filing timeline—under two different sets of rules. The recast introduces a single, consolidated group notification covering both regimes, using a common template that is exchanged with the relevant tax authorities within three months after the filing deadline. 

This consolidation means a significant reduction in duplicative administrative work for large groups. 

To improve the accuracy of exchanged information, the European Commission will develop a digital tool for automated verification of Taxpayer Identification Numbers. Use of the tool will be mandatory for tax administrations and optional for reporting entities. Once a TIN or other identifier is successfully verified, reporting entities need only provide the taxpayer’s name and verified identifier. 

This measure will reduce compliance costs and improve the accuracy of exchanged information.

The recast expands the scope of available information. Tax authorities will be able to rely on their own registers, as well as information in other national government registers and databases. Access will extend to:  

• Public registers, including those established under anti-money laundering rules;  
• Pension registers; and 
• Beneficial ownership information for real estate, which will now be exchanged among EU member states. 

Life insurance products are removed as a separate category due to limited use and overlap with financial account reporting. 

The broader access to information will result in more complete and reliable data for tax authorities, with limited additional burden on businesses. 

The recast proposal modernizes several operational aspects: 

• Reporting templates for CbC reporting and the top-up tax information return will move to implementing acts for better alignment with OECD standards. 
• Member states will be required to share more statistics on automatic exchanges and provide more information on administrative cooperation outcomes.  
• The Commission may publish anonymized annual summaries to enhance transparency and evaluation of the DAC framework.