Recent Amendments to LPP, Hallmarks, and EBIT Definitions under DAC6

In a recent update, the FAQ regarding Legal Professional Privilege (LPP) and notification obligations for intermediaries under DAC6 has introduced amendments and clarifications. The notification obligations for intermediaries protected by LPP are now subject to the CJEU case C-694/20, which ruled against imposing notification obligations on lawyers towards non-client individuals. However, the practical implications of this ruling are yet to be clarified.

Changes have also been made to several hallmarks. Hallmark C.1.a. now clarifies that it should target “stateless” entities rather than tax-exempt organizations. Hallmark C.1.d. focuses on domestic income or gains that remain untaxed due to double tax conventions or preferential tax regimes.

Regarding hallmark E.3, there is now a legal approach to assess asset transfers. Transfers between a head office and its permanent establishment are considered out of scope, while transfers involving tax-transparent entities may fall within the scope. Furthermore, mergers within the EU and migrations with continuity of legal personality are exempted from being classified as cross-border transfers.

The definition of EBIT has been amended to exclude interest and tax income/expenses. Thus, transfers of assets generating interest income are no longer considered impactful for EBIT calculations.

To assess hallmark E.3, the reduction in the transferor’s EBIT over a three-year period is crucial. Two computations need to be made, considering the hypothetical EBIT if the transfer had not occurred and projecting the transferor’s EBIT while accounting for the transfer. The starting date of the three-year period should be specified in the DAC6 reporting.

These amendments aim to provide clarity and ensure accurate compliance with DAC6 requirements. Further legislative developments are anticipated to address notification obligations for lawyers and other LPP-protected intermediaries.