DAC 3 - Automatic Exchange of Cross-border Rulings and Advanced Pricing Arrangements

Legal Overview:

DAC 3 refers to the EU Council Directive 2015/2376, which mandates the automatic exchange of information on cross-border tax rulings and advance pricing arrangements (APAs) among EU tax authorities.

An advance cross-border tax ruling is a confirmation or assurance that tax authorities give to taxpayers on the interpretation or application of a legal or administrative provision concerning the administration or enforcement of national laws relating to taxes and which has a cross-border impact. Similarly, an Advance Pricing Arrangement (‘APA’) determines in advance of cross-border transactions an appropriate set of criteria between associated enterprises (i.e. group companies) for the determination of transfer prices or determines the attribution of profit to a permanent establishment. DAC 3 expands the scope of mandatory AEOI, as it applies to any advance cross-border ruling or APA provided by a Member State and is not just confined to intra-EU situations; however cross-border rulings which exclusively concern and involve the tax affairs of natural persons are not considered within scope.

DAC 3 came into force, whereby on 8 December 2015, Council Directive 2011/16/EU (‘Directive on Administrative Cooperation’) was amended by EU Council Directive 2015/2376 (‘DAC 3’) regarding the mandatory automatic exchange of information in relation to advance cross-border tax rulings and advance pricing arrangements.  DAC 3, was then implemented into Maltese legislation on 5^th June 2017, by virtue of LN 411 of 2016, amending the Cooperation with Other Jurisdictions on Tax Matters Regulations. Moreover, the rules for the automatic exchange of information as per DAC 3 are also in line with international developments and are based on the OECD’s Action 5 of the Base Erosion and Profit Shifting Project. 

Taxpayers requesting an advance cross-border ruling or APA which relates to a cross-border transaction as defined in Regulation 13 of S.L. 123.127 are required to provide the details of the Maltese and foreign entities involved in the said ruling or APA, and the details of the immediate and ultimate parent entity of the Maltese entity/ies [including name, registered address and TIN]. One must also indicate which entities involved in this ruling/transaction are related parties of the Maltese entity/ies and which entities are the immediate and ultimate parent entities respectively.