Introduction
The European Commission has published the long-anticipated recast of the Directive on Administrative Cooperation (DAC), introducing a comprehensive package of reforms to modernise and streamline its tax transparency and reporting framework.
The proposal is a recalibration of DAC6 and related regimes, reflecting both the introduction of Pillar Two and broader policy objectives to reduce administrative burden while maintaining effective tax transparency.
While the recast will require unanimous agreement by member states and subsequent domestic transposition, political agreement is expected to progress rapidly, with a strong push to achieve consensus within the current legislative cycle.
Key reforms
The DAC recast introduces targeted amendments across multiple DAC regimes (including DAC2, DAC4, DAC6, DAC7, DAC8 and DAC9), with a particular focus on
- Simplifying reporting obligations
- Reducing duplication across regimes
- Enhancing consistency and legal certainty
- Aligning EU transparency rules with recent international developments
The recast's central feature is a significant revision of DAC6, alongside structural enhancements to platform reporting and information exchange mechanisms, delivered through six key reforms:
Economic substance criteria deferred to implementing acts
The Commission has confirmed that economic substance criteria will not be directly embedded in the DAC recast. Instead, the concept of substance under hallmark D2 will be developed through EU Council implementing acts. This approach preserves flexibility and avoids reopening detailed negotiations on substance tests. It is a policy shift away from the previously proposed Unshell Directive, which will now likely be withdrawn, and allows the EU to progress substance-related measures separately and more efficiently.
Narrowing of DAC6 reporting scope
The recast significantly refines the scope of reportable arrangements. Reporting is limited to arrangements that are implementable and where implementation has commenced. Generic hallmarks (Category A) are removed entirely. The regime continues to focus on arrangements presenting clear cross-border tax risk indicators. This should help reduce over-reporting and defensive filings - a consistent concern since DAC6 implementation.
Targeted changes to hallmarks and definitions
Technical refinements include updates to cross-border payment hallmark C1, including replacing references to OECD lists with the EU’s Code of Conduct Group. They also include confirmation that hallmark D2 continues to address non-transparent structures lacking substantive economic activity supported by staff, assets and premises. Collectively, these changes aim to improve legal clarity and consistency across member states.
The recast introduces targeted refinements to DAC6 hallmarks and definitions. These include updates to Hallmark C1, replacing references to OECD non-cooperative jurisdictions with the EU Code of Conduct Group . Hallmark D2 continues to address substance-related criteria, although these are not specified in the Directive and will instead be developed through a future Council implementing act. Collectively, these changes are aimed at improving legal clarity and ensuring consistent application across Member States.
Retention and clarification of the main benefit test
The recast confirms that the main benefit test (MBT) will be retained. However, the Commission will issue guidance to support interpretation. The stated objective is to reduce defensive reporting of standard commercial transactions and is a pragmatic compromise between business concerns and the need to preserve anti-avoidance safeguards.
Extended reporting deadlines
The recast introduces a meaningful extension to DAC6 timelines, with the reporting deadline increased from 30 days to 90 days and triggered from the first step in implementation of the arrangement. This should provide taxpayers and intermediaries with greater operational certainty and reduced compliance pressure.
Interaction with Pillar Two
A notable simplification is introduced for groups within scope of the global minimum tax. Entities subject to Pillar Two will generally be exempt from DAC6 reporting. An exception applies where arrangements involve jurisdictions without a qualified domestic top up tax, or where related tax benefits arise in such contexts.
Legal professional privilege: clarification following ECJ case law
The recast also addresses legal privilege following recent EU Court of Justice decisions. Reporting exemptions are limited to legal professionals authorised to provide legal representation.
Such professionals are not required to notify other intermediaries and must still inform their clients of reporting obligations. Other intermediaries without equivalent status do not benefit from the same protections, and disclosure obligations may still arise.
“Gold-Plating” Addressed
Although the proposal does not introduce an express anti–gold plating provision, its emphasis on simplification, removal of low value hallmarks and increased consistency across Member States reflects a broader policy objective of limiting fragmentation and unnecessary duplication in reporting requirements.
Integration and streamlining of reporting regimes
The recast introduces targeted alignment between DAC4 (country by country reporting) and DAC9 (Pillar Two information returns), focusing on simplifying notification requirements for multinational groups.
Under Article 16, MNE groups can file a single notification covering both regimes, replacing the current requirement for separate filings with differing timelines across Member States.
The notification deadline is aligned with DAC4, requiring filing by the last day of the fiscal year, and will be based on a standardised template to be developed via implementing acts.
The notification filed with one tax authority will then be automatically exchanged with relevant authorities within three months, reducing duplication and improving administrative efficiency.
Simplification of rules for digital platforms
The DAC recast introduces targeted changes to DAC7 reporting for digital platforms. In particular, the activity threshold for goods sales is removed and the monetary reporting threshold is increased from €2,000 to €3,000. These changes are intended to reduce the volume of reporting associated with low value transactions and improve proportionality, while maintaining the effectiveness of the reporting framework.
These changes are designed to reduce reporting volume while maintaining relevant tax transparency.
Next steps for businesses
The DAC recast represents one of the most significant evolutions of the EU tax transparency framework since the introduction of DAC6. There is a clear shift towards targeted, risk-based reporting rather than broad disclosure and meaningful simplification for businesses, particularly in relation to DAC6 and DAC7.
The recast is aligned with Pillar Two, reducing duplication across regimes, and will increase the emphasis on consistency and harmonisation across member states. However, areas such as economic substance criteria remain unresolved and will continue to evolve through secondary legislation. Businesses should begin to:
- Review the impact of DAC6 scope narrowing on existing reporting processes
- Assess the implications of Pillar Two interactions and potential exemptions
- Monitor developments in economic substance criteria under future implementing acts
- Evaluate the impact of DAC7 changes on platform-related obligations
- Prepare for harmonised reporting across DAC4 and DAC9
EU corporate tax simplification
Key themes from the proposed Tax Omnibus package
