Transforming Tax Compliance: the impact of DAC9 on businesses subject to Pillar Two

The EU Council has reached a political agreement on a ninth amendment to the EU Directive on Administrative Cooperation in the field of taxation, known as DAC9. These changes aim to facilitate the exchange of top-up tax information between Member States and simplify Pillar Two compliance for multinational enterprises and large-scale domestic businesses. One of the many implications of DAC9 is that in-scope businesses will only need to file a single top-up tax information return in one EU Member State, instead of multiple filings across different EU countries.

Simplified reporting requirements

DAC9 aims to simplify reporting requirements by incorporating the GloBE Information Return from the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) into EU law. This proposal establishes a system for tax authorities to exchange information with other EU Member States. Following formal adoption by the Council, Ireland and other EU Member States will have until 31 December 2025 to transpose DAC9 into national law. The first top-up tax information returns are due by 30 June 2026, with information exchange by tax authorities required by 31 December 2026.

The DAC9 proposal also transposes the OECD’s July 2023 GloBE Information Return (GIR) into EU law by making it the Top-up Tax Information Return (TTIR) as contemplated by Article 44 of the EU Minimum Tax Directive.

The compromise text addresses concerns over the EU Commission’s initially proposed delegated powers to make future changes to the TTIR standard form. That provision has now been removed, so changes to the TTIR would have to be made through an EU Council Directive, requiring unanimity of EU Member States.

Actions for businesses

Businesses should evaluate whether Ireland is the most suitable Member State to file their top-up tax information return, potentially using a designated local entity if it is not the location of the ultimate parent entity (UPE). Filing in Ireland may be advantageous for multinational enterprises unable to use the temporary Country-by-Country Reporting (CbCR) safe harbour for their Irish operations, as they will already be collecting data and preparing for GloBE compliance in Ireland. Additionally, the Irish Revenue Commissioners have issued detailed guidance on filing the top-up tax information return in Ireland, providing a level of certainty available in only a few jurisdictions. Businesses should consider the data points required for this filing if they have not already done so.

A new system for information exchange

DAC9 introduces a system where tax authorities automatically exchange top-up tax information returns using a standardised template. Member States will need to share relevant parts of these returns with other Member States within three months of receipt (six months for the first return). The European Commission will develop this standardised digital form. The proposal also includes a process for coordinating follow-up information requests among EU Member States.

To share top-up tax return information with non-EU countries, Member States will need to sign appropriate international agreements. The OECD BEPS Inclusive Framework has published a Multilateral Competent Authority Agreement on the Exchange of GloBE Information which will facilitate these exchanges.

Standard reporting form

DAC9 introduces a standard form for in-scope groups to report top-up tax information, aligned with the OECD’s GloBE Information Return (GIR). Acknowledging that the GIR may change to accommodate future modifications to the rules, a process is in place for the EU to ensure alignment between the GIR and the DAC9 requirements. Following changes to the GIR at OECD level, a Directive with the required changes would need to be proposed by the Commission and approved by all 27 EU Member States at Council level to ensure alignment.

Transitional simplified framework

The top-up tax information return includes the election for the transitional simplified jurisdictional reporting framework as a temporary measure, allowing for simplified reporting for all fiscal years beginning on or before 31 December 2028. Under the simplified framework, in-scope groups generally do not need to report adjustments to financial accounts net income and loss, current tax expense, or deferred tax expense on a constituent entity-by-constituent entity (CE-by-CE) basis. Instead, all adjustments can be reported on a net basis. This framework applies where either no top-up tax liability arises or where the liability does arise but does not need to be allocated on a CE-by-CE basis.

Avoiding additional data requirements

Both the DAC9 proposal and the GIR report suggest that jurisdictions should avoid imposing extra data requirements beyond the top-up tax information return or GIR as part of their routine tax return and payment processes. This recommendation is based on the extensive detail already required for the top-up tax information return. It is also important to note that preparing the top-up tax information return is separate from any local tax return requirements. Irish constituent entities may still need to file one or more of an Income Inclusion Rule (IIR) return, an Undertaxed Profits Rule (UTPR) return, and/or a Qualified Domestic Top-up Tax (QDTT) return, as well as meet registration and notification of filer requirements.

Conclusion

The European Commission’s DAC9 proposal aims to simplify tax reporting for in-scope businesses in the EU. By aligning with OECD standards and facilitating automatic information exchange, DAC9 seeks to reduce the administrative burden on businesses and improve tax compliance across Member States.

In terms of next steps, the DAC9 directive will be formally adopted by the Council, which acts as a sole legislator, once the legal linguistic work has been completed. After that, it will be published in the Official Journal and will enter into force on the day following that of its publication.

Member States, including those that have opted to defer implementation of Pillar 2 under Article 50 of the EU minimum tax Directive, have until 31 December 2025 to transpose DAC9 into national law. The first top-up tax information returns are expected to be due 30 June 2026.

Key actions businesses can take today

• Evaluate filing jurisdiction: assess whether Ireland is the most suitable Member State for filing your top-up tax information return. Consider using a designated local entity if Ireland is not the location of your UPE. Filing in Ireland may be advantageous due to existing data collection and GloBE compliance preparations.
• Review data requirements: identify and review the data points required for the top-up tax information return. Ensure that your systems can capture and report this information accurately. Early preparation will help avoid last-minute compliance issues and ensure a smooth filing process.
• Monitor regulatory updates: stay informed about updates to the OECD’s GIR and any changes to the proposed EU standard form. The European Commission may align the Pillar Two standard form with future OECD updates, impacting your reporting requirements.
• Consider the simplified framework: evaluate the benefits of electing the transitional simplified jurisdictional reporting framework. This temporary measure allows for simplified reporting, reducing the need for detailed adjustments on a CE-by-CE basis, which can streamline your compliance efforts.

We are here to help you

Navigating the complexities of DAC9 and its implications for your business can be challenging. Our experts are here to provide you with tailored advice and support to ensure seamless compliance with the prospective new regulations. Our deep understanding of both local and international tax laws, combined with our practical experience, uniquely positions us to assist you. Contact us today to discuss how we can help you optimise your tax reporting processes and stay ahead of regulatory changes.