DAC2 - Taxation and Customs Union

DAC2 provides for the automatic exchange of financial account information between EU countries. It is the first amendment of the Directive on Administrative Cooperation in Direct Taxation.

The objectives of DAC2 are to combat tax evasion and tax avoidance, thus ensuring tax fairness between the taxation of financial income earned abroad compared to national sources. The Directive establishes a system for secure administrative cooperation between the national tax authorities of EU countries and lays down rules and procedures for exchanging information.

Background

DAC2 requires EU countries to obtain information from their financial institutions and exchange that information with the taxpayer’s country of residence on an annual basis. It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, and the procedures to be followed by financial institutions.

According to the forthcoming study on the evaluation of DAC, between 2018 until early 2023, EU countries exchanged information concerning some 127 million accounts relating to financial information with a total value of EUR 8,473 billion. The study further indicates that DAC2 gave rise to reported tax benefits of more than EUR 680 million in 2022.

Scope

Under DAC2, EU financial institutions will report account balances and income credited to the account (dividends, interest, gross proceeds from the sale or redemption of financial assets and cash-value insurance contracts). Reporting applies to both accounts held directly by an individual and indirectly through an investment entity (a so called ‘passive non-financial entity’).

The communication of account balance information takes place annually, within nine months following the end of the calendar year or other appropriate reporting period to which the information relates.

Read the Explanation on the main aspects of DAC2

International standards

DAC2 is based on the OECD international standard on the automatic exchange of financial account information (the Common Reporting Standard, CRS).

As of March 2024, there are over 5 400 bilateral exchange relationships activated with respect to more than 120 jurisdictions committed to the CRS. This means that automatic exchange of financial account information combats tax evasion and tax avoidance globally, not just in the EU.

The 2022 OECD tax report noted that information on at least 111 million financial accounts worldwide was exchanged automatically between administrations around the globe in 2021, covering total assets of nearly EUR 11 trillion.

Agreements with European third countries

The EU has signed agreements similar to DAC2 with five European non-EU countries (Andorra, Liechtenstein, Monaco, San Marino and Switzerland). These agreements ensure a level playing field between financial institutions in these countries and financial institutions in the EU which are required to implement DAC2.

Negotiations are being held in 2024 to update the agreements to reflect changes in the OECD CRS.

Legal texts

Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation

Commission Implementing Regulation (EU) 2018/99 of 22 January 2018 – statistics to be provided under DAC2 by Member States

Relevant links

OECD Global Forum platform – includes documentation and peer reviews of member jurisdictions to assess their compliance with the CRS