On 30 December, the UK government laid regulations that will significantly reduce the type of cross-border arrangement that will need to be reported by UK intermediaries under the so-called DAC 6 rules on 31 January 2021 and in the future.
In the last year or so, we have regularly written about DAC 6 in our Tax Talks blog and in our monthly UK Tax Round Up. As a reminder, DAC 6 is the wide ranging EU regime for reporting “cross-border tax arrangements” which requires certain “intermediaries” and taxpayers to report to HMRC a wide range of transactions entered into since 25 June 2018 that met a “hallmark” set out in the implementing EU Directive. In the UK the first reports in respect of reportable cross-border tax arrangements are due to be made by 31 January 2021.
As a result of finalising the UK-EU Trade and Cooperation Agreement (TCA) under which the UK and the EU have agreed how they will interact following the end of the Brexit transition period the UK’s obligation is solely to “not weaken or reduce the level of protection … below the level provided for by the standards and rules which have been agreed in the OECD … in relation to the exchange of information … concerning … potential cross-border tax planning arrangements [being the OECD’s Mandatory Disclosure Rules (MDR)]”. The UK has decided that compliance with the MDR reporting only requires reporting of cross-border arrangements meeting the conditions in the category D hallmarks under DAC 6, which relate to arrangements designed to circumvent reporting under the OECD’s Common Reporting Standards rules and/or to seek to hide the identity of the beneficial ownership of entities in the arrangements.
The new scope of DAC 6 reporting applies from 11 pm on 31 December 2020, so that the first reports (and future reports) under DAC 6 will only require reporting of these category D arrangements. This significantly narrows the range of transactions that might otherwise have had to have been reported on.
The government has also announced that it will consult on new reporting rules to implement the MDR as soon as practicable, and that these new rules will then replace DAC 6 in its entirety.
HMRC will update its guidance in due course to reflect these changes. Although the changes significantly narrow the scope of DAC 6 reporting requirements for the UK, the requirements set out in the applicable EU Directive continue to apply where an EU intermediary is involved in a transaction, so UK businesses (or their EU-based advisers) that are party to cross-border transactions involving the EU will still need to consider the full scope of DAC 6.