In a low-key statement on the eve of Brexit, HMRC announced the effective repeal of the majority of UK tax reporting obligations associated with the EU DAC 6 cross-border tax disclosure rules.
With effect from 11pm GMT on 31 December 2020, DAC 6 has ceased to apply to the UK. As a consequence, the UK government has issued regulations (SI 2020/1649) to amend its original DAC 6 implementing legislation with the following main objectives:
reporting will not now be required for cross-border arrangements which only feature hallmarks from categories A, B, C and E; and
reporting obligations will continue (for a limited time – see below) only for cross-border arrangements which feature hallmarks from category D (essentially arrangements with the effect of undermining automatic exchange of information obligations or obscuring beneficial ownership).
Reporting for arrangements under hallmark D is being retained for the time being to ensure compliance with obligations under the Free Trade Agreement between the UK and EU, which states (at article 5.2) that the parties to the FTA ‘shall not weaken or reduce the level of protection provided for in its legislation at the end of the transition period below the level provided for by the standards and rules which have been agreed in the OECD at the end of the transition period, in relation to (a) the exchange of information ... concerning ... potential cross-border tax planning arrangements’.
HMRC states that it is the intention of the UK government to implement the OECD model mandatory disclosure rules (MDR) into UK domestic law as soon as practicable. It considers that the OECD MDR only requires reporting of DAC 6 hallmark D arrangements and will therefore retain reporting obligations under the current DAC 6 implementing legislation for hallmark D only until UK MDR legislation is introduced. At that point, UK DAC 6 legislation will be repealed in its entirety.
HMRC has indicated it will provide updated reporting guidance and an update on the reporting platform shortly.
Some initial observations:
For UK intermediaries and taxpayers, this announcement could materially reduce the compliance burdens and costs associated with DAC6, and may therefore be very welcome.
However, it is noted that due to the announcement coming so close to the commencement of DAC6 reporting obligations, many UK businesses will already have incurred significant cost and management time to ensure DAC 6 compliance. These businesses will need to revisit such compliance procedures to assess if they are still required or fit for purpose.
It should also be noted that only the UK DAC 6 reporting requirements are being removed: for intermediaries and taxpayers with presence and arrangements involving other European jurisdictions, DAC 6 reporting obligations will continue to apply in those jurisdictions and appropriate compliance procedures will be required.
In particular, this also means that DAC 6 reports planned to be made in the UK on commencement of reporting which also involve another member state will now likely require a report in that other member state instead, with limited time for intermediaries to make such assessment and also consider how the reporting requirements may differ in such other member state to ensure an appropriate disclosure is made.
Many intermediaries and taxpayers will have updated their contractual documentation to address DAC 6 reporting requirements, including documentation dealing with engagement, corporate acquisitions/disposals and financing. These contractual provisions may now need to be reviewed and amended to reflect the change to the UK position and to ensure that they accommodate the OECD’s MDR.
Although this announcement was perhaps unexpected, what is not is the UK’s determination when dealing with its trading partners to align more closely with international rather than European rules where possible.
In a low-key statement on the eve of Brexit, HMRC announced the effective repeal of the majority of UK tax reporting obligations associated with the EU DAC 6 cross-border tax disclosure rules.
With effect from 11pm GMT on 31 December 2020, DAC 6 has ceased to apply to the UK. As a consequence, the UK government has issued regulations (SI 2020/1649) to amend its original DAC 6 implementing legislation with the following main objectives:
reporting will not now be required for cross-border arrangements which only feature hallmarks from categories A, B, C and E; and
reporting obligations will continue (for a limited time – see below) only for cross-border arrangements which feature hallmarks from category D (essentially arrangements with the effect of undermining automatic exchange of information obligations or obscuring beneficial ownership).
Reporting for arrangements under hallmark D is being retained for the time being to ensure compliance with obligations under the Free Trade Agreement between the UK and EU, which states (at article 5.2) that the parties to the FTA ‘shall not weaken or reduce the level of protection provided for in its legislation at the end of the transition period below the level provided for by the standards and rules which have been agreed in the OECD at the end of the transition period, in relation to (a) the exchange of information ... concerning ... potential cross-border tax planning arrangements’.
HMRC states that it is the intention of the UK government to implement the OECD model mandatory disclosure rules (MDR) into UK domestic law as soon as practicable. It considers that the OECD MDR only requires reporting of DAC 6 hallmark D arrangements and will therefore retain reporting obligations under the current DAC 6 implementing legislation for hallmark D only until UK MDR legislation is introduced. At that point, UK DAC 6 legislation will be repealed in its entirety.
HMRC has indicated it will provide updated reporting guidance and an update on the reporting platform shortly.
Some initial observations:
For UK intermediaries and taxpayers, this announcement could materially reduce the compliance burdens and costs associated with DAC6, and may therefore be very welcome.
However, it is noted that due to the announcement coming so close to the commencement of DAC6 reporting obligations, many UK businesses will already have incurred significant cost and management time to ensure DAC 6 compliance. These businesses will need to revisit such compliance procedures to assess if they are still required or fit for purpose.
It should also be noted that only the UK DAC 6 reporting requirements are being removed: for intermediaries and taxpayers with presence and arrangements involving other European jurisdictions, DAC 6 reporting obligations will continue to apply in those jurisdictions and appropriate compliance procedures will be required.
In particular, this also means that DAC 6 reports planned to be made in the UK on commencement of reporting which also involve another member state will now likely require a report in that other member state instead, with limited time for intermediaries to make such assessment and also consider how the reporting requirements may differ in such other member state to ensure an appropriate disclosure is made.
Many intermediaries and taxpayers will have updated their contractual documentation to address DAC 6 reporting requirements, including documentation dealing with engagement, corporate acquisitions/disposals and financing. These contractual provisions may now need to be reviewed and amended to reflect the change to the UK position and to ensure that they accommodate the OECD’s MDR.
Although this announcement was perhaps unexpected, what is not is the UK’s determination when dealing with its trading partners to align more closely with international rather than European rules where possible.
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