There are to be changes to the way UK intermediaries report cross border tax arrangements post-Brexit, with the EU DAC directive set to be replaced by OECD rules later this year
DAC 6 applies to cross-border tax arrangements, which meet one or more specified characteristics (hallmarks), and which concern either more than one EU country or an EU country and a non-EU country. It mandates a reporting obligation for these tax arrangements if they fall within one of a number of ‘hallmarks’, no matter whether the arrangement is justified according to national law.
The UK implemented DAC 6 into domestic law, meaning that intermediaries with a connection to the UK were required to disclose arrangements to HMRC where they acted as ‘promoters’ or ‘service providers’.
The first disclosures were due by 30 January 2021.
However, in correspondence with professional bodies, HMRC has said that following the conclusion of the Free Trade Agreement (FTA), the UK will no longer be applying DAC 6 in its entirety.
Instead, the UK will now apply the OECD mandatory disclosure rules (MDR), which means only arrangements that would have fallen within category D of DAC 6 will now need to be reported.
In the short term, the UK regulations are being amended so that they only apply to arrangements falling under the category D hallmarks.
ICAEW’s tax faculty said it has confirmation from HMRC that this change applies retrospectively so no disclosures will need to be made for any arrangements that fall into one of the other hallmarks set out in DAC 6.
In the coming year the UK will consult on and implement the OECD’s MDR as soon as practicable, to replace DAC 6 and transition from European to international rules on tax transparency.
ICAEW’s tax faculty highlighted that there may be a number of historic arrangements that intermediaries were expecting to report to HMRC where the UK reporting obligation has now fallen away. However, it is possible that other parties based in an EU member state and involved in the transaction may need to report the arrangements to their respective tax authorities.
This arises because reporting obligations apply to arrangements where the first step was entered into on or after 25 June 2018. Reports are due to be made in respect of these arrangements by 28 February 2021.
The earlier reporting deadline of 30 January 2021 applies to arrangements which were made available for implementation, or ready for implementation, or where the first step in the implementation took place between 1 July 2020, and 31 December 2020; and arrangements in respect of which a UK intermediary provided aid, assistance or advice between 1 July 2020 and 31 December 2020.
ICAEW said the change from DAC 6 to OECD rules will significantly reduce the number of situations and arrangements which will need to be reported to HMRC under international reporting standards, but pointed out that the UK’s own disclosure of tax avoidance schemes (DOTAS) rules will continue to apply.
Jackie Hall, tax partner at RSM, said: 'This represents a significant reduction in the UK tax reporting requirements, with the OECD rules effectively only requiring arrangements to be reported if they undermine reporting obligations, or involve non-transparent legal or beneficial ownership, offshore entities, or structures with no economic substance.
'While providing a welcome bonus for some advisers and participants in cross-border arrangements, this relaxation may create additional burdens for others. In particular arrangements involving EU states, which could previously have been dealt with by a report to HMRC, may now need to be reported within an EU jurisdiction instead, leading to additional administrative burdens.
'As the draft legislation to implement the OECD rules has not yet been published, it is also not known for certain what the new reporting regime will look like. It may, therefore, be too early to be celebrating what some may see as a Brexit dividend, but others see as a barrier to tackling abusive tax arrangements.'