DAC 6 to be replaced by OECD rules for UK intermediaries from 2021
4 January 2021: HMRC has confirmed that the UK will no longer be applying DAC 6 in its entirety following conclusion of the Free Trade Agreement with the EU. Only arrangements that would have fallen within Category D of DAC 6 will now need to be reported, in line with the OECD’s mandatory disclosure rules.
HMRC has confirmed to the Tax Faculty that this change applies retrospectively.
DAC 6 is a system of mandatory reporting of cross-border tax arrangements affecting at least one EU member state where the arrangements fall within one of a number of “hallmarks”.
Despite the fact the UK was leaving the EU, it implemented DAC 6 into domestic law, requiring intermediaries with a connection to the UK to disclose arrangements to HMRC in relation to which they acted as “promoters” or “service providers”. The first disclosures were due to be made by 30 January 2021.
As provided for in the Free Trade Agreement between the UK and the EU, it has been agreed that the UK will now apply the OECD mandatory disclosure rules (MDR) instead.
The main difference between the OECD MDR and DAC 6 is that only arrangements that would have fallen within Category D of Part II of DAC 6 need to be reported.
As a stop gap measure, the UK regulations are being amended so that they only apply to arrangements falling under the category D hallmarks. These are arrangements designed to undermine tax reporting under common reporting standard and transparency rules and are split into two types:
- Arrangements which have the effect of undermining reporting requirements under agreements for the automatic exchange of information.
- Arrangements which obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.
HMRC has confirmed to ICAEW’s Tax Faculty 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. 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, although an 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.
There may therefore 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.
It is also worth mentioning that although this change significantly reduces the number of situations and arrangements which will need to be reported to HMRC under international reporting standards, the UK’s own disclosure of tax avoidance schemes (DOTAS) rules will continue to apply.
In the coming year, the government will repeal the legislation implementing DAC 6 in the UK and implement the OECD’s MDR as soon as practicable, to transition to international, rather than EU standards on tax transparency.
The Tax Faculty are running a webinar in the new arrangements on Tuesday 19 January, Tax Faculty members can register to attend here.