ICAEW members urged to prepare for DAC 6
6 October 2020: ICAEW’s Tax Faculty is urging members not to be complacent ahead of 30 January 2021 reporting deadline for the new complex, EU disclosure regime.
The new reporting regime, referred to as DAC 6 for short, requires cross-border tax arrangements which meet certain “hallmarks” to be reported to local tax authorities who will then share the information with EU member states.
ICAEW’s Tax Faculty explains that the regime has the potential to require reports to be made for “benign” tax arrangements and those implemented as far back as June 2018 may be in scope.
Although the DAC 6 regime is coming into full force from 1 January 2021, the reporting obligations apply to arrangements where the first step was entered into on or after 25 June 2018. This means that a huge backlog of historical reports will need to be made.
While many of these reports will need to be made by 28 February 2021, an earlier reporting deadline of 30 January 2021 applies in two circumstances:
- arrangements were made available for implementation, or which were 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.
The standard time limit for reporting once the rules are fully operational will be 30 days, so affected organisations need to plan how they are going to manage reporting well before the rules come into force to ensure they are ready and do not miss what are very tight reporting deadlines.
It is also important to note that after 1 July 2020 different triggers for reporting come into force. So, in the period 25 June 2018 to 30 June 2020 only transactions that are implemented may need reporting.
Since 1 July 2020, the provision of advice could trigger a reporting obligation, even if the arrangement is not implemented.
Reporting not limited to tax avoidance
Some of the DAC 6 hallmarks do not require a tax advantage or a tax avoidance motive at all. This means that some benign transactions will require reporting.
The hallmarks causing the most concern involve cross-border transfers and transfers of intangible assets.
Similarly, private clients could be affected as these rules target arrangements which involve “non-transparent legal or beneficial ownership chains” and there is no requirement for a tax avoidance motive to be present. Offshore trusts could therefore also be caught by these rules.
ICAEW members working overseas
Employees are generally not required to make a DAC 6 report if their employer is required to make a report under the rules. This will be where their employer meets the definition of an “intermediary”.
Where there is no requirement to make a DAC 6 report by the employer, the employee could have a personal obligation to report relevant arrangements to HMRC.
This is most likely to occur where individuals are members of a UK professional association (such as ICAEW) and are working in a non-EU jurisdiction on arrangements reportable under DAC 6.
Members are advised to familiarise themselves with the rules and consider how it might affect any arrangements they are involved in.
ICAEW’s DAC 6 hub, produced by the Tax Faculty provides, several free resources including a TAXbite (a free bite-sized webinar giving an overview of the regime) and a full-length webinar, as well as a number of articles to assist members.