The 6th Directive (2018/822/EU) aiming to discourage the use of aggressive cross-border tax-planning agreements imposes a disclosure and reporting obligation on certain ‘intermediaries’ and taxpayers in regards to ‘cross-border arrangements’. The EU Directive was implemented in UK law on 9 January 2020.
On 9 January 2020, the International Tax Enforcement (Disclosable Arrangements) Regulations 2020, Statutory Instrument 2020 No. 25 (the Regulations) were made and will come into force on 1 July 2020.
But will it remain in force post-Brexit?
The Withdrawal Agreement of 29 January 2020 required the UK to apply DAC6 as if it were a Member State until 31 December 2020.
The Chancellor of the Exchequer’s January 2020 report to Parliament on the Regulations (a requirement under section 84 (8) of the Finance Act 2019) indicated that once the transition period ended, the government would make transitional arrangements, amend or revoke the Regulations but indicated that it would make sure that the rules would work as intended.
As HMRC is committed to tackling aggressive tax arrangements, it was thought unlikely that the UK would make any material amendments to DAC6 in the near future.
[Update 5 January 2021]
But now we know for sure...
HMRC published an amendment to the UK’s DAC6 implementing legislation shortly after the conclusion of the negotiations between the UK and the EU on a Free Trade Agreement (FTA), which limited the application of DAC6 in the UK in respect of all arrangements except those falling within Hallmarks D1 or D2 meaning, broadly, arrangements that involve attempts to conceal financial income, or to obscure beneficial ownership.
The explanatory note that was published at the same time stated that the UK would consult on and implement the OECD’s Mandatory Disclosure Rules (MDR) as soon as practicable, to replace DAC 6 and transition from European to international rules.
The remaining reporting obligations which have effect as of 1 January 2021 are limited to the hallmarks under category D which are the minimum standards that were agreed in 2014 at OECD level.
With these changes, we should indeed conclude that the marriage between Brexit and DAC6 failed. International taxpayers and intermediaries will therefore need to consider both the UK and EU’s rules, and may be required to report more than once, given that reporting in the UK will no longer be a sufficient disclosure for EU (DAC6) purposes.
Why has the UK taken this approach?
The explanatory note stated that this change was to comply with the FTA, under which neither party is allowed to dilute their exchange of information on cross-border tax planning arrangements below the minimum standard agreed at the OECD level.
DAC6 went further than the OECD’s Mandatory Disclosure Rules (MDRs) for CRS Avoidance Arrangements and Opaque Offshore Structures (which are implemented via Hallmarks D1 and D2). It also implemented the recommendations in the OECD’s Final Report on BEPS Action 12 (Mandatory Disclosure Rules) which resulted in the additional hallmarks. The UK had, however, already implemented the Action 12 recommendations (many of which were reported to have been based on the UK’s disclosure rules), and therefore it was always felt that DAC6 involved a degree of duplication for UK taxpayers.
However, for many UK taxpayers and intermediaries, the late hour of the change has caused a great deal of frustration as they will have to review all transactions they have previously planned to report to see whether any of them are still reportable in the UK and, if they are not required to report them in the UK, whether they will now need to be reported in the EU. And UK-EU businesses will need to ensure that their compliance procedures pick up reportable transactions in the appropriate jurisdictions in the future.