DAC 6 and The UK

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DAC 6

DAC 6 and The UK

DAC 6 as it’s commonly referred to is an EU Directive on cross-border tax arrangements and 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”.

The UK and DAC 6

The DAC 6 was implanted in the UK previously through the passing of the International Tax Enforcement (Discloasable Arrangements) Regulations. DAC 6 requires intermediaries with a connection to the UK to disclose arrangements to HRMC in relation to which they acted as “services providers” or “promoters”.

The UK will no longer be applying the DAC 6 in its entirety after the conclusion of the UK/ EU Free Trade Agreement in late 2020.

Going forward, only arrangements which would have fallen within Category D of DAC 6 need to be reported in line with the OECD’s mandatory disclosure rules. This change applies retrospectively which means no disclosures will need to be made for any arrangements that fall into one of the other DAC 6 hallmarks.

Category D

Category D hallmarks are arrangements designed to undermine tax reporting under common reporting standard and transparency rules. They are split into two types of arrangements;

  • Arrangements which have the effect of undermining reporting requirements under agreements for the automatic exchange of information; and,
  • Arrangements that obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.

Reporting

On the 30th of January, 2021 the initial reporting deadline in this area passed. This deadline applied to affected arrangements that were made available for implementation/ ready for implementation/ or where the 1st step in the implementation and took place between the dates of the 1st July 2020 and 31st December 2020.

Where a UK intermediary provided aid, assistance or advice (i.e. secondary intermediary) in respect of arrangements between the dates above, they were required to be reported by or before this 30th January deadline. In the event where a taxpayer is involved in the arrangement may be required to make a disclosure instead. Either way, an affected arrangement only needs to be reported by one person irrespective of the fact if multiple intermediaries are involved or not.

Arrangements where the 1st step was entered into on/after 25th June 2018 are subject to reporting obligations. The related reports were due to be made in such arrangements by 28th February 2021.

Furthermore, arrangements that become reportable on/after 1st January 2021 must be reported within 30 days.

This article summarises the immediate UK reporting obligations in this area. It is likely that other parties based in an EU member state and involved in a reportable transaction may need to report the arrangements to their respective tax authorities also in line with their local obligations.