The UK transposed DAC6 into domestic legislation despite leaving the EU, which initially required UK-based intermediaries to disclose to the HMRC reportable arrangements if they were the promotor or service provider. However, following Brexit, the UK no longer applies DAC6 due to the Free Trade Agreement with the EU. The UK government has unexpectedly published amended regulations on 31 December 2020 that narrow down the scope of DAC6. Under its new disclosure regime, only the arrangements that fall within Category D of DAC6 are subject to disclosure. Category D sees to arrangements that undermine reporting obligations or have a non-transparent ownership chain.
Category D Hallmarks (automatic exchange of information / beneficial ownership)
Cross-border arrangements regarding the UK or an EU Member State will be reportable only, if:
- the arrangement effectively undermines reporting obligations agreements on the automatic exchange of financial account information (such as the Common Reporting Standards), or if
- the arrangement involves non-transparent legal/beneficial ownership chains that:
- do not carry on a substantive economic activity;
- are incorporated, managed, resident, controlled, or established in any jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the assets held by such persons, legal arrangements or structures; and
- have unidentifiable beneficial owners.
It is known that the UK government will implement reporting obligations in line with the OECD Mandatory Disclosure Rules (also known as ‘MDR‘). It is unclear when and what this regime will entail, but this could be similar to other countries outside the EU that have introduced disclosure requirements. For example, Mexico has implemented a mandatory disclosure regime based on OECD while also including other tax types in addition to Income Tax.
Please note that it is still required to assess cross border transactions with an EU Member State. The cross-border arrangements that would have been reportable to the HMRC may need to be reported to local tax authorities in the other EU Member States.
As these changes apply retrospectively, no disclosures are mandatory for any arrangements that fall into one of the other DAC6 hallmarks. This means that some historic arrangements are no longer subjected to disclosure by UK intermediaries, although other EU-based parties involved in the transaction may still file the concerned report to their local tax authorities.
Prior to Brexit, the UK was required to exchange tax information with EU member states. However, it is unclear how reports relating to Category D cross-border arrangements will be shared with other tax authorities under the current DAC6 exchange framework and whether HMRC will have access to information relating to cross-border arrangements falling within the other hallmarks. If and how other existing international frameworks could also allow the exchange of tax information between tax authorities is still unclear.
Practical considerations
UK-based intermediaries are still affected by reporting obligations; a new regime will follow;
- historical arrangements falling under Category D Hallmarks are still reportable if triggered:
- from 25 June 2018 until 31 June 2020, then the filing due date is 28 February 2021,
- from 1 July 2020 until 31 December 2020, then the filing due date is 30 January 2021.
- from an EU perspective, it is still required to continue DAC6 assessments;
- For hallmark D still remains that in case the UK-based intermediary can provide an Arrangement Reference Number receipt from an EU Member State, no report needs to be filed to the HMRC
