The conclusion of the Brexit post-transition arrangements has brought an unexpected but welcome restriction to the application of the DAC6 rules that has largely repealed its reporting requirements in the UK
In January 2020, the UK implemented the EU directive known as DAC6, which came into force on 1 July 2020 and required "intermediaries" (including law firms, accountants and tax advisors) to report to HMRC (from 1 January 2021) cross-border arrangements that met one of a number of "hallmarks" that could be used to avoid or evade tax. The DAC6 rules were particularly onerous as they required intermediaries to disclose relevant arrangements where the first step was taken on or after 25 June 2018 (the "look-back" period).
Fast-forward one year and, following the conclusion of negotiations between the UK and the EU on a Free Trade Agreement, HMRC made an unheralded announcement on 31 December 2020 that reporting under DAC6 would only be required for arrangements that meet hallmarks under Category D. Category D broadly deals with undermining reporting obligations and obscuring beneficial ownership and shares substantial common ground with the Mandatory Disclosure Rules developed by the Organisation for Economic Co-operation and Development (OECD). Reporting requirements under Hallmarks A, B, C and E have been repealed. Regulations (SI 2020/1649) were made with effect from 31 December 2020 to implement this change and to ensure that the rules work correctly after the end of the transition period.
We understand that HMRC has confirmed that arrangements which fall within the look-back period under Hallmarks A, B, C and E will not now need to be reported in the UK. This makes sense on the basis that there is no reportable arrangement under the newly made Regulations by the time the reporting obligations under DAC6 start to run in the UK from 1 January 2021. Historic arrangements in the look-back period, which fall within Hallmark D, will, however, still have to be reported as will those whose trigger date falls on or after 1 January 2021.
In a move that is indicative of the direction of post-Brexit travel, the government has agreed to maintain the international rules on the exchange of information on cross-border arrangements. Consequently, in the coming year, it will consult on and implement the OECD’s Mandatory Disclosure Rules as soon as practicable, to replace DAC6 and transition from European to international rules.
Osborne Clarke comment
Although this announcement is very welcome for UK intermediaries, parties involved in cross-border arrangements will still need to consider whether reporting obligations exist under DAC6 in other European Member States in relation to any arrangement. Although the remit of DAC6 in the UK has been dramatically narrowed, if any of the other hallmarks are present in arrangements then an assessment in the other relevant EU countries involved in that arrangement will be necessary to confirm whether a reporting obligation arises in a European Member State.