HMRC has recently been consulting on how the UK will implement new EU disclosure rules contained in the latest Directive on Administrative Cooperation (DAC6). DAC6 is a new EU-wide disclosure scheme, similar to the UK's regime for the early disclosure of tax avoidance schemes (DOTAS). DAC6 is aimed at cross-border arrangements that have certain characteristics or “hallmarks” associated with aggressive tax avoidance or avoidance of other disclosure rules.
The UK regulations to implement DAC6 are intended to be passed by the end of the year and will come into force on 1 July 2020. However, there is an element of back-dating to these regulations because they apply to existing arrangements if the first step was taken after 25 June 2018.
In order to give authorities early knowledge of potential tax avoidance schemes, there is also a very short deadline for disclosure which will be required, broadly within 30 days of the arrangements being implemented or made available. With these deadlines in mind, advisers should start to prepare to identify cross-border arrangements that will need to be reported by August 2020.
However, it is still not entirely clear precisely what sorts of arrangements will be reportable. The draft regulations refer directly to the EU's very widely drafted DAC6 for most of the key definitions and so the ambit of many of the terms is unclear. We will need detailed guidance, including clear examples, in order to properly determine whether the regulations would apply in a given situation. This is particularly important in light of the proposed stringent penalty regime.
For instance, one of the hallmarks would require an intermediary to disclose cross border arrangements which have the effect of undermining or circumventing reporting obligations under the Common Reporting Standard (CRS) regardless of whether that was the intention. There is concern that this could inadvertently catch routine advice on the CRS requirements of a given jurisdiction. The consultation confirms that arrangements which result in non-reporting under CRS but where it is reasonable to conclude that they did not undermine the policy intent of the CRS would not be disclosable, but much more guidance is needed on exactly what this means and how this would apply to practical situations.
Like everything else at the moment, it is not yet clear how Brexit will impact these regulations. HMRC have indicated that they would like to implement them regardless of Brexit as part of their drive for greater transparency. As currently drafted, only EU-based advisors need to report, so once the UK is no longer a member, UK advisors may be 'off the hook' although certain taxpayers may still need to report. As with all things Brexit, we will just have to wait and see what happens but in the meantime advisors involved in cross-border transactions should start to prepare for these new regulations.