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Implications of the Free Trade Agreement with the EU for DAC 6

Jane Mackay, Partner, Head of Tax
06/01/2021
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The agreement reached late last year permits the UK to cease to apply DAC 6, but not so as to dis-apply the OECD standards on exchange of information on cross-border arrangements.

To achieve this in the short-term, HMRC has confirmed that tax arrangements that would have fallen under Category D of Part II of DAC 6 will still need to be reported. These alone are sufficient to follow the OECD Mandatory Disclosure Rules (MDR).

All the other Categories are dropped. The change is with retrospective effect, which means that tax arrangements which fell under Categories A, B, C, or E of DAC 6, no longer need to be reported to the UK tax authorities.

It should, however, not be overlooked that parties based in other EU jurisdictions may still need to report to their local tax authorities, so this does not mean none of the information will be available to the EU authorities.

Implications of change

The number of arrangements that will need to be disclosed to HMRC is reduced very significantly.

It is expected that it will be easier for intermediaries and taxpayers. Many of the DAC 6 Hallmarks brought normal commercial arrangements within the scope of reporting and these are no longer reportable in the UK.

What arrangements still needs to be reported?

Those arrangements that are fundamentally designed to:

  1. undermine reporting under automatic exchange of information agreements
  2. obscure beneficial ownership and use offshore entities and structures with no substance.

When do the arrangements need to be reported?

The reporting deadlines are unchanged by the trade agreement, as listed below.

  • 30 January 2021
    (as this falls on a Saturday, the reports may in practice need be made by 29 January 2021). Applies for the reporting obligations arising from 1 July to 31 December 2020.
  • 28 February 2021
    For the reporting obligations for the period before 1 July 2020, when the rules first came into effect. These will include reporting arrangements where the first step of the arrangement was made after 25 June 2018, when the directive came into force and before 1 July 2020.

  • Thereafter 30 days after the obligation arises.

Is this a temporary measure?

The amendment to the UK regulations limiting reporting to only Hallmark D is expected to be a stop gap measure. The intention is to replace all the regulations by implementing the OCED’s MDR rules later in the year. However, since the stop gap is intended to meet at least the standard required under MDR, the revised rules should not be any more arduous as far as transactions involving EU counties are concerned.

Other considerations?

Even though the changes significantly reduces the number of situations in which arrangements will need to reported to HMRC under DAC 6, it is worth remembering that the UK’s own disclosure of tax avoidance schemes (DOTAS) rules will continue to apply.

How Crowe can help

For further information on the DAC 6 implications with Brexit, please contact Jane Mackay or your usual Crowe contact.

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Jane Mackay
Jane Mackay
Partner, Head of Tax
Thames Valley