New EU mandatory disclosure requirements, commonly known as “DAC6”, have been introduced to require intermediaries and taxpayers to disclose reportable cross border arrangements to the relevant national tax authority, which will then be automatically exchanged with tax authorities in the UK and EU Member States.
New reporting requirements
Starting from 25 June 2018, intermediaries and taxpayers resident in the UK or an EU Member State are required to disclose reportable cross-border arrangements to tax authorities. The Directive applies to cross-border arrangements that involve the UK and either another Member State or a third country. One of the five hallmarks set out below will need to be met for the cross-border arrangement to be reportable. The rules apply to direct taxation so are mainly focused on corporate and income taxes.
Most EU Member States (as well as the UK) have now transposed the Directive into national law, although in some cases there are differences in scope. Reportable cross-border arrangements that take place from 25 June 2018 will need to be disclosed to the relevant tax authorities. The information will be automatically exchanged by each tax authority within one month of the end of the quarter in which the information was filed.
An ‘intermediary’ for reporting purposes is broadly defined and includes any person who designs, markets, organises, makes available for implementation or manages the implementation of a reportable cross-border arrangement (a promoter). ‘Arrangement’ is defined as any scheme, transaction or series of transactions.
Intermediaries also include service providers who know or could reasonably be expected to know that they have undertaken to provide assistance with respect to a reportable cross-border arrangement.
Who needs to make the disclosure
An intermediary based in an EU Member State or the UK will generally be required to make the disclosure.
Where there are multiple intermediaries, all intermediaries are required to report unless they have evidence that the same information has been filed in the UK or an EU Member State.
Where an intermediary is subject to legal professional privilege, the reporting obligation lies with other intermediaries, or, if there are no such intermediaries, with the relevant taxpayer.
If there is no intermediary to the arrangement or legal professional privilege applies to the intermediaries, then the obligation to report will lie with the taxpayer.
Final regulations were published on 13 January 2020 and draft guidance released on 26 March 2020. The UK has fully transposed the Directive into UK law. It is not envisaged Brexit will affect implementation.
The draft guidance provides some clarification in a number of areas, in particular regarding service providers. The key element is whether a service provider would be reasonably expected to know they were involved in a reportable arrangement. Some examples have been provided in the draft guidance with further details envisaged in due course.
Many financial institutions will be considered service providers in some areas of their business and hence it is important to undertake an impact assessment to determine the scope of any disclosure requirements, considering both corporate transactions and financial products.
The regulations enable HMRC to levy penalties in certain cases so it is also important intermediaries carefully document where they consider they do not have a reporting obligation. Reasonable procedures should also be implemented to ensure any new potentially reportable arrangements are identified as quickly as possible.
The first set of reporting will be required by 28 February 2021 for transactions entered into from 25 June 2018 up to 30 June 2020. Transactions between 1 July 2020 and 31 December 2020 are to be reported by 31 January 2021. Thereafter, where the intermediary or taxpayer is subject to a reporting obligation, they will need to disclose the information to tax authorities within 30 days beginning on the day after the arrangement is made available, or is ready for implementation to the taxpayer, or when the first step of the arrangement has been implemented, whichever occurs first.