HMRC confirmed on 31 December 2020 that the implementation of the sixth Directive on Administrative Cooperation (DAC6) will be significantly limited in the UK.
As part of the UK’s Free Trade Agreement with the EU, it has been agreed that the UK will apply the OECD Mandatory Disclosure Rules (MDR) instead of DAC6.
Consequently, the Government has legislated to restrict reporting under DAC6 to only those arrangements that would be reportable under the OECD’s MDR. This means that only those arrangements that meet Hallmarks under category D of DAC6 will need to be reported.
Essentially, these are arrangements designed to undermine reporting under the Common Reporting Standard (CRS) and tax transparency rules. They are split into two types:
- arrangements that have the effect of undermining reporting requirements under the automatic exchange of information rules; and
- arrangements that obscure beneficial ownership and involve the use of offshore entities and structures with no real substance.
This is a major change and should significantly reduce the reporting burden on intermediaries and taxpayers. Businesses will, however, still need to determine whether or not they have reporting obligations within the more limited scope of the UK requirements. These rules will be particularly relevant if your business has reporting obligations under the CRS.
Businesses with international operations could, however, still potentially be caught by the European DAC6 rules. These businesses will need to continue to progress with their DAC6 compliance processes in respect of arrangements involving EU jurisdictions.
The changes came into effect on 31 December 2020 and they apply to arrangements implemented since 25 June 2018.
The Government has announced that it will repeal the legislation implementing DAC6 in the UK and replace it with the OECD’s MDR as soon as practicable, in order to transition to international, rather than EU, standards on tax transparency. The Government will consult on draft legislation to introduce MDR in due course and Smith & Williamson will be following this process closely to provide up-to-date, tailored advice on what the changes mean for our clients.
Please get in touch for more information or if you would like to discuss what these changes mean for your business.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2021/22.