Directive on Administrative Cooperation 6 (“DAC6”) and the Mandatory Disclosure Rules

DAC6 is a response to the OECD’s Base Erosion and Profit Shifting project, and aims to strengthen tax transparency across the EU and counter aggressive tax planning. It also incorporates the OECD’s Mandatory Disclosure Rules (“MDR”).

On 31 December 2020, HMRC confirmed that the application of DAC6 will be severely limited in the UK to align with the OECD’s MDR. This means that only those arrangements that meet Hallmark D of DAC6 will need to be reported in the UK. DAC6 continues to apply in EU jurisdictions.

DAC6 1920 (2)

Requirements

DAC6 requires organisations, either in their capacity as an intermediary or as a taxpayer, to report certain cross-border arrangements to their relevant tax authorities where they meet at least one of five prescribed hallmarks. In the UK, cross-border arrangements are now only reportable if they meet Hallmark D. The rules are retrospective and apply to arrangements implemented from 25 June 2018.

During 2021, the Government intends to repeal the legislation implementing DAC6 in the UK and implement 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.

We can provide updated guidance in respect of reportable arrangements under MDR once this is implemented and would be happy to discuss what these changes mean for your business.

Penalties will be imposed for errors ad failures to report, so it is important for organisations to consider now how they will comply with these regulations.

Click here for further details on these rules.

The challenge

The reporting requirement commenced on 1 January 2021. Where Hallmark D is met in respect of a UK intermediary or taxpayer, a report should be made within the prescribed timeframe, which is usually 30 days.

Complexity arises where organisations have a presence in the EU. Such organisations should consider whether or not they have a reporting obligation in an EU member state. The interpretation of DAC6 differs across the EU, which adds an extra layer of complexity and a greater burden on tax and finance teams.

How Smith & Williamson can help

Smith & Williamson is assisting organisations in understanding the rules, analysing past and current arrangements and assisting with reporting. This includes:

Impact assessment
  • Consider impact as intermediary/taxpayer
  • Identify functions/products that might be caught
  • Assess size of impact
  • Consider potentially reportable historic transactions
  • Plan the approach to managing reporting
Identify processes
  • Consider existing processes and necessary enhancements
  • Record relevant transactions since June 2018
  • Consider how relevant information should be collected & analysed
  • Capitalise on existing information reporting processes
Agree internal responsibilities
  • Identify stakeholders
  • Agree who should take responsibility for reporting
  • Consider appropriate sign-offs
  • Carry out appropriate training
  • Arrange reporting to taxpayers by intermediaries
Implement reporting frameworks
  • Structured data collection framework
  • Implement reporting tool to monitor, identify and capture arrangements
  • Ensure an appropriate audit trail is created
  • Use of the reporting schema
Monitor legislation developments
  • Monitor UK legislation and guidance releases
  • Consider interaction with other EU countries
  • Industry association updates
Data capture & Reporting
  • Advice on whether an arrangement is reportable
  • Report on behalf of organisation where legislation permits

Frequently Asked Questions

Has DAC6 been fully repealed in the UK?

No, it has not. As provided for in the Trade and Cooperation Agreement between the UK and the EU, the UK has severely limited the application of DAC6 in the UK. DAC6 in the UK is now restricted to arrangements caught by Hallmark D only. Any transactions that meet the criteria of this Hallmark, and have been implemented since 25 June 2018, are still reportable.

The Government has announced that it intends to repeal the legislation implementing DAC6 in the UK and implement 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.

Businesses will still need to confirm whether or not they have a reporting obligation under Hallmark D and those with international operations will need to consider whether or not they have a reporting obligation in an EU member state. If your business is affected by DAC6 in the EU, we can put you in touch with our Nexia colleagues for further support.

To find out more, please contact a member of our team who will be happy to advise. Find out more about our services.

Has HMRC extended the reporting deadlines due to COVID-19?

Yes, HMRC has confirmed the deferral of the reporting deadlines by six months. The details of the deferral can be found on our COVID hub.

Please note that the deferral period has now expired.

We are looking to start our DAC6 compliance project. What approach should we be taking?

Businesses should conduct an impact assessment to determine how DAC6 applies to their activities. This will involve a retrospective exercise to review transactions in which they have been involved since 25 June 2018 to determine whether or not they are reportable. On completion of the impact assessment, businesses should be able to determine the processes required to comply with the 30-day reporting requirement which came into force on 1 January 2021.

Businesses should also consider their internal arrangements and transactions that have taken place since 25 June 2018.

To find out more, please contact a member of our team who will be happy to advise. Find out more about our services.

How is reporting conducted?

Reports are submitted using an XML upload on the HMRC portal.

Businesses should consider using a tracking and reporting tool to assist with their review and ongoing compliance. The tool should be used to create an audit trail, which is equally important for both reportable and non-reportable arrangements. If HMRC were to enquire into an arrangement that a business did not report, the audit trail would provide supporting evidence for the decision not to report. The complexity required from a tracking and reporting tool will depend on the extent to which your businesses is impacted by DAC6. Businesses should consider using their current software tools to build in a solution for DAC6.

To find out more, please contact a member of our team who will be happy to advise. Find out more about our services.

The business falls into the definition of an intermediary but I don’t think we are involved in any reportable arrangements.

Businesses should undertake a review to confirm that they are not involved in any reportable arrangements. Even if the business does not provide advice on an arrangement, it may become aware of the aspects of an arrangement that fall within Hallmark D when providing other advice or services.

For example, a business may receive a request from a client to move that client’s account from a jurisdiction that reports under the Common Reporting Standard (“CRS”) to a jurisdiction that does not. The firm may have an obligation to report, depending on the facts of the situation.

It is important for businesses to document their review. If HMRC were to enquire into the business’s DAC6 compliance, this document could be provided as supporting evidence. As business operations change and develop, the DAC6 review should be refreshed.

Intermediaries should also consider their internal arrangements to determine whether or not reporting is required as a taxpayer.

To find out more, please contact a member of our team who will be happy to advise. Find out more about our services.

Do I need to train my staff?

The DAC6 regulations are complex, so educating and training staff is essential.

From experience, we recommend that employees who are involved in and have knowledge of their clients’ arrangements or provide advice on how their investment should be structured should receive training. Businesses may also identify other key employees who require training. Training should be practical and tailored to Hallmark D for that business line.

To find out more, please contact a member of our team who will be happy to advise. Find out more about our services.

I don’t fall into the category of an intermediary; do I need to take any action?

Even if a business does not fall within the definition of an intermediary, reports submitted by its advisers may include information on the business. The business may also have a reporting obligation in its capacity as a taxpayer.

Businesses may ask their advisers if any of their DAC6 reports will include information about them. If a report is made on an arrangement in which the business participated, the business is required to include the reference number in its annual tax return.

There are also some circumstances in which the reporting obligation falls on the business as a taxpayer. This includes arrangements where the adviser is tax resident outside the UK or EU, or in-house arrangements where no intermediary is involved.

To find out more, please contact a member of our team who will be happy to advise. Find out more about our services.

 

Please contact us for more information and assistance with DAC6.

NTAJ14022127

Related articles

HMRC confirms repeal of DAC6 in line with the Free Trade Agreement

HMRC confirms repeal of DAC6 in line with the Free Trade Agreement

03/02/2021 - HMRC confirmed on 31 December 2020 that the implementation of the sixth Directive on Administrative Cooperation (DAC6) will be significantly limited in the UK.

International tax reporting changes: Directive on Administrative Cooperation 6 and the Mandatory Disclosure Rules

International tax reporting changes: Directive on Administrative Cooperation 6 and the Mandatory Disclosure Rules

The Directive on Administrative Cooperation 6 (“DAC6”) is a response to the OECD’s Mandatory Disclosure Rules aiming to strengthen tax transparency across the EU and counter aggressive tax planning. On 31 December 2020, HMRC confirmed that the application of DAC6 will be severely limited in the UK to align with the OECD’s Mandatory Disclosure Regime (“MDR”). This means that only those arrangements that meet Hallmark D of DAC6 will need to be reported in the UK. DAC6 continues to apply in full across the EU.

Cookie Settings