Category Archives: DAC6

DAC6 is a new regulation that requires intermediaries to comply with mandatory transparency rules and hallmarks. Read the latest guidance on the Directive and get updates on our DAC6 training.

DAC6: Guidance on HMRC Reporting Requirements

Back in May 2018 the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (“DAC6 Directive”). This new directive requires tax intermediaries to report specific cross-border arrangements. 

In July 2019, HMRC released their draft DAC6 legislation together with their consultation document. These documents indicate that HMRC intends to align its reporting requirements with the DAC6 Directive, and HMRC will require intermediaries to report any additional information. 

Download a guide to DAC6 compliance

Who needs to report?

Any entity that acts as an intermediary for a cross-border transaction involving an EU Member State may have an obligation to report this to HMRC or a different EU tax authority.

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DAC6 flow chart – Which transactions are reportable under DAC6?

DAC6 screenshot of interactive flowchart
Our DAC6 course, DAC6: Advanced, follows an interactive flowchart to help intermediaries fully understand their reporting requirements under DAC6

On 25 May 2018, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted Council Directive (EU) 2018/822, also known as the 6th Directive on Administrative Cooperation (DAC6), requiring tax intermediaries to report certain cross-border arrangements that contain at least one of the hallmarks defined in the Directive. The aims of DAC6 is to tackle tax evasion and avoidance, strengthen tax transparency and improve information sharing between EU Member States.

Count how many times you said the word “tax” this week. Easy? How about every time this month? Harder? All right, what about every time you said the word “tax” to a client in the last 18 months? Still confident about the number?

Now, think about every time that could have been construed as advice. What about doing transactions with other countries or thinking about tax planning measures? All of these instances might need to not only be remembered, but also recorded and reported to the national tax authority.

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Second DAC6 core group roundtable meeting summary

Ruth Cohen, VinciWorks' Legal and Research Executive
Ruth Cohen,
VinciWorks’ Legal and Research Executive

VinciWorks hosted a round table meeting at the office of Paul Hastings Solicitors with representatives from over 25 firms to discuss DAC6 and its implementation following HMRC’s Consultation Document and Draft Legislation. Ahead of the meeting, I was in touch with HMRC to ask them some questions relating to the proposed DAC6 legislation.

Here is an overview of the discussion:

Main Benefit Test

Are UK law firms expected to have in depth knowledge of how other member states will interpret the Main Benefit Test?

The consultation is clear that HMRC views the “main benefit test as an objective test: what matters is whether a tax advantage is the main or one of the main benefits that the person entering into the arrangement might reasonably be expected to obtain from the arrangement. That person’s actual motivation in entering into the arrangement is not relevant.

HMRC consider that it is necessary to look at the tax effect of the arrangement as a whole, but they recognise there are challenges to this and are considering how this will work in different examples.

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HMRC releases draft regulations and consultation on DAC6

DAC6 training screenshot of reporting flowchart

HMRC has just released its draft regulations on implementing the 6th Directive on Administrative Cooperation, known as DAC6, into UK law. From 1 July 2020, taxpayers and their advisers are required to report details of certain cross-border arrangements that could be used to avoid or evade paying tax to HMRC. The UK has been lagging behind their European counterparts in producing draft DAC6 legislation.

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DAC6 – Category E: Specific transfer pricing hallmarks

Last May, the European Union created the 6th Directive on Administrative Cooperation (the “DAC6”). Under this new law tax intermediaries are required to report certain cross-border arrangements that contain at least one of the hallmarks as defined in DAC6.

DAC6 contains five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog will focus on the category E hallmarks which are classified as generic hallmarks, and may include one of the following:

1. Unilateral Harbour Rules – Arrangements involving unilateral safe harbour rules.

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DAC6 – Category D: Specific hallmarks concerning automatic exchanges of information and beneficial ownership

13 months ago, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”). This new directive requires tax intermediaries to report specific cross-border arrangements that contain at least one of the hallmarks that are defined in DAC6.

Within DAC6, there are five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog focuses on the category D hallmarks which are classified as generic hallmarks and may include one of the following:

1. Arrangements undermining reporting obligations – This could include those arrangements undermining European Union legislation, other equivalent agreements which take advantage of the lack of legislation or agreements in place.

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On-demand webinar: DAC6 — Understanding tax disclosure requirements

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The Economic and Financial Affairs Council of the European Union (ECONFIN) has adopted the 6th Directive on Administrative Cooperation (“DAC6”), requiring tax intermediaries to report certain cross border arrangements. Under DAC6, intermediaries may be required to submit all cross-border transactions and backdate them when member states publicise their requirements.

In this webinar, Legal and Research Executive Ruth Cohen and Director of Best Practice Gary Yantin helped dissect the new regulation and gave guidance on reporting and training requirements under DAC6.

Watch now

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DAC6 Core Group roundtable meeting summary

Ruth Cohen, VinciWorks' Legal and Research Executive
Ruth Cohen, VinciWorks’ Legal and Research Executive

“DAC6 is one of the most difficult pieces of regulation that a firm has to implement”

VinciWorks hosted a roundtable meeting with representatives from over 20 firms to discuss DAC6 and its implementation. Here are the key takeaways from the conversation.

1. Who is responsible for submitting initial DAC6 data if a transaction may be reportable?

In the pre-meeting survey, the responses showed that the main people who would potentially submit initial data would be partners, associates, or nominated jurisdiction representatives. A staggering 50% of the respondents noted that they were unsure who would submit the initial information at this stage. During the discussion it was mentioned by some firms that fee earners would be the ones who would decide if this transaction was reportable, then there would be a second level of quality check to confirm if it was a reportable transaction.

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DAC6 compliance – Category C: Specific hallmarks relating to cross-border transactions – which transactions should you be aware of?

On 25 May 2018, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”), requiring so-called tax intermediaries to report certain cross-border arrangements that contain at least one of the hallmarks as defined in DAC6.

Within DAC6, there are five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog will focus on the category C hallmarks which are classified as generic hallmarks, and may include one of the following:

1. Cross Border Payments – Deductible cross border payments in certain cases where one of the following occurs:

a. The recipient is not a tax resident in any jurisdiction.

b. The recipient is a tax resident in a jurisdiction with zero or near zero corporate tax rate.

c. The recipient is included in a list of third-country states considered non-cooperative by EU Member states or the OECD.

d. The payment has a full tax exemption in the jurisdiction of the resident.

e. The payment benefits from a preferential tax regime where the recipient is resident.

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DAC6 compliance – Category B: Specific hallmarks – which transactions should you be aware of?

On 25 May 2018, the Economic and Financial Affairs Council of the European Union (ECOFIN) adopted the 6th Directive on Administrative Cooperation (the “DAC6”), requiring so-called tax intermediaries to report certain cross-border arrangements that contain at least one of the hallmarks as defined in DAC6.

Within DAC6, there are five different hallmark categories that represent an indication that a transaction may have a potential risk of tax avoidance.

This blog will focus on the category B hallmarks which are classified as specific hallmarks, and may include one of the following:

  1. Acquiring loss-making companies: Trading in loss-making companies to reduce tax liability.
  2. Income conversion: Conversion of income into lower-taxed revenue streams.
  3. Circular transactions: An artificial transaction between companies in a group, or under single control, the purpose of which is to inflate the turnover of one or more of the companies.
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