Tax Evasion Archives | Page 14 of 17

DAC6 – dealing with transactions that change over time

Gif showing VinciWork' DAC6 reporting solution — VinciWorks’ DAC6 reporting tool guides intermediaries through the process of determining whether a transaction is reportable

One of the big challenges that intermediaries face in reporting transactions under DAC6 is what to do when things change. Client projects which may have been deemed non-reportable, or which may not even have involved any cross-border elements at the outset, may transform into a potentially reportable arrangement later on. The delay between starting work for a client and the matter becoming reportable may be months or even years.

Download a guide to DAC6 compliance

VinciWorks’ DAC6 solution, powered by Omnitrack, guides intermediaries through the process of determining whether a transaction is reportable. It also integrates with existing client and matter management tools via its open API standard. And it now has pre-built integrations with leading matter management tools, such as Intapp Intake, for seamless onboarding of new transactions. However, if a transaction becomes reportable much later on, how should this be handled?

This question can be broken down into two parts:

How should I deal with changing transactions from a technical perspective in Omnitrack?
How should I deal with changing transactions from a personnel perspective in terms of getting people to be aware of what they need to do?

What is IR35? What you need to know

What is IR35?

IR35 is a new law designed to reduce tax evasion among freelancers and contractors. Some workers were disguised employees, meaning they operated as permanent employees but were contracted through their own company to claim tax benefits.

Think of Lorraine Kelly who wasn’t directly an employee of ITV, but an actor playing the role of Lorraine Kelly, thus claiming tax breaks for performers.

VinciWorks partners with Intapp on comprehensive DAC6 solution

DAC6 is a European regulation aimed at reducing international tax evasion and promoting transparency. The Directive requires law firms to report some forms of tax advice and tax transactions. These “mandatory disclosure requirements” (MDR) are for tax transactions that cross EU borders, where it seems that the primary purpose of the transaction is a tax advantage.

DAC6, like the original Money Laundering Directive, is a fundamental shift to the way that law firms operate. It is not merely a change for compliance teams, it affects the entire practice, including engagement letters, practice management systems and anyone involved in any tax advice.

A comprehensive DAC6 solution requires integration between the different systems involved in practice management.

DAC6 reporting involves many internal and external stakeholders

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.

DAC6 Omnitrack Tax Evasion Thought Leadership
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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.

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.

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.

New release – Tax Evasion Knowledge Check

Tax evasion knowledge check screenshot — Users get instant feedback on their answer to each question

Tax evasion continues to be a concern for many European firms. To ensure that your employees remained trained and up to date, VinciWorks has just released a five-minute knowledge check on tax evasion prevention. Knowledge Checks consist of different scenarios to help employees understand which course of action to take in different situations. This knowledge check is part of VinciWorks’ tax evasion training suite which includes the latest course, Tax Evasion: Failure to Prevent and can also be purchased alone.

The five-minute knowledge check covers:

Examples of tax evasion
Which types of transactions are considered tax evasion
The requirements of the Criminal Finances Act
Examples of facilitation of tax evasion
What is meant by “reasonable procedures” under the Criminal Finances Act

VinciWorks’ Knowledge Check series

VinciWorks’ knowledge checks allow businesses to verify and assess your staff’s knowledge of key compliance areas. We are always adding new knowledge checks and we even have an option for businesses to create their own.

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.

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

Editors note: HMRC announced on 31 December that as part of the Brexit agreement there will be major changes in the UK’s approach to DAC6. The changes restrict reporting obligations to only those arrangements that would be reportable under the OECD’s MDR, namely arrangements included in the Category D hallmark of DAC6. You can learn more about the changes here.

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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