On 13th January 2020, HMRC laid the UK’s DAC6 legislation before the House of Commons in the form of the International Tax Enforcement (Disclosable Arrangements) Regulations 2020, Statutory Instrument 2020 No. 25. The legislation will come into force on 1 July 2020. Reporting will be required for transactions in which the first step of implementation was carried out on or after 25 June 2018.
What is DAC6?
DAC6, the 6th Directive on Administrative Cooperation, requires taxpayers and their advisers (“intermediaries”) to report details of certain types of cross-border arrangements to HMRC. Arrangements are reportable if they contain certain characteristics (“hallmarks”) that could be used to avoid or evade tax. Just because a transaction is reportable under DAC6 it does not always mean that it is not tax-compliant.
What is the objective of DAC6?
HMRC hope that mandatory reporting obligations for transactions that fall into the “hallmark” categories will discourage people from entering into aggressive tax arrangements in the future. HMRC will be provided with information about a transaction early on in a process (at a minimum within 30 days following certain triggering events), in order to allow HMRC to identify and challenge a transaction if they feel it is too tax aggressive.
Who is an “intermediary” and where are they required to report?
An intermediary includes any entity that designs and markets a cross border arrangement, it also includes those who provide aid, assistance or advice regarding an arrangement. This could be a consultant, accountant, lawyer, bank, trust company or insurance company to name but a few. Under DAC6, reports are usually required to be made to the tax authorities of the country where an intermediary is resident for tax purposes. The tax authority will then share this information with tax authorities in the other EU Member States in order to try to identify any potential tax risks.
What is the DAC6 implementation timeline?
DAC6 was adopted by the Economic and Financial Affairs Council (ECOFIN) on 25 May 2018. EU Member States had until 31 December 2019 to transpose the EU Directive into national laws and legislation. The first filings for the initial period (25 June 2018 – 1 July 2020) must be submitted by 31 August 2020. The first automatic exchange between the EU Member States will take place on 31 October 2020.
What should you be doing now?
With DAC6 coming into force in less than 6 months, there are some important steps you should be taking if you are an intermediary:
- Staff Awareness – You should ensure that all parties involved are aware of DAC6 and its implications. Now is the time to train staff.
- Reporting Tool – You should ensure that you have a suitable tool in a place for recording and keeping track of your reporting obligations.
- Data Gathering – Begin gathering data of historic matters since 25 June 2018 that are potentially reportable.
- Define Workflow – You should be working on establishing an appropriate workflow within your organisation for identifying potentially reportable transactions.