How has the Brexit agreement affected DAC6?
In light of the Brexit Fair Trade Agreement that passed through parliament on 30 December 2020, HMRC announced today that there will be major changes in the UK’s approach to DAC6.
DAC6 will cease to apply to the UK at the end of the transition period (11pm GMT on 31 December 2020). At that point, the UK will no longer be obliged to implement DAC6.
Does this mean that DAC6 will no longer apply in the UK?
The short answer is no.
The long answer is that the Fair Trade Agreement emphasises that the UK “shall not weaken or reduce the level of protection provided for in its legislation at the end of the transition period below the level provided for by the standards and rules which have been agreed in the OECD at the end of the transition period”. This is a reference to the OECD’s model Mandatory Disclosure Rules (MDR) and includes some elements of DAC6.
Consequently, the UK Government has issued The International Tax Enforcement (Disclosable Arrangements) (Amendment) Regulations 2020 to restrict reporting obligations only to those arrangements that would be reportable under the OECD’s MDR, namely arrangements included in the Category D hallmark of DAC6. This captures arrangements undermining automatic exchanges of information or obscuring beneficial ownership.
From the end of the transition period, UK intermediaries and taxpayers will only be required to report arrangements to HMRC if they involve Category D hallmarks.
Will historical arrangements still require reporting in the UK?
Historical arrangements dating back to 25 June 2018 that fall under Hallmark D will still need to be reported in the UK. Hallmark D arrangements that were triggered between 25 June 2018 and 31 June 2020 must be reported by 28 February 2021. Hallmark D arrangements that were triggered between 1 July 2020 and 31 December 2020 require reporting to HMRC by 31 January 2021.
Will a report in an EU member state provide sufficient evidence not to report in the UK?
If an arrangement concerns the UK and an EU based intermediary and a DAC6 report is filed in an EU member state, HMRC does not expect an additional report to be made in the UK. If the UK-based intermediary can evidence receipt of an Arrangement Reference Number (ARN) from an EU member state this will suffice.
Will the UK be introducing its own mandatory disclosure regime?
Yes. HMRC confirmed in its announcement email that “in the coming year, the UK government will repeal the legislation implementing DAC6 in the UK and instead implement the OECD’s MDR as soon as practicable“. This will transition the UK to international standards, rather than EU standards, on tax transparency.
The UK government will publish a consultation on draft legislation for the new MDR structure. The UK has been at the forefront of anti-tax avoidance for many years, including the introduction of the Disclosure of Tax Avoidance Schemes (DOTAS) in 2004. While there is still much uncertainty in relation to the UK’s approach to MDR, several other countries have recently introduced MDR legislation that is even broader and more stringent than DAC6. With the freedom to go back to the drawing board on its own national MDR legislation, the UK may take a similar approach.
VinciWorks offers reporting solutions for international firms for MDR regulations in many jurisdictions. We will continue working closely with HMRC to ensure that you stay up to date with the latest developments, and we are committed to supporting our clients’ compliance whatever the future MDR frameworks may bring.
How does this affect VinciWorks’ Omnitrack Solution?
VinciWorks will be updating its DAC6 reporting solution, Omnitrack, for all its clients with UK reporting obligations to reflect the new DAC6 requirements as they develop. VinciWorks will also provide a solution for the new UK MDR as soon as it is finalised by HMRC.
If you have offices in multiple EU locations but only license Omnitrack in the UK, get in touch with us now to ensure that you are able to meet the new DAC6 challenges that the Brexit agreement has brought.
Listen to our podcast: DAC6 in the UK — What now?
It was an honour hosting James Marshall of HMRC to discuss the UK’s changes to DAC6 post Brexit. A recording of the webinar is available as a podcast. You can listen to it in Apple Podcasts, Spotify etc. or directly by clicking on the button below.