On Wednesday, 9 September, 2020, around 200 people joined VinciWorks for its fourth DAC6 Core Group meeting. This was a continuation of our third core group meeting held at Freshfields Bruckhaus Deringer’s London office earlier in 2020. In light of COVID-19, this fourth meeting was held virtually; however, audience participation was encouraged and this was not “just another webinar”.
VinciWorks have close relationships with various tax authorities across the EU, and we were joined at our meeting by James Marshall from HMRC, and Valérie Robbertz and Willem-Jan van Veen from the Netherlands Tax and Customs Administration (NTCA).
Below is an overview of some of the key questions that were discussed in the meeting.
Session 1: HMRC Panel with James Marshall’s DAC6 Policy Lead
Is it likely HMRC will defer again?
HMRC will strongly recommend that reporting begin in January.
Will Brexit affect DAC6?
DAC6 has been transposed into UK law and is currently listed on the UK statues. The application of DAC6 and other Directives is subject to negotiations of the UK and the EU.
Is HMRC’s DAC6 guidance final?
HMRC’s guidance has evolved over the last few months. HMRC will be making further amendments and providing more guidance especially in relation to trusts. The current guidance is a reasonable summary of HMRC’s view at present. In all likelihood there never will be a fully “final” version, as additional queries will come up as reporting begins.
Have HMRC been working with other EU Member States in their DAC6 preparations?
There have been a lot of discussions between the different tax authorities, and there has been an effort to try to achieve consistency between the Member States, but ultimately, each jurisdiction will interpret the Directive based on their own internal legislation. LPP is the best example of this, where each jurisdiction interprets it according to local law. HMRC are interested in what other jurisdictions are progressing, but ultimately they will decide how best to apply DAC6 in the UK.
What response will an intermediary get from HMRC once a report is submitted?
Reports will be made via an online portal, and the immediate response will be an Arrangement Reference Number (ARN). There will also be a Disclosure ID which is specific to the disclosure and this should be used for any amendments to the report.
What will HMRC do with the report once they receive it?
HMRC has an obligation to share information with the other Member States. On receipt of a submission, HMRC will do a risk assessment, where they will analyse what tax risk is proposed by the arrangement. HMRC will potentially go back to the submitter to ask for clarifications if they need more information about the structure of the arrangement. If there is a potential tax risk, then HMRC may decide to open an enquiry into the arrangement.
Is receipt of an Arrangement Reference Number (ARN) sufficient for a non-reporting intermediary?
If another intermediary is reporting, then you should receive an ARN. On receipt, a non-reporting intermediary needs to take a pragmatic approach that the person submitting the report knows at least the same information that you do when making their submission. For example, a promoter who has designed a relationship will have knowledge of the design and a service provider can therefore rely on the promoter’s report.
How many people will be involved in DAC6 at HMRC?
There is a special team dealing with incoming reports upfront. They are addressing questions such as whether a report has been submitted on time, if “mickey mouse” answers are being provided or if critical information is lacking. HMRC will then send this to their existing risk and compliance team to make their assessments. Compliance colleagues across HMRC will have access.
Will HMRC be producing a list of non-reportable arrangements?
HMRC’s approach is to establish which arrangements are considered reportable, as opposed to those that are not. For example in the guidance, for hallmark A3 there are detailed explanations of arrangements that would be considered reportable.
How often will HMRC expect intermediaries to review DAC6 arrangements for changes?
For arrangements that are considered “marketable” there is an ongoing obligation. The general position of HMRC is that DAC6 has a one-off reporting obligation. It may be that if a reported arrangement changes in a way that makes it a different arrangement, for example if it meets different hallmarks, it may be appropriate to make another report. There may also be situations where corrections or amendments are needed.
What is the status of HMRC’s upload tool?
HMRC’s IT department is hard at work. There will be two routes to report, one will be via an xml file upload, the other via a manual data entry. HMRC hope to provide further details on the technical aspects later this month (September 2020). HMRC have released their schema and the draft technical user-guide. Following a round of helpful comments, HMRC are exploring what needs to be addressed – it is a work in progress.
Can HMRC’s portal receive multiple arrangements in one file?
This presents some technical challenges for HMRC, especially around the Arrangement Reference Numbers. HMRC are looking into whether this can be addressed.
How many reports are HMRC expecting?
HMRC are building their IT system to cope with hundreds of thousands of reports .With the help of guidance and legislation, HMRC hope that the reports they receive are all relevant.
What is HMRC’s view on the Law Society’s guidance note on Legal Professional Privilege?
HMRC has reviewed the guidance, and while they cannot endorse it, there are no particular concerns about the approach of the Law Society.
Are lawyers who are registered with the SRA but working for a non-EU firm considered to be UK intermediaries?
HMRC have provided guidance on what being regulated by a professional firm means. An intermediary needs to consider if they meet that criteria. It is possible that a person not resident in an EU jurisdiction would be required to report in the UK.
Has HMRC’s position changed in regards to a reasonable excuse for penalties?
The reasonable excuse provision still applies. Whether an excuse is reasonable will depend on the situation. COVID-19 could be a reasonable excuse; however, it would need to be considered in the context of the 6 month extension that has already been given.
Session 2: International Panel with Valérie Robbertz and Willem-Jan van Veen from the Netherlands Tax and Custom Administration (NTCA)
What is the process after a report is submitted in the Netherlands?
Once a report is submitted (either via an xml, or a web-form), the submitter will receive an Arrangement Reference Number and a Disclosure ID. Reports, once received, will be sent to the EU database and the local Netherlands database. The reports filed in other Member States where the Netherlands is a relevant country, will also be uploaded to the Netherlands database. The Mandatory Disclosure team (currently consisting of only 5 people), will then do an automated risk assessment, followed where relevant by a hand assessment.
Those arrangements that are considered to be most risky will be sent to tax inspectors in specialised groups for assessment. If the tax inspectors want to do further enquiries or follow-up discussions, then they will give the MDR team feedback. There will also be a system available for all tax inspectors to look up relevant taxpayers and see if they are affected by any reported arrangement.
What would be picked up in the automated risk assessment?
White the tax authority can’t reveal all its secrets, it would include those hallmarks that reach the Main Benefit Test, disclosures of high monetary value and those involving certain problematic jurisdictions. Mandatory disclosure was meant as an early warning system so there may be certain filings that cannot presently be foreseen.
What were the main issues the Netherlands faced?
It is challenging to predict the amount, quality and content of reports being received There is a lot of room for interpretation in the Directive, and one of the goals is to receive reports of unknown arrangements. There was also a large IT burden and implementing the IT infrastructure did not always run smoothly.
What happens if a report is submitted late?
In the Netherlands there must be “gross negligence or intent” to receive a penalty, which is a high threshold to meet. If it can be proved, for example, if there are multiple delayed reports and there is no process in place, then there is a good chance this would be considered “gross negligence”. If someone has acted in good faith it would be harder to impose penalties. The penalty in the Netherlands is up to €870,000 and there could be circumstances where these penalties could be reduced or increased.
Are you worried about intermediaries over reporting?
No, the Netherlands believe that if you are unsure, you should report. Some intermediaries suggested that they might send a report about every arrangement, even if they are not related to DAC6, in order to overwhelm the tax authorities. If there is deliberate over-reporting, then that will also be penalised, as a wrongful submission is being made.
How much training do you expect organisations to carry out?
Training is really important and that is why the Netherlands join conversations like these. It is obviously important for all those affected by DAC6 to have a structure in place to help you to determine when you need to make a DAC6 report. When the Netherlands are approaching intermediaries to question why they are missing DAC6 filings, an organisation’s internal tax control framework will be taken into consideration by the tax authorities.
What is the Netherlands’ approach to Legal Professional Privilege?
Lawyers and Notaries are covered by Legal Professional Privilege in the Netherlands. Tax advisors are generally not. There is no requirement for a partial report in the Netherlands. If Legal Professional Privilege applies, you must notify other intermediaries, or, if there are no other intermediaries, the taxpayer. There is also derived Legal Professional Privilege in the Netherlands, but this would apply only when a tax advisor is hired by an intermediary who has Legal Professional Privilege.
Do the Netherlands require information about all associated enterprises, even if they are not affected by the arrangement?
The Netherlands take the view (in line with the parliamentary history), that only Associated Enterprises that are actually involved in the disclosed arrangement should be listed.
How are the Netherlands helping intermediaries to deal with the challenging aspects of DAC6?
The Netherlands are trying to produce detailed guidance.The current guidance includes 24 examples of the hallmarks. A few Member States have stayed in contact throughout the process. The Netherlands also suggested a meeting should be arranged for the tax authorities in all Member States to collaborate, and there is a three day event planned for the end of September. The Netherlands recently sent out a questionnaire to the tax authorities in all Member States relating to their DAC6 issues. The responses suggested that hot topics for further discussion include marketable arrangement and defining the scope of arrangement.
What will be the legacy of DAC6?
Certain structures will not be implemented; there is underkill and overkill to some of the Hallmarks. In July 2022 the Netherlands will have an overview of how the first year and a half of reporting went. The hope is that some of the hallmarks in the Directive will be amended in the future. For example, introducing the Main Benefit Tests to Hallmark E, and expanding some of the hallmarks. The goal of DAC6 will be improved if the hallmarks are slightly adjusted.
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