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Tax for businesses – UK DAC6 update

The UK Government is substantially restricting the way that EU Council Directive 2011/16 (the Directive or DAC6), which concerns cross-border tax arrangements, is applied in the UK. This means that there will be fewer reporting requirements for many UK businesses.

Last updated: 7 January 2021

 

EU Council Directive 2011/16 is a wide ranging reporting regime introduced in recent years by the EU to increase transparency around tax avoidance and harmful tax practices. Under this regime, tax advisers, service providers and taxpayers are required to report cross-border transactions that meet certain hallmarks.

In a welcome move, HM Revenue & Customs (HMRC) has indicated that post-Brexit, much of the UK’s implementation of the DAC6 mandatory disclosure regime has been repealed. This means that much of the UK reporting that may have been required from 30 January 2021 onwards is no longer required.

DAC6 applies to cross-border tax arrangements that meet one or more categories of hallmarks. The Directive applies to arrangements that involve either two or more EU Member States, or an EU Member State and a third country. Where one or more of these categories of hallmark applies to a cross-border arrangement, this would give rise to a mandatory reporting obligation.

Each EU Member State was required to enact its own domestic rules. The UK’s domestic version of DAC6 had 15 sub-categories of hallmarks within five broad categories (Category A to E Hallmarks). A cross-border arrangement that fell within one or more of these sub-categories of hallmarks would have been a reportable cross-border arrangement (RCBA).

About the authors

Antoine Housden

+44 (0)207 710 3121
housdena@buzzacott.co.uk
LinkedIn

Liam McKeevor

+44 (0)20 7556 1244
mckeevorl@buzzacott.co.uk
LinkedIn

Last updated: 7 January 2021

 

EU Council Directive 2011/16 is a wide ranging reporting regime introduced in recent years by the EU to increase transparency around tax avoidance and harmful tax practices. Under this regime, tax advisers, service providers and taxpayers are required to report cross-border transactions that meet certain hallmarks.

In a welcome move, HM Revenue & Customs (HMRC) has indicated that post-Brexit, much of the UK’s implementation of the DAC6 mandatory disclosure regime has been repealed. This means that much of the UK reporting that may have been required from 30 January 2021 onwards is no longer required.

DAC6 applies to cross-border tax arrangements that meet one or more categories of hallmarks. The Directive applies to arrangements that involve either two or more EU Member States, or an EU Member State and a third country. Where one or more of these categories of hallmark applies to a cross-border arrangement, this would give rise to a mandatory reporting obligation.

Each EU Member State was required to enact its own domestic rules. The UK’s domestic version of DAC6 had 15 sub-categories of hallmarks within five broad categories (Category A to E Hallmarks). A cross-border arrangement that fell within one or more of these sub-categories of hallmarks would have been a reportable cross-border arrangement (RCBA).

 The 15 sub-categories of hallmarks were grouped into five broad categories:

  1. Category A – Generic hallmarks linked with the main benefit test
  2. Category B – Specific hallmarks linked with the main benefit test
  3. Category C – Specific hallmarks related to cross-border transactions
  4. Category D – Automatic exchange of information and beneficial ownership
  5. Category E – Transfer pricing

As part of the UK’s DAC6 amendment provisions, Categories A to C and E have been repealed, with Category D remaining in place. This leaves reporting obligations in situations that either seek to undermine or circumvent reporting obligations under automatic exchange of information (Hallmark D1), or arrangements that seek to obscure beneficial ownership (Hallmark D2).

The EU’s DAC6 regime goes significantly beyond the OECD’s mandatory disclosure regime. The repeal brings the UK into line with the OECD’s requirements and meets our obligations under the UK / EU Trade and Cooperation Agreement (TCA).  

While the above is a shift away from the EU’s Directive and only requires very limited reporting for a short period, HMRC plans to consult on the implementation of the OECD’s mandatory disclosure regime transitioning from EU to international rules and replacing DAC6.

What should I do?

What should I do?

The repeal of the vast majority of the UK’s domestic DAC6 legislation is a positive move and will be considerably less burdensome for a brief period. Many cross-border arrangements that may have been RCBAs are now not reportable under UK domestic legislation. Please note that there may still be RCBAs locally in other EU Member States under local domestic rules.  

Speak to an expert
Speak to an expert

If you have any questions regarding the amendments to the regime and what it means for you, please do not hesitate to contact us.

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