HM Revenue & Customs (“HMRC”) announced on 31 December 2020 that the UK will cease to participate in the EU DAC6 mandatory disclosure regime, for which reporting was due to commence from January 2021. The UK is no longer required to implement the rules following its departure from the EU and will instead bring in a lighter regime based on the OECD’s mandatory disclosure rules set out in BEPS Action 12. As a transitional measure with immediate effect, DAC6 reporting will only be required in the UK under certain specific and limited situations concerning automatic exchange of information and beneficial ownership (Hallmark D).
The EU mandatory disclosure regime known as DAC6 has applied since 1 July 2020 and reporting obligations were set to begin in the UK and most other EU member states in January 2021.
Following the signing of the free trade agreement with the EU on 30 December 2020, HMRC announced that the UK Government had legislated for changes to The International Tax Enforcement (Disclosable Arrangements) Regulations 2020 (the legislation that transposed DAC6 into UK law). The amendment to the regulations was laid before parliament on 31 December 2020 and came into effect immediately.
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Under the amended legislation only those arrangements which meet hallmarks under Category D of DAC 6 will need to be reported. This means that arrangements that would have been reportable under hallmarks other than Category D will not need to be reported, even if the relevant arrangements were implemented before 31 December 2020. The two hallmarks in Category D concerned automatic exchange of information and beneficial ownership and are quite limited in scope. Most of the challenges with the DAC6 reporting regime were linked to the other categories of hallmarks, including hallmarks in Category E (transfer pricing) and Category C (specific cross-border transactions). Therefore limiting reporting to the Category D hallmarks substantially lightens the compliance burden on intermediaries and taxpayers in the UK.
The UK is required to continue to have reporting in respect of the Category D hallmarks under the terms of the free trade agreement. HMRC explained that this means that that the UK must not reduce the level of protection in its legislation below tthat afforded by the OECD’s model Mandatory Disclosure Rules (“MDR”). It is only arrangements containing category D hallmarks that would be reportable under the MDR and therefore all other DAC6 reporting will not be necessary in the UK.
According to HMRC, the UK Government will repeal the legislation implementing DAC 6 in the UK and implement the OECD’s MDR as soon as practicable during 2021.