This year has seen the start of new reporting requirements under DAC6, a mandatory disclosure regime aimed at increasing transparency over cross-border arrangements to plug loopholes and stop harmful tax practises.

Advisers and companies need to be aware: arrangements that fall under the new regime do not need to be done with a tax advantage in mind, says Angela Clegg, Technical Manager for SME tax, ICAEW. “Some transactions will need to be reported even if there is no tax motive for them.”

DAC6 deals with cross-border arrangements involving EU members. The fact the UK has now left the EU does not appear to make any difference to implementation of the new rules. “HMRC is still committed to this regime,” says Clegg. 

DAC6 kicked in for cross-border arrangements that involve at least one EU member state. Provided these arrangements meet at least one further condition set out in the directive and each jurisdiction is of material relevance to the arrangement, then details of the arrangement have to be reported to HMRC. HMRC will then share this information with tax authorities in other EU member states.

Arrangements are only reportable if they meet one or more hallmarks set out in the EU directive. These are wide-ranging and complex but can include loss buying, cross-border transfers and arrangements that obscure beneficial ownership, such as offshore trusts.

Intermediaries will need to report whether they are promoters or service providers. Taxpayers may need to report too, either if there is no intermediary or if the intermediary has legal or professional privilege. While a service provider could argue they were not an intermediary if they were only involved in a small part of the arrangement, there is no such defence for a promoter.

The rules came fully into force on 1 July 2020 and the first reports were initially required by 31 August 2020. However, HMRC has announced a six- month deferral meaning that the first reports will now be due 28 February 2021, with a normal reporting deadline of 30 days. One challenge is that the deadlines deal with transactions that are happening now, says Clegg. “DAC6 applies to arrangements in which the first step was entered into on or after 25 June 2018. There’s a concern of a lack of awareness of the rules.”

There’s ambiguity over many areas, such as when an arrangement might concern multiple jurisdictions; the complexity of the hallmarks; who has to report; and the line between service providers and promoters. While HMRC has said it will take a pragmatic approach to the new rules, businesses are nervous about the lack of clarity in several areas and the fact HMRC will have a high degree of discretion in making decisions, says Clegg. 

“The greatest risk is thinking this does not apply to transactions that are not set up to avoid tax. The hallmark around cross-border transfers has caused a lot of debate as it is expected to take in a number of benign arrangements. The hallmark around obscuring beneficial ownership could catch offshore trusts, especially as there is no need to demonstrate the main benefit test for tax avoidance.”

Members in practice should think about their client base and who may fall within the new regime. “Non-tax people such as corporate finance advisers need to be aware of this. If members are not the lead adviser on a deal, they may still be caught up in this even if they are not involved in implementing the deal,” Clegg says.