The rules were legislated in January 2020, however the guidance from the UK tax authorities remains confusing and lacks detail. To date, many have seen DAC6 as a purely corporate-focused matter. However, the impact for individuals and trustees is far wider.
What is covered by these new reporting requirements?
In summary, a report is required where:
- there is a cross-border arrangement
- certain ‘Hallmarks’ are met, and
- the main benefit test is met (where appropriate).
Cross-border arrangements
A cross-border arrangement is one which concerns more than one EU member state, or at least one EU member state and a third country, and where not all the participants are resident in the same place.
The UK is included in the definition of an EU member state and will continue to implement the rules even after the Brexit transition period ends.
Hallmarks
There are five main hallmarks, with sub-categories, each of which covers different scenarios. In summary these are:
- Category A – arrangements where there are confidentiality clauses, where the documents are standardised or where the fees involved are linked to the tax-savings.
- Category B – arrangements where losses are being purchased, where there are circular transactions, or where income is being converted to capital.
- Category C – arrangements where there are deductible cross-border payments and the recipient is not taxed, or there is some other mismatch.
- Category D – arrangements where exchange of financial information reporting obligations are being undermined, or where the beneficial ownership is obscured.
- Category E – arrangements involving transfer pricing, particularly where there are safe harbours or hard to value intangibles.
The hallmarks are very widely drawn and open to interpretation. Each case will need to be considered on its own facts.
Main benefits test
There is an exclusion to some, but not all, of the hallmarks, which focuses on whether the main benefit, or one of the main benefits, of the arrangement is the obtaining of a tax advantage in an EU state which is not consistent with the intention of the relevant tax legislation.
There is no equivalent exclusion for the motive/intention behind the arrangement, which means that normal commercial transactions could be caught.
Who has to make the report?
The default requirement is for the intermediary to report the arrangement.
An intermediary includes any person who designs, markets, organises or otherwise makes available or manages the implementation (referred to as a ‘promoter’), as well as any person who knowingly provides aid, assistance or advice in relation to such arrangements (referred to as a ‘service provider’).
Specifically included as a service provider is anyone who provides finance, expertise, knowledge or accounting advice.
If the intermediary is not in the EU, the obligation will fall on the taxpayer.
If a report is not made, a penalty can be charged.
If a report is not made, a penalty can be charged.
When is a report due?
The trigger for a report is the earliest of the date:
- the arrangement is made available for implementation
- the arrangement is ready for implementation
- the first step in the implementation took place
For a service provider, a report is required within 30 days of the aid, assistance or advice being given in relation to the arrangement.
Arrangements with a reporting event between 25 June 2018 and 30 June 2020 need to be reported by 28 February 2021. Arrangements with a reporting event from 1 July 2020 to 31 December 2020 need to be reported by 31 January 2021.
Thereafter, a report is required within 30 days.
What should I do?
Transactions should be reviewed from 25 June 2018 to determine whether the above conditions are met, and therefore a report should be made.
Going forward, you will need to carefully check what obligations under DAC6 arise as part of any transactions taking place.
Given there is so much ambiguity within the rules, and as the guidance is not clear, the legislation should be reviewed in detail to determine if a report is absolutely needed. This will need to balance the requirement to meet the reporting obligations without unnecessarily risking the integrity of the arrangement or the structure.
If a disclosure is needed, there may be a requirement to proactively approach the UK tax authorities to explain the arrangement in more detail, in order to close-down potential enquiries quickly.
How can we help?
At Blick Rothenberg, we have a wealth of experience advising clients with international connections. We will be able to assist with reviewing any transactions which have taken place to advise on the obligations imposed through the DAC6 legislation.
We have a wealth of experience advising clients with international connections.
Through our specialist Tax Dispute Resolution team, we will also be able to discuss how the risk profile around a report may be managed, including the merits of actively approaching the UK tax authorities.
Please get in touch with your usual Blick Rothenberg contact or one of the partners to the right.
And finally, you can find further information on how DAC6 affects corporate businesses here.