DAC6: reportable cross-border arrangements definition

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What does DAC6: reportable cross-border arrangements mean?

Also known as:

  • Directive on administrative cooperation
  • Disclosable cross-border tax arrangements
  • UK DAC 6 reporting

DAC 6 is the term commonly used to refer to EU Directive 2018/822/EU, which requires member states to enact local laws to gather information on certain cross-border transactions. 

UK DAC6 obligations and recent changes in a nutshell

Prior to IP completion day (31 December 2020), intermediaries, and in some cases taxpayers, were obliged to report information to HMRC about cross-border arrangements which contained certain hallmarks. The rules were designed to provide tax authorities with more information about direct tax planning arrangements, sometimes with wide-reaching effect.

However, The International Tax Enforcement (Disclosable Arrangements) (Amendment) (No 2) (EU Exit) Regulations 2020, SI 2020/1649, which took effect on IP completion day, significantly reduced the scope of the arrangements that need to be reported in the UK under DAC 6. Almost all the hallmarks have been removed, other than those in category D which deals with automatic exchange of information and beneficial ownership. The change applies to both historic and future arrangements. The EU-UK Trade and Cooperation Agreement (TCA) still requires the UK to abide by OECD rules on the exchange of information on cross-border arrangements. Consequently, Category D is being retained for the time being as it enables the UK to meet the OECD 's Mandatory Disclosure Rules (MDR).

HMRC intends to repeal the UK 's rules implementing DAC rules and will consult on the new legislation later in 2021. This means that reporting under DAC 6 will still be required for a limited time, but only for arrangements which meet hallmarks under category D.

It should be noted that reporting under DAC 6 is still a requirement in EU member states, so arrangements that would otherwise have been reportable to HMRC may now need to be reported to other tax authorities.

The commentary set out below will be updated further in due course.

Who must make a DAC6 report?

In most cases, the obligation to make a report to HMRC falls on UK intermediaries involved in cross-border arrangements. An intermediary is defined very widely as any person that designs, markets, organises or makes available for implementation a reportable cross-border arrangement. The definition is further extended to those that have directly or indirectly assisted or advised in respect of these activities. This could therefore include tax advisers, accountants, lawyers, banks, private equity investment professionals and valuation experts.

If there is no intermediary, or legal professional privilege prevents an intermediary from making a report, the obligation falls instead on the relevant UK taxpayer.

Which arrangements are reportable?

DAC 6 applies to reportable cross-border arrangements. An 'arrangement ' includes any scheme, transaction, or series of transactions, although this is not an exhaustive list. A transaction will be considered holistically, rather than a series of small separate steps.

In this context, 'cross-border ' concerns the UK or an EU member state.

A 'reportable ' cross-border arrangement means a cross-border arrangement that contains a category D hallmark after IP completion day (please refer to the commentary at the top of this document).

What are the hallmarks?

Prior to IP completion day, the hallmarks of categories A-E were divided into 'generic ' and 'specific ' categories. The generic hallmarks were broadly concerned with the conditions under which the arrangements were entered, whereas the specific hallmarks described the attributes of the arrangements themselves. After IP completion day, only those arrangements which meet hallmark D are reportable in the UK. This hallmark is not subject to a main benefit test, so reporting can arise irrespective of whether a tax advantage is expected from the arrangement or not.

What information must be reported?

The report must include identification details (such as names, dates of birth, unique tax reference numbers etc), what makes the arrangement reportable, a description and estimated value of the arrangement, dates of implementation and the territories involved. Reports must be made using HMRC 's online portal.

What are the time limits for reporting?

The earliest date on which reports will need to be made in the UK is 31 January 2021, which covers arrangements implemented between 1 July 2020 (the date the original UK regulations came into force) and 31 December 2020. The UK 's significant reduction of the scope of DAC 6 reporting took place before any UK reports had to be made (on IP completion day). As a result, only category D arrangements will need to be reported within this timeframe.

Arrangements falling within the category D hallmark which are triggered on or after 1 January 2021 must be reported within 30 days of the trigger. All other hallmarks do not apply in the UK after this date.

What are the penalties for non-compliance?

There is a fixed penalty of up to £5,000 for failure to comply with the UK regulations, or alternatively daily penalties of £600 in the case of serious or continued failures. The Tribunal has the power to increase penalties up to £1m.

Doesn't the UK already have a similar reporting regime?

The UK has other domestic legislation on reporting tax planning arrangements, in the form of the disclosure of tax avoidance schemes (DOTAS) rules. It is still possible for a cross-border arrangement which involves a UK tax advantage to require disclosure under both DOTAS and DAC 6, but the chances of this have been much reduced with the reduction in scope of DAC 6 in the UK

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