DAC 6: Post-Brexit Reduction In UK Tax Reporting Obligations

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In a surprise end-of-year gift to UK taxpayers and tax advisors, the UK will no longer be fully implementing the EU’s Mandatory Disclosure Regime (DAC 6) reporting requirements. Under the Free Trade Agreement between the UK and EU signed 30 December 2020, the UK will, following a consultation process, implement legislation to apply the OECD mandatory disclosure rules (MDR) instead of DAC 6, marking a significant reduction in UK tax reporting requirements.

With effect from 25 June 2018, DAC 6 is an EU directive requiring certain “intermediaries” and/or taxpayers with a connection to EU member states to disclose cross-border arrangements which meet certain “hallmarks”. Despite having voted to leave the EU, the UK had previously introduced regulations to bring the DAC 6 requirements into effect in full. Under the Free Trade Agreement, however, the UK will now apply the MDR rules instead. As an interim measure, the UK has amended its regulations so that DAC 6 applies only to arrangements that meet the “category D” hallmark: generally, those that undermine reporting obligations or involve non-transparent legal or beneficial ownership, offshore entities, or structures with no economic substance. In the coming months, HMRC will repeal legislation implementing DAC 6 and implement the OECD’s MDR (being broadly similar to the category D hallmark).

Certain practical aspects of the amended UK regulations still need to be confirmed by HMRC, including how the rules apply to the period prior to 1 January 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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