Following the introduction of the EU–UK Trade and Cooperation Agreement (EU–UK Free Trade Agreement or FTA), which came into effect at the end of the Brexit transition period on Dec. 31, 2020, the UK announced some important changes to its implementation of certain mandatory disclosure rules for tax purposes.
In particular, although the UK government indicated early last year that the EU’s DAC6 rules would be fully implemented despite Brexit, and notwithstanding that HMRC had consulted on and issued full guidance on DAC6 reporting, the UK government now intends to follow the OECD’s Mandatory Disclosure Rules (MDR). These were reflected in Hallmark D of DAC6 which concerns arrangements that have the effect of undermining reporting requirements under agreements for the automatic exchange of information (the Common Reporting Standard), and arrangements which obscure beneficial ownership and involve the use of offshore entities with inadequate economic substance. Accordingly, the regulations implementing DAC6 have been amended so that the main benefit test and Hallmark categories A, B, C and E are omitted and only Hallmark category D is retained. In due course, the DAC6 regulations will be replaced by new regulations specific to MDR.
This means that cross-border reporting by the UK authorities is now restricted to those arrangements that would be reportable in accordance with the OECD’s Mandatory Disclosure Regime and hence, reporting of such arrangements by intermediaries and taxpayers to the UK authorities is similarly reduced. The UK will now only require Hallmark D reports, even for arrangements in the DAC6 look back period to June 25, 2018.
In practice, this means that many arrangements involving the UK and the rest of the world outside the EU, which would have been reportable under DAC6, will now no longer need to be reported. Where a UK taxpayer has a relevant presence in an EU member state, a report may still be required in that jurisdiction. Similarly, multinational enterprises may find that the reporting obligation now falls to a different group entity within the remaining 27 EU member states.
This development may provide relief to U.S. multinationals that were planning to submit DAC6 reports to the UK as their UK reporting obligations may have diminished significantly.
